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Background
Prior to the inception of the Selective Provider Contracting Program (SPCP) in 1982, California hospitals served the Medi-Cal population under a cost-based reimbursement system. Two major issues in 1982 drove the State Legislature to look at alternative reimbursement methods--a large State budget deficit and a significant excess capacity of hospital inpatient beds in the State. In order to ensure continued access to hospital inpatient care for Medi-Cal beneficiaries and at the same time contain overall Medi-Cal costs for hospital inpatient services, the SPCP was established.
Through the SPCP, the Department of Health Care Services contracts on a competitive basis with those hospitals that desire to provide inpatient services to Medi-Cal beneficiaries at a negotiated per diem rate for all hospital inpatient services. In utilizing principles of competition and the negotiation process, the Department of Health Care Services is able to optimize the availability of cost-effective hospital inpatient services under the Medi-Cal program. In contrast to a cost-based model, the competitive contracting process provides contracted hospitals with incentives to better manage and control their costs. In addition, by selectively contracting with hospitals, the Department of Health Care Services can take advantage of the economies of scale. SPCP operates under a federal waiver in accordance with section 1115(a) of the Social Security Act.
The California Medical Assistance Commission is the agency established to negotiate with hospitals on behalf of the Department of Health Care Services. State law and regulations governing the Commission's activities are set forth in Welfare and Institutions Code sections 14165 et seq., California Code of Regulations, title 22, division 3, section 51541, and California Code of Regulations, title 22, division 10, sections 100501 et seq.
The SPCP has operated successfully for over 23 years, and the competitive contracting process has assured continued hospital access for Medi-Cal beneficiaries. In fiscal year 2006-07, SPCP saved the State General Fund an estimated $551.8 million in Medi-Cal hospital inpatient payments. Since the inception of SPCP, the program has saved the State General Fund $9.7 billion.