• Currently, San Francisco General Hospital does not receive reimbursement for approximately 36 percent of patient days for uninsured patients and for patients for whom third party payers deny reimbursement because the Hospital does not transfer patients to alternative lower level placements when such patients no longer require higher levels of care. Also, Federal and State support to San Francisco General Hospital is declining as a percentage of total revenues. In FY 2002-2003, Federal and State support to San Francisco General Hospital made up 30 percent of Hospital revenues, compared to 35 percent of Hospital revenues in FY 2000-2001. Because of decreasing Federal and State support to San Francisco General Hospital and uncompensated patient days, General Fund support to the Hospital has increased by $18.4 million or 25 percent, from $72.3 million in FY 2001-2002 to an estimated $90.7 million in FY 2002-2003.
  
  
• In FY 2002-2003, General Fund support makes up almost 25 percent of the Hospital’s budget. The original FY 2002-2003 budget was $379,034,494, of which the Hospital expected $94.8 million to be General Fund monies. Because San Francisco General Hospital now anticipates an operating surplus of approximately $16 million in FY 2002-2003, the actual General Fund contribution to the Hospital in FY 2002-2003 will be less than anticipated in the original budget. According to the Department of Public Health, the Department projects an estimated $8.4 million FY 2002-2003 surplus, including San Francisco General Hospital. Therefore, the total General Fund contribution to the Department of Public Health will be reduced by an estimated $8.4 million, of which $4.1 million will reduce the General Fund contribution to San Francisco General Hospital from $94.8 million to $90.7 million.

Projecting Revenues in the Annual Budget

San Francisco General Hospital General Fund Support

General Fund support to San Francisco General Hospital makes up 25 percent of the Hospital’s budget. In FY 2002-2003, San Francisco General Hospital budgeted $379,034,494 in net revenues, of which $94,814,742, or 25 percent, are General Fund monies.

The actual General Fund contribution to San Francisco General Hospital varies from General Fund revenues anticipated in the annual budget, depending on actual revenues received by the Hospital from other revenue sources and actual expenditures. In FY 2000-2001, actual General Fund support to San Francisco General Hospital was $422,540 less than General Fund revenues included in the budget. In FY 2001-2002, actual General Fund support to the Hospital was nearly $24 million less than General Fund revenues anticipated in the budget.

Table 1.1

Comparison of Budgeted and Actual Revenues
FY 2000-2001 and FY 2001-2002

Source: Controller’s Office

In FY 2000-2001, San Francisco General Hospital had a $19.9 million year-end surplus, which was carried forward into the revenue totals for the following fiscal year. In FY 2001-2002, the Hospital had a $13.3 million surplus, which was carried forward into FY 2002-2003.

FY 1998-1999 and FY 1999-2000 Budget Deficit and General Fund Supplemental Appropriation

Actual revenues vary each year from the projected revenues, resulting from changes in State and Federal revenues, increases or changes in the patient population, and Medicare and MediCal settlement payments from prior years . If San Francisco General Hospital does not accurately project revenues, compared to expenditures, the Hospital may incur an operating deficit, requiring a General Fund supplemental appropriation. In FY 1998-1999 and FY 1999-2000, San Francisco General Hospital received General Fund supplemental appropriations to offset a year-end operating deficit, resulting from the revenue shortfall.

In FY 1998-1999, San Francisco General Hospital’s actual revenues, including General Fund support, were $27,096,716 less than expenditures. The Department of Public Health requested a supplemental appropriation from the Board of Supervisors to cover the revenue shortfall, stating that MediCal-eligible patients were diverted to other hospitals because of the high medically indigent patient census, resulting in lost MediCal revenues to the Hospital.

In FY 1999-2000, San Francisco General Hospital’s revenues were $16,106,410 less than expenditures. In that year, San Francisco General Hospital received lower than expected MediCal and Medicare funding.

FY 2000-2001 and FY 2001-2002 Budget Surplus

In the last two fiscal years (FY 2000-2001 and FY 2001-2002), San Francisco General Hospital actual revenues have exceeded both budgeted revenues and expenditures, as shown in Table 1.1. In FY 2001-2002, San Francisco General Hospital received higher patient revenues than projected because the actual patient census exceeded the budgeted patient census. San Francisco General Hospital also received higher than projected Disproportionate Share Hospital revenues and settlement payments from Medicare and MediCal for prior year claims.

Estimated FY 2002-2003 San Francisco General Hospital Revenues

The original FY 2002-2003 San Francisco General Hospital budget of $379,034,494 includes projected revenues from patients and third party payers, other Federal and State funds, and operating revenues, plus budgeted General Fund support of $94,814,742. However, actual General Fund support to San Francisco General Hospital in FY 2002-2003 will be approximately $90.7 million, which is $4.1 million, or 4.4. percent less than anticipated in the original budget.

Based on actual revenues received through November 30, 2002 and other revised revenue projections, San Francisco General Hospital now estimates a $16 million surplus in FY 2002-2003. According to the Department of Public Health, the Department projects FY 2002-2003 revenues, including San Francisco General Hospital revenues, to be $20 million over budget, offset by $11.6 million in increased Department of Public Health expenditures, resulting in an estimated surplus for the Department of $8.4 million. Therefore, the total General Fund contribution to the Department of Public Health will be reduced by an estimated $8.4 million, of which $4.1 million will reduce the General Fund contribution to San Francisco General Hospital.

Projected FY 2002-2003 San Francisco General Hospital Surplus

San Francisco General Hospital’s projected $16 million FY 2002-2003 surplus consists of approximately $5.7 million less in Medicare inpatient, MediCal outpatient, commercial payer, and workers compensation reimbursements than projected in the original budget, offset by approximately $21.7 in increased revenues from other sources.

Projected FY 2002-2003 reductions of $5.7 million in Medicare inpatient, MediCal outpatient and other patient revenues

• When San Francisco General Hospital prepared the FY 2002-2003 budget, the Hospital projected MediCal and Medicare reimbursements based upon prior years’ experience. San Francisco General Hospital’s actual Medicare inpatient census is declining and corresponding reimbursements will be less in FY 2002-2003 than projected, resulting in approximately $1.7 million less in Medicare inpatient revenues than anticipated in the original budget.

• San Francisco General Hospital will receive a lower reimbursement rate for MediCal outpatient visits than anticipated in the original budget, resulting in approximately $1.2 million less in MediCal outpatient revenues.

• San Francisco General Hospital has received lower than expected patient revenues for workers compensation, commercial payers, and other patient sources through November 30, 2002, resulting in an estimated $2.8 milion reduction in patient revenues in FY 2002-2003.

Projected FY 2002-2003 increases of $21.7 in MediCal inpatient and Medicare outpatient revenues, and other patient revenues

• Because San Francisco General Hospital’s MediCal inpatient census through November 30, 2002 was higher than expected, San Francisco General Hospital projects $4.9 million more in MediCal inpatient revenues than anticipated in the original budget.

• San Francisco General Hospital projects $6.8 million in additional Medicare outpatient, psychiatry, and outpatient drugs revenues, managed care capitation payments, and increased collection of bad debts.

• San Francisco General Hospitals projects $10 million in additional revenue from settlement of prior years’ MediCal and Medicare claims, additional FY 2001-2002 Disproportionate Share Hospital payments, reimbursements for providing uncompensated care to MediCal patients, and MediCal litigation settlement monies.

Revenue Sources in the San Francisco General Hospital Budget

San Francisco General Hospital receives revenues from patients and their third party payers, from Federal and State subsidies, and from miscellaneous operating revenues. The table below shows projected revenues in the original FY 2002-2003 budget.

Table 1.2

Projected San Francisco General Hospital Revenues
FY 2002-2003

Source: Annual Appropriation Ordinance

Patient Revenues

San Francisco General Hospital receives patient revenues from MediCal, Medicare, commercial payers, and managed care payers. The Hospital receives reimbursement from third party payers for approximately 64 percent of patient days. The Hospital receives no reimbursements for approximately 36 percent of patient days.

MediCal Reimbursement for Patient Services

MediCal is San Francisco General Hospital’s largest patient revenue source. MediCal reimburses San Francisco General Hospital for eligible inpatient and outpatient services, including skilled nursing facility and psychiatric services. MediCal also pays the Hospital for inpatient and outpatient mental health services under the Targeted Case Management and MediCal Short Doyle programs. MediCal revenues make up approximately 44 percent of all patient revenues.

MediCal Per Diem Reimbursement for Inpatient Services

MediCal pays San Francisco General Hospital a per diem rate for MediCal inpatient services. The State negotiates individually with California hospitals to set the MediCal per diem rate and these rates are kept confidential. Therefore, it is not possible to compare San Francisco General Hospital MediCal per diem rates with other hospitals. The current MediCal per diem rate for San Francisco General Hospital is $1,075 per patient day, although the Department of Public Health is currently negotiating with the State to increase the per diem rate.

San Francisco General Hospital’s actual MediCal inpatient census through November 30, 2002, and corresponding reimbursements were higher than anticipated in the original FY 2002-2003 budget, resulting in $2,057,000 in additional MediCal inpatient revenues in the first five months of FY 2002-2003. San Francisco General Hospital projects that the Hospital will receive approximately $4.9 million more in MediCal inpatient revenues than projected in the original budget.

MediCal Reimbursement for Federally Qualified Health Center Services

MediCal reimburses the Hospital for eligible outpatient services, including reimbursements for Federally Qualified Health Centers. San Francisco General Hospital will receive less Federally Qualified Health Center revenue in FY 2002-2003 than was included in the annual budget. In the FY 2002-2003 budget, San Francisco General Hospital projected an Federally Qualified Health Center reimbursement rate of $330.25 per patient visit, based on data provided by the State. Subsequent to adoption of the FY 2002-2003 budget, the State notified San Francisco General Hospital that the actual Federally Qualified Health Center reimbursement rate would be reduced to $290.71, resulting in a reduction in revenues of approximately $1,244,880.

Funding for Uncompensated Outpatient Services for MediCal Recipients

California Assembly Bill 915, which Governor Davis signed in September 2002, establishes the MediCal Outpatient Certified Public Expenditures Program, allowing the Department of Public Health to obtain Federal matching funds for uncompensated MediCal outpatient services. San Francisco General Hospital projects $3.5 million in additional revenues in FY 2002-2003, although the State has not yet determined the actual amount of the AB 915 payments.

Medicare Reimbursements for Patient Services

Medicare reimburses San Francisco General Hospital for eligible Medicare services, including inpatient and outpatient services, psychiatric services and skilled nursing care. Medicare revenues make up approximately 27 percent of patient revenues.

Medicare Reimbursement for Inpatient Discharges

Overall, inpatient Medicare discharges have declined from FY 1999-2000 through FY 2001-2002. San Francisco General Hospital now estimates that the Hospital will have fewer Medicare discharges in FY 2002-2003 than anticipated in the original budget, resulting in $1,677,100 less in Medicare inpatient revenues in FY 2002-2003.

Medicare Reimbursements for Outpatient Services and Take Home Drugs

In August 2000, Medicare began paying San Francisco General Hospital prospectively for outpatient visits rather than retrospectively based on costs. San Francisco General Hospital receives lower Medicare outpatient reimbursements under the prospective payment system, which reimburses the Hospital at a lower rate per patient visit than under the cost-based reimbursement system. However, San Francisco General Hospital has received more Medicare outpatient revenues in the first four months of FY 2002-2003 than anticipated in the original budget. Therefore, San Francisco General Hospital estimates approximately $1.7 million in additional Medicare outpatient revenue in FY 2002-2003 for outpatient visits and take-home drugs.

Medicare Inpatient Psychiatry Reimbursements

In FY 2001-2002 San Francisco General Hospital implemented new utilization case management procedures to transfer non-acute psychiatry patients from acute inpatient psychiatry beds to lower levels of care (see Section 14 of this report). Increased utilization case management of psychiatry patients has resulted in increased availability of inpatient beds for acute psychiatry patients and a corresponding increase in Medicare inpatient psychiatry discharges. Therefore, San Francisco General Hospital projects that the Hospital will receive $1,151,206 more in Medicare inpatient psychiatry payments than included in the original FY 2002-2003 budget.

Other Patient Revenues

Commercial Payer, Workers Compensation and Other Patient Revenues

San Francisco General Hospital receives patient revenues from commercial payers, workers compensation reimbursements, patient payments, and other patient revenue sources. San Francisco General Hospital included $32 million in the original FY 2002-2003 budget for these patient revenues. However, actual reimbursements through November 30, 2002 were $1,171,000 less than anticipated in the original budget and San Francisco General Hospital now projects a $2,810,400 shortfall in these patient revenues.

Managed Care Capitation Payments

San Francisco General Hospital receives managed care capitation payments from the San Francisco Health Plan, which is a MediCal managed care plan, and from two commercial health plans, Health Net and PacifiCare. Based on actual capitation payments for the first four months of FY 2002-2003, San Francisco General Hospital estimates $1,846,105 more in capitation payments than included in the original FY 2002-2003 budget.

Federal and State Revenues

Because San Francisco General Hospital provides health care services to a largely MediCal and indigent population, the Hospital receives Federal and State revenues to offset the cost of care for this population.

• San Francisco General Hospital receives SB 855 Disproportionate Share Hospital, SB 1255 Emergency Supplemental Payment, and Graduate Medical Education funds based on a formula. Since the Balanced Budget Act of 1997, Federal support for these programs has decreased.

• San Francisco General Hospital receives revenues from Proposition 99 Tobacco Tax revenues, and Realignment revenues derived from State sales taxes and Motor Vehicle License fees. These revenues have declined from FY 2000-2001 to FY 2002-2003 due to the slowing of the State economy.

Total State and Federal revenues to San Francisco General Hospital have decreased over the past three fiscal years and make up a lower percentage of the total San Francisco General Hospital budget.

Table 1.3

Decrease in Federal and State Revenues
FY 2000-2001 through FY 2001-2002

Source: Annual Appropriation Ordinance

Proposition 99 and Realignment Revenues

The original San Francisco General Hospital FY 2002-2003 budget included $64,535,314 in Proposition 99 and Realignment revenues which was unchanged from the original FY 2001-2002 budget. As of the writing of this report, the Controller’s Office does not project decreases in actual FY 2002-2003 Proposition 99 or Realignment revenues compared to budgeted revenues.

SB 855 Disproportionate Share Hospital Revenues and SB 1255 Emergency Services and Supplemental Payments

SB 855 Disproportionate Share Hospital Revenues

San Francisco General Hospital included $30 million in SB 855 revenues in the FY 2002-2003 budget, which is approximately $5 million less than actual SB 855 revenues in FY 2001-2002. In FY 2002-2003 Federal Disproportionate Hospital Share funding to the State is less than in the prior fiscal year, resulting in reduced SB 855 payments to California Hospitals. However, San Francisco now projects approximately $670,000 in additional SB 855 revenues in FY 2002-2003.

Disproportionate Share Hospital Upper Payment Limit

As discussed in the Introduction to this report, the Federal government has implemented changes in Disporportionate Share Hospital "upper payment limit", which will result in decreased funding to the State and to San Francisco General Hospital over the next eight years. San Francisco General Hospital does not anticipate reduced funding in FY 2002-2003 from changes in the Disproportionate Share Hospital upper payment limit. However, the Hospital will receive less Disproportionate Share Hospital funding as the upper payment limit regulations are phased-in through 2010. According to the California Legislative Analyst’s Office, the State may compensate public hospitals for the lost Disproportionate Share Hospital revenues by increasing the MediCal perdiem rate to the maximum allowable rate under Federal Medicaid rules. However, according to the California Legislative Analyst’s Office, phase-in of the upper payment limit will possibly result in the eventual elimination of the State’s Emergency Services and Supplemental Payment program (SB 1255) and the MediCal Graduate Medical Education Program.

SB 1255 California’s Emergency Services and Supplemental Payments and MediCal Graduate Medical Education programs

In FY 2002-2003 budget, San Francisco General Hospital included $19,700,000 in SB 1255 funds, which equals actual SB 1255 funding in FY 2001-2002. The California Legislative Analyst’s Office does not anticipate reductions in SB 1255 funding in FY 2002-2003, but SB 1255 funding in the future is uncertain.

In the FY 2002-2003 budget, San Francisco General Hospital included $1,300,000 in MediCal Graduate Medical Education funds, which is unchanged from the amount included in the FY 2001-2002 budget.

According to the California Legislative Analyst’s Office, phase-in of the Disproportionate Share Hospital upper payment limit over the next eight years and increased MediCal per diem rates will cost the State approximately $500,000,000 annually, resulting in the possible elimination of the Emergency Services and Supplemental Payments program and the MediCal Graduate Medical Education program. If the SB 1255 and MediCal Graduate Medical Education programs are eliminated in 2010, San Francisco General Hospital will lose $21,000,000 in State revenues.

San Francisco General Hospital’s Monitoring of Revenues

The San Francisco General Hospital Department of Finance generates monthly Budget Variance Analysis reports, which show (a) actual revenues compared to budgeted revenues for the month and for year-to-date, and (b) actual expenditures compared to budgeted expenditures for the month and for year-to-date. San Francisco General Hospital uses these reports to track revenues compared to expenditures and to identify potential budget shortfalls and possible corrective measures.

San Francisco General Hospital provides summary revenue and expenditure reports quarterly to the Joint Conference Committee for San Francisco General Hospital, which is a subcommittee of the Health Commission. These reports compare actual monthly and year-to-date revenues, expenditures, and hospital utilization, compared to revenues, expenditure, and hospital utiliation projected in the annual budget. San Francisco General Hospital’s chief financial officer prepares a summary report of the financial and utilization data, which includes both monthly results and year-end projections. San Francisco General Hospital provides these summary reports to the Joint Conference Committee more frequently if the Joint Conference Committee requests or if the Hospital identifies a potential budgetary problem.

San Francisco General Hospital’s Long Term Revenue and Utilization Patterns

Declining Federal and State Support for Public Hospitals

In the 1997 Balanced Budget Act, Congress reduced Disproportionate Share Hospital funding to the states. Although Congress subsequently passed legislation mitigating the effects of the reduction through fiscal year 2001-02, Disproportionate Share Hospital funding to California declined in FY 2002-2003. In the FY 2002-2003 budget, San Francisco General Hospital projected $30,002,628 in SB 855 funding, or 90 percent of actual FY 2001-2002 SB 855 funding of $35,719,615 Decreases in funding to the State for the Disproportionate Share Hospital program, including reductions in the Upper Payment Limit, will result in decreased State funding to San Francisco General Hospital, including the possible termination of SB 1255 and MediCal Graduate Education funds in future years. Additionally, the 1997 Balanced Budget Act also implemented changes in Medicare reimbursement methodologies that could result in decreased Medicare outpatient reimbursement revenues.

The Budget Analyst recommends that the Department of Public Health continue to actively participate through its affiliations, such as the National Association of Public Hospitals, in working with legislators to increase Federal and State support for public hospitals. Without sustained Federal funding for local public health programs, the General Fund will pay an increased share of San Francisco General Hospital costs.

Changes in Utilization

Declining State and Federal support for San Francisco General Hospital is coupled with changes in hospital utilization. Between FY 1998-1999 through FY 2001-2002, the number of San Francisco General Hospital inpatient discharges declined but the total number of patient days remained constant, resulting in a longer average length of stay per patient. Hospital outpatient utilization increased over the same period.

Table 1.4

San Francisco General Hospital Utilization
FY 1998-1999 through FY 2000-2001

Source: Office of Statewide Health Planning and Development

Currently, San Francisco General Hospital does not receive reimbursement for approximately 36 percent of patient days for uninsured patients and for sponsored patients for whom third party payers deny reimbursement. Between FY 1998-1999 and FY 2000-2001, the average length of stay for Medicare patients increased by one day, or 13.7 percent. Because Medicare reimburses San Francisco General Hospital based on patient discharges rather than inpatient days, increased Medicare inpatient days result in lower average reimbursement per patient day. Because other third party payers do not reimburse San Francisco General Hospital for non-acute patient days, increases in the average length of stay which result from non-acute patients remaining in acute care beds will increase uncompensated patient days (see Section 14). Continuing declines in patient discharges and increases in the average length of stay will result in a larger percentage of uncompensated patient days.

To contain increases in General Fund contributions, San Francisco General Hospital needs to reduce uncompensated patient days, and increase alternative sources of revenue, as discussed in Section 15.

Proposals for Income-Generating Services

San Francisco General Hospital is reviewing possible income-generating services, which would be implemented in FY 2003-2004 if approved in their proposed budget. San Francisco General Hospital is considering opening one additional operating room, as part of its Trauma Plan, to accommodate additional orthopedic surgeries. According to the Chief Nursing Officer, San Francisco General Hospital may also be able to increase the number of elective surgeries in the additional operating room. San Francisco General Hospital is also considering expanding its geriatric program to attract more Medicare patients and its outpatient congestive heart failure program.

The Budget Analyst recommends that San Francisco General Hospital develop its cost analysis of expanding income-generating services, including costs of new or expanded services and anticipated revenues, for submission in the FY 2003-2004 budget.

Conclusion

General Fund support to San Francisco General Hospital in the original FY 2002-2003 budget is $94,814,742, which represents 25 percent of the total San Francisco General Hospital budget of $379,034,494. Based on actual revenues received through November 30, 2002 and other revised revenue projections, San Francisco General Hospital now estimates a $16 million surplus in FY 2002-2003. According to the Department of Public Health, the Department projects FY 2002-2003 revenues, including San Francisco General Hospital revenues, to be $20 million over budget, offset by $11.6 million in increased Department of Public Health expenditures, resulting in an estimated surplus for the Department of $8.4 million. Therefore, the total General Fund contribution to the Department of Public Health will be reduced by an estimated $8.4 million, and the General Fund contribution to San Francisco General Hospital will be reduced by $4.1 million or _4.4 percent, to $90.7 million.

However, the estimated FY 2002-2003 General Fund contribution to San Francisco General Hospital of $90.7 million exceeds the actual FY 2001-2002 General Fund contribution $72.3 million by $18.4 million, or 25 percent.

Federal and State support to the public hospital is declining as a percentage of total revenues. In FY 2002-2003 Disproportionate Share Hospital (SB 855) and Emergency Supplemental Payment (SB 1255) funds made up 13 percent of the total Hospital budget, compared in 15 percent in FY 2000-2001. Proposition 99 (Tobacco Tax) and Realignment (Sales Tax and Motor Vehicle License Fee) revenues made up 17 percent of the total Hospital budget in FY 2002-2003, compared to 20 percent in FY 2000-2001.

As Federal and State support for San Francisco General Hospital declines, General Fund support to the Hospital will increase unless the Hospital finds other sources of revenues and contains costs. The Hospital especially needs to reduce the number of uncompensated patient days, which now make up approximately 36 percent of all patient days, by transferring non-acute patients into alternative placements. Also, San Francisco General Hospital needs to develop its cost analysis of implementing and expanding income-generating services for submission in the FY 2003-2004 budget.

Recommendations

The Department of Public Health should:

Costs and Benefits

Our recommendations are intended to inform the Board of Supervisors of the current and future financial status of San Francisco General Hospital and to increase the Department of Public Health’s efforts in identifying and obtaining alternative revenue sources.

1. The agencies for Medicare and MediCal audit reimbursement claims from prior years. San Francisco General Hospital may either owe money or be owed money for prior year claims, if the agencies determine claims over- or underpayments from prior years.
2. In FY 1998-1999, the Board of Supervisors approved a $19,187,662 General Fund supplemental appropriation to the Department of Public Health to fund San Francisco General Hospital and Laguna Honda Hospital year-end deficits, (File 99-0871). San Francisco General Hospital's deficit of $27,096,716 resulted from lower than expected Short Doyle MediCal reimbursements for acute inpatient psychiatric services, repayments to Medicare for disallowed prior year claims, lower than expected Medicare reimbursements for current year claims, and decreased patient revenues in general. DPH transferred funds from within the Department to partially offset the Hospital's deficit.
3. In FY 1999-2000, the Board of Supervisors approved a $10,000,000 General Fund supplemental appropriation to the Department of Public Health to fund San Francisco General Hospital, Laguna Honda Hospital, the Primary Care program, and Forensics operating deficits (File 00-0779). San Francisco General Hospital's deficit of $16,106,410, offset partially by transfers of funds within DPH, resulted from lower than expected Short Doyle MediCal reimbursements for acute inpatient psychiatric services, decreased Disproportionate Share Hospital (SB 855) revenue, and lower than expected Medicare reimbursements.
4. The State has recently settled a lawsuit filed by California hospitals regarding outpatient reimbursement rates. San Francisco General Hospital will receive approximately $3.8 million in one-time settlement monies.
5. Under cost-based reimbursement, the payer agrees to pay the provider certain allowable costs that are incurred in providing services. Under cost-based reimbursement, Medicare pays the Hospital based on audits of Hospital cost reports and Medicare's allowable costs. Under prospective payment reimbursement, the payer's reimbursement rates are determined in advance.
6. "Analysis of the 2002-03 Budget Bill: Hospitals Facing Financial Headaches", California State Legislative Analyst's Office, February 2002. Currently, the State negotiates the MediCal per diem rate separately with each hospital. To compensate for the decreased Disproportionate Share Hospital revenues, the State may increase MediCal per diem rates to the maximum allowable rate under Federal Medicaid rules rather than negotiating MediCal per diem rates separately with each hospital.