SB17: Bill Text

3. Special circumstances of rural and teaching hospitals.

The PSC is authorized under this bill to disallow certain costs and revenues in determining its rate recommendation.

Under the bill, if the hospital does not accept the PSC's recommendations, the hospital must request a settlement conference between its representatives and the PSC staff. If the hospital is dissatisfied with the results of the settlement conference, the hospital may request an informal hearing before the PSC. The PSC may, by order, conduct a formal hearing instead of an informal hearing. If a formal hearing is held, the PSC must issue at the end of the hearing its order establishing maximum rates for the hospital's year under review. If an informal hearing is held, the PSC must issue its order within 50 days after the date on which the hospital requested the hearing.

This bill authorizes hospitals to increase rates selectively if the aggregate increase in its rates does not exceed the amount authorized by the PSC. The hospital must, prior to increasing rates, explain to the PSC its method in applying the increase and allow the PSC 5 working days to determine if the aggregate increase exceeds the authorized amount. If the PSC disapproves the hospital's method in applying the increase, and the hospital fails to modify its method as recommended by the PSC, the PSC may challenge the method in circuit court.

Except under certain circumstances, this bill prohibits the PSC from reducing rates prior to the date of the scheduled succeeding review or during the succeeding review. The bill also prohibits the PSC from directly interfering with the patient-physician decision-making relationship, directly controlling the volume or intensity of hospital utilization or directly restricting the freedom of a hospital to exercise management decisions in complying with rates established by the PSC.

Finally, under the bill, the PSC, with certain exceptions, is responsible for reviewing and approving all of the following proposed projects:

1. A capital expenditure in excess of $1,000,000 made by or on behalf of a hospital.

2. The implementation of new services to a hospital that exceed $500,000 in a 12-month period.

3. An expenditure in excess of $500,000 made by or on behalf of a hospital, independent practitioner, limited liability company, partnership, unincorporated medical group or service corporation for clinical medical equipment.

4. The purchase or acquisition of a hospital.

5. The construction or operation of an ambulatory surgery center or a home health agency.

The bill requires a person intending to undertake a project or activity subject to review to publish a notice describing the project or activity and to conduct a public hearing on the proposed project or activity. The bill also requires the PSC to publish a notice of receipt of an application for review. The PSC must also conduct a public meeting upon the request of an affected party to review projects seeking approval.

For further information see the state and local fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

SB17, s. 1 Section 1. 20.005 (3) (schedule) of the statutes: at the appropriate place, insert the following amounts for the purposes indicated: - See PDF for table

SB17, s. 2 Section 2. 20.155 (3) of the statutes is created to read:

SB17,3,6 20.155 (3) Hospital rate setting and capital expenditure review. (a) General program operations. The amounts in the schedule for hospital rate-setting activities under subch. II of ch. 196.

SB17,4,2 (gm) Assessments. The amounts in the schedule for hospital rate-setting activities of the commission under ch. 196. All moneys received under s. 196.9996 (2) and 1997 Wisconsin Act .... (this act), section 15 (1 ) (d), shall be credited to this appropriation.

SB17,4,5 (gr) Application fees. The amounts in the schedule for the capital expenditure review program under ch. 196. All moneys received under s. 196.9998 (6) shall be credited to this appropriation.

SB17, s. 3 Section 3. 20.155 (3) (a) of the statutes, as created by 1997 Wisconsin Act .... (this act), is repealed.

SB17, s. 4 Section 4. 49.45 (3) (e) 11. of the statutes is created to read:

SB17,4,11 49.45 (3) (e) 11. Notwithstanding subds. 1 to 10, the department may authorize the public service commission to determine reimbursement rates under subch. II of ch. 196.

SB17, s. 5 Section 5. 49.49 (2) (c) 1. of the statutes is amended to read:

SB17,4,17 49.49 (2) (c) 1. A discount or other reduction in price obtained by a provider of services or other entity under chs. 46 to 51 and 58 and subch. II of ch. 196 if the reduction in price is properly disclosed and appropriately reflected in the costs claimed or charges made by the provider or entity under a medical assistance program.

SB17, s. 6 Section 6. 49.74 of the statutes is amended to read:

SB17,4,21 49.74 (title) Institutions subject to chapter chapters 150 and 196. Any institution created under the authority of s. 49.70, 49.71, 49.72 or 49.73 is subject to ch. 150 and subch. II of ch. 196.

SB17, s. 7 Section 7. 50.36 (1) of the statutes is amended to read:

SB17,5,9 50.36 (1) The department shall promulgate, adopt, amend and enforce such rules and standards for hospitals for the construction, maintenance and operation of the hospitals deemed necessary to provide safe and adequate care and treatment of the patients in the hospitals and to protect the health and safety of the patients and employes; and nothing contained herein shall pertain to a person licensed to practice medicine and surgery or dentistry. The building codes and construction standards of the department of commerce shall apply to all hospitals and the department may adopt additional construction codes and standards for hospitals, provided they are not lower than the requirements of the department of commerce. Except for the construction codes and standards of the department of commerce and except as provided in s. 50.39 (3) and subch. II of ch. 196, the department shall be the sole agency to adopt and enforce rules and standards pertaining to hospitals.

SB17, s. 8 Section 8. 146.37 (1g) of the statutes is amended to read:

SB17,6,2 146.37 (1g) Except as provided in s. 153.85, no person acting in good faith who participates in the review or evaluation of the services of health care providers or facilities or the charges for such services conducted in connection with any program organized and operated to help improve the quality of health care, to avoid improper utilization of the services of health care providers or facilities or to determine the reasonable charges for such services, or who participates in the obtaining of health care information under ch. 153, or who participates in hospital rate-setting activities under subch. II of ch. 196, is liable for any civil damages as a result of any act or omission by such person in the course of such review or evaluation. Acts and omissions to which this subsection applies include, but are not limited to, acts or omissions by peer review committees or hospital governing bodies in censuring, reprimanding, limiting or revoking hospital staff privileges or notifying the medical examining board under s. 50.36 or taking any other disciplinary action against a health care provider or facility and acts or omissions by a medical director, as defined in s. 146.50 (1) (j), in reviewing the performance of emergency medical technicians or ambulance service providers.

SB17, s. 9 Section 9. 153.05 (4n) of the statutes is created to read:

SB17,6,7 153.05 (4n) The office shall provide the public service commission with information necessary for performance of duties of the public service commission under s. 196.9998 (16) (a) and as requested of the office by the public service commission.

SB17, s. 10 Section 10. Chapter 196 (title) of the statutes is amended to read:

SB17,6,9 CHAPTER 196

SB17,6,11 REGULATION OF PUBLIC UTILITIES service commission

SB17, s. 11 Section 11. Subchapter I (title) of chapter 196 [precedes 196.01] of the statutes is created to read:

SB17,6,14 chapter 196

SB17,6,15 subchapter I

SB17,6,16 regulation of public utilities

SB17, s. 12 Section 12. 196.01 (intro.) of the statutes is amended to read:

SB17,6,19 196.01 Definitions. (intro.) As used in this chapter subchapter and ch. 197, unless the context requires otherwise:

SB17, s. 13 Section 13. Subchapter II of chapter 196 [precedes 196.991] of the statutes is created to read:

SB17,6,22 Chapter 196

SB17,6,24 Subchapter II Hospital rate setting

SB17,6,25 196.991 Definitions. In this subchapter:

SB17,7,2 (1) "Capital expenditure limit" means the maximum amount of capital expenditures that may be approved under s. 196.9998.

SB17,7,5 (1m) "Capital project" means a proposed capital expenditure that exceeds $1,000,000 or, if the purpose of converting to a new use or renovating part or all of a hospital, a proposed capital expenditure that exceeds $1,500,000.

SB17,7,6 (2) "Commission" means the public service commission.

SB17,7,7 (3) "Consumer price index" has the meaning given in s. 16.004 (8) (e) 1.

SB17,7,9 (4) "Hospital" has the meaning given in s. 50.33 (2), except that "hospital" does not include a center for the developmentally disabled, as defined in s. 51.01 (3).

SB17,7,12 (5) "Rates" means individual charges of a hospital for the services that it provides or, if authorized under s. 196.999 (3), the aggregate charges based on case mix measurements.

SB17,7,17 196.992 Prospective rate setting. Beginning on July 1, 1998, the commission shall establish and may regularly revise maximum hospital rates on a prospective basis. The commission shall publish biennial reports showing its proceedings, together with information necessary to describe the rate of hospital cost increases and the financial condition of hospitals.

SB17,7,18 196.993 Rule making. The commission shall promulgate all of the following:

SB17,7,20 (1) Rules that implement this subchapter. At least 2 commissioners must sign any rules that are promulgated to interpret s. 196.992.

SB17,7,22 (2) Rules that establish the rate for assessments that are authorized under s. 196.9996.

SB17,8,3 196.994 Requests for a rate change. (1) The commission shall create a schedule allowing each hospital to request rate changes annually, on or after the date the hospital receives its audited financial statements. The commission may schedule a review of the hospital's rates and revise the rates on its own initiative or at the request of any person when good cause is shown. A hospital may submit a rate request on or after the scheduled date.

SB17,8,12 (2) Within 10 days after it submits a rate request under sub. (1), the hospital shall publish a class 1 notice under ch. 985. If the hospital fails to submit a rate request by the date scheduled for a review under sub. (1), the commission shall publish a class 1 notice under ch. 985 within 10 days after the date scheduled for the review. This notice, whether published by the hospital or the commission, shall inform the public of the review, summarize the rate sought, if any, and state the process by which interested persons may become parties to the review. A person may become a party to the review only by notifying the commission in writing within 30 days after the date the notice is published.

SB17,8,22 (3) Each hospital shall submit its proposed financial requirements to the commission at the same time that it submits a rate request. Except as provided in s. 196.999 (4) (g), each hospital shall provide the commission with the information that the commission determines is necessary to perform its responsibilities with respect to setting rates and monitoring established rates. Patient care and other organizations and hospital corporate affiliates that generate financial requirements of a hospital under review shall also release to the commission financial or other statistical information related to the financial requirements that the commission determines is necessary to perform its responsibilities with respect to setting rates and monitoring established rates.

SB17,8,24 (4) The commission may require hospitals to conform with a uniform reporting system.

SB17,9,2 (5) The commission shall establish and regularly publish a list of the 25 most heavily used charge elements for hospitals.

SB17,9,4 196.995 Financial requirements. (1) Financial requirements of each hospital that submits a rate request shall include:

SB17,9,12 (a) Necessary operating expenses, including wages, employe fringe benefits, purchased services, professional fees, repairs and maintenance, dietary and medical supplies, pharmaceuticals, utilities, insurance, standby costs and applicable taxes. Any amount representing the value of services performed by members of a religious order or other organized religious group may only be included if actually paid to members of the religious group and shall be equivalent to the amounts paid to employes for similar work. The commission may not use previously accumulated depreciation of capitalized assets to offset operating expenses.

SB17,9,18 (b) Interest expenses on debt incurred for capital or operating costs. Interest payments on debts incurred for capital costs shall be offset by income earned on investments unless the income is assigned by the donor. For the purpose of calculating the interest expense on debt incurred for capital costs to be included as financial requirements after the sale and revaluation of a hospital, the debt may not exceed the revalued price of the hospital, as provided in sub. (4).

SB17,9,23 (c) Direct and indirect costs of medical education, allied education and research programs approved by the commission, to the extent that the costs are reasonable and necessary to maintain the quality of these programs. Costs under this paragraph shall be reduced by tuition, scholarships, endowments, gifts, grants and similar sources of revenue.

SB17,9,25 (d) Costs of services, facilities and supplies that organizations related to the hospital by common ownership or control furnish to the hospital. These costs shall be calculated as the charge of the furnishing organization, but may not exceed a reasonable amount in relation to the price of comparable services, facilities or supplies that could be purchased elsewhere.

SB17,10,6 (e) Unrecovered costs from private parties who fail to pay the full charge for care provided, unless the hospital fails to maintain sound credit and collection policies to minimize these costs.

SB17,10,7 (f) Fees assessed by the commission or other regulatory agencies.

SB17,10,15 (g) Operating fund working capital requirements. In this paragraph, "working capital requirements" means capital in use to operate the hospital at a level sufficient to avoid unnecessary borrowing, including cash, accounts receivable, inventory and prepaid expenses less accounts payable and accrued interest. Working capital requirements shall be calculated independently of available funds, as defined in par. (i) 1. Working capital requirements shall be calculated based on the net change in the estimated year-end balance of the hospital's year under review, compared to the year-end balance of the hospital's prior fiscal year, for the following accounts:

SB17,10,16 1. Cash.

SB17,10,17 2. Accounts receivable.

SB17,10,18 3. Inventories.

SB17,10,19 4. Prepaid expenses.

SB17,10,20 5. Trade accounts payable.

SB17,10,21 6. Accrued interest payable.

SB17,11,3 (h) An amount necessary to establish and maintain a contingency fund in cash and investments equal to 2% of the budgeted gross revenue for the hospital's year under review. The hospital shall use cash and investments to establish and maintain its contingency fund and shall use the fund to meet unexpected expenses. The commission may review any expenditure of contingency funds in a prior year that requires restoration in the hospital's year under review for reasonableness, consistent with the nature of the unexpected expense.

SB17,11,7 (i) Capital requirements, calculated as the greater of historical, straight-line depreciation of plant and equipment or the cost of proposed capital purchases as offset by available funds, plus debt retirement expenses, prospective accumulation and capitalized interest. In this paragraph:

SB17,11,21 1. "Available funds" includes cash and investments that are not assigned by the donor and are available to meet capital needs. "Available funds" does not include operating fund working capital requirements, prospective accumulations that are authorized by the commission, donor-restricted or creditor-restricted funds, grants, commitments for capital requirements, debt retirement expenses or the amounts disallowed under s. 196.997 (1) (b). The commission may authorize prospective accumulations if a capital project has lending requirements that necessitate such an accumulation or can lower its interest costs by borrowing, or if financial needs of a hospital occur because of balloon payments. The commission may also authorize prospective accumulations to finance a capital project, if the cost of the capital project equals or exceeds 25% of the hospital's gross patient revenue for the current fiscal year, the hospital has submitted a 3-year capital expenditure plan to the commission and the department indicates that the capital project is consistent with the projected needs of the community.

SB17,11,23 2. "Capital purchases" includes minor remodeling and the purchase of equipment, land, land improvements and leasehold improvements.

SB17,11,25 3. "Depreciation" means the rational allocation of the historical cost of capitalized assets throughout their useful lives.

SB17,12,2 4. "Prospective accumulation" does not include funds that exceed the cost of the capital project for which the funds are accumulated.

SB17,12,4 (j) The amount by which estimated payments by government payers under s. 196.999 (1) (a) exceed actual payments.

SB17,12,6 (k) Financial incentives. The commission shall, by rule, allow financial incentives as additional financial requirements for efficiently operated hospitals.

SB17,12,19 (2) Hospitals may collect revenue from sources other than patients, including gifts and grants, investment income or income from activities incidental to patient care. Revenues from endowment funds or donor-restricted gifts to provide services for designated patients shall offset the cost of those services. No revenue from general endowment funds or unrestricted gifts may be used to offset operating expenses except that revenue from these funds or gifts may be used to offset interest expenses. Revenues received to finance special projects or wages paid to special project employes shall offset the cost of patient services. Revenues from meals sold to visitors or employes, from drugs sold to persons who are not patients, from the operation of gift shops or parking lots or from the provision of televisions, radios or telephones to patients shall offset the cost of these services, subject to the limitation that the amount of revenue offset from any of these services may not exceed the cost of the service.

SB17,12,25 (3) Purchase discounts, the amount by which actual payments by government payers exceed estimated payments under s. 196.999 (1) (a) and allowances and refunds of expenses shall be subtracted from the calculation of financial requirements under sub. (1). Revenues from invested funds shall also be subtracted from the calculation of financial requirements but may not offset an amount that exceeds the hospital's interest expenses.

SB17,13,5 (4) After the sale of a hospital, the commission may calculate depreciation under sub. (1) based on a revaluation of the hospital's plant and equipment in order to determine its reasonable value. The revaluation shall be based on appraisals conducted by 2 independent appraisers, one of whom shall be selected by the hospital and one by the commission. The hospital shall pay the cost of both appraisals.

SB17,13,8 196.996 Standards for decision making. The commission and its staff shall review and evaluate each hospital's proposed financial requirements and rate request in light of a variety of standards for decision making, including:

SB17,13,11 (1) The need to reduce the rate of hospital cost increases while preserving the quality of health care in all parts of the state and taking into account the financial viability of economically and efficiently operated hospitals.

SB17,13,16 (2) Comparisons with prudently administered hospitals of similar size or providing similar services that offer quality health care with sufficient staff. In classifying hospitals according to size and services, the commission shall consider volume, intensity and educational programs and special services provided by hospitals.