BILL NUMBER: AB 2674 CHAPTERED 09/21/02 CHAPTER 756 FILED WITH SECRETARY OF STATE SEPTEMBER 21, 2002 APPROVED BY GOVERNOR SEPTEMBER 20, 2002 PASSED THE ASSEMBLY AUGUST 30, 2002 PASSED THE SENATE AUGUST 28, 2002 AMENDED IN SENATE AUGUST 26, 2002 AMENDED IN SENATE AUGUST 5, 2002 AMENDED IN ASSEMBLY MAY 23, 2002 AMENDED IN ASSEMBLY APRIL 17, 2002 INTRODUCED BY Assembly Member Chu (Coauthors: Assembly Members Alquist, Aroner, and Diaz) (Coauthors: Senators Chesbro and Romero) FEBRUARY 22, 2002 An act to amend Sections 14087.325 and 14105 of the Welfare and Institutions Code, relating to Medi-Cal. LEGISLATIVE COUNSEL'S DIGEST AB 2674, Chu. Medi-Cal: federally qualified health centers: primary care providers. Existing law provides for the Medi-Cal program, administered by the State Department of Health Services, under which qualified low-income persons are provided with health care services. Under existing law, one of the methods for the provision of Medi-Cal services is through contracts between the department and local initiatives. Existing law provides that, except as otherwise specified, managed care subcontracts offered to a federally qualified health center or a rural health clinic by a local initiative, county organized health system, commercial plan, or a health plan contracting with a geographic managed care program, as defined, shall be on the same terms and conditions offered to other subcontractors providing a similar scope of service. This bill would provide that any beneficiary, subscriber, or enrollee of a program or plan who affirmatively selects, or is assigned by default to, a federally qualified health center or rural health clinic under the terms of a contract between a plan, government program, or any subcontractor of a plan or program and a federally qualified health center or rural health clinic, would be assigned directly to the federally qualified health center or rural health clinic, and not to any individual provider performing services on behalf of the federally qualified health center or rural health clinic. Existing law provides that a federally qualified health center or rural health clinic may voluntarily agree to enter into a capitated or other at-risk contract with a managed care program health plan if the federally qualified health center or rural health clinic agrees to specified conditions regarding cost, reimbursement, and supplemental reimbursement. This bill would delete those provisions of existing law. Existing law requires the department to afford public assistance recipients a choice of managed care arrangements and a choice of primary care providers under those arrangements. This bill would provide that Medi-Cal beneficiaries shall be entitled to affirmatively select, or to be assigned by default to, any primary care provider, as defined. This bill would also provide that when a Medi-Cal beneficiary is assigned, from any source, to a primary care physician, as defined, and that primary care physician is an employee of a primary care provider, as defined, the assignment shall constitute an assignment to the primary care provider. This bill would incorporate additional changes in Section 14087.325 of the Welfare and Institutions Code proposed by SB 1413, that would become operative only if SB 1413 and this bill are both chaptered and become effective on or before January 1, 2003, and this bill is chaptered last. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 14087.325 of the Welfare and Institutions Code is amended to read: 14087.325. (a) The department shall require, as a condition of obtaining a contract with the department, that any local initiative, as defined in subdivision (v) of Section 53810 of Title 22 of the California Code of Regulations, offer a subcontract to any entity defined in Section 1396d(l)(2)(B) of Title 42 of the United States Code providing services as defined in Section 1396d(a)(2)(C) of Title 42 of the United States Code and operating in the service area covered by the local initiative's contract with the department. These entities are also known as federally qualified health centers. (b) Except as otherwise provided in this section, managed care subcontracts offered to a federally qualified health center or a rural health clinic, as defined in Section 1396d(l)(1) of Title 42 of the United States Code, by a local initiative, county organized health system, as defined in Section 12693.05 of the Insurance Code, commercial plan, as defined in subdivision (h) of Section 53810 of Title 22 of the California Code of Regulations, or a health plan contracting with a geographic managed care program, as defined in subdivision (g) of Section 53902 of Title 22 of the California Code of Regulations, shall be on the same terms and conditions offered to other subcontractors providing a similar scope of service. Any beneficiary, subscriber, or enrollee of a program or plan who affirmatively selects, or is assigned by default to, a federally qualified health center or rural health clinic under the terms of a contract between a plan, government program, or any subcontractor of a plan or program, and a federally qualified health center or rural health clinic, shall be assigned directly to the federally qualified health center or rural health clinic, and not to any individual provider performing services on behalf of the federally qualified health center or rural health clinic. (c) The department shall provide incentives in the competitive application process described in paragraph (1) of subdivision (b) of Section 53800 of Title 22 of the California Code of Regulations, to encourage potential commercial plans as defined in subdivision (h) of Section 53810 of Title 22 of the California Code of Regulations to offer subcontracts to these federally qualified health centers. (d) Reimbursement to federally qualified health centers and rural health centers for services provided pursuant to a subcontract with a local initiative, a commercial plan, geographic managed care program health plan, or a county organized health system, shall be paid in a manner that is not less than the level and amount of payment that the plan would make for the same scope of services if the services were furnished by a provider that is not a federally qualified health center or rural health clinic. (e) (1) The department shall administer a program to ensure that total payments to federally qualified health centers and rural health clinics operating as managed care subcontractors pursuant to subdivision (d) comply with applicable federal law pursuant to Sections 1902(aa) and 1903(m)(2)(A)(ix) of the Social Security Act (42 U.S.C.A. Secs. 1396a(aa) and 1396b(m)(2)(A)(ix)). Under the department's program, federally qualified health centers and rural health clinics subcontracting with local initiatives, commercial plans, county organized health systems, and geographic managed care program health plans shall seek supplemental reimbursement from the department through a per visit fee-for-service billing system utilizing the state's Medi-Cal fee-for-service claims processing system contractor. To carry out this per visit payment process, each federally qualified health system and rural health clinic shall submit to the department for approval a rate differential calculated to reflect the amount necessary to reimburse the federally qualified health center or rural health clinic for the difference between the payment the center or clinic received from the managed care health plan and either the interim rate established by the department based on the center's or clinic's reasonable cost or the center's or clinic' s prospective payment rate. The department shall adjust the computed rate differential as it deems necessary to minimize the difference between the center's or clinic's revenue from the plan and the center' s or clinic's cost-based reimbursement or the center's or clinic's prospective payment rate. (2) In addition, to the extent feasible, within six months of the end of the center's or clinic's fiscal year, the department shall perform an annual reconciliation to reasonable cost, and make payments to, or obtain a recovery from, the center or clinic. (f) In calculating the capitation rates to be paid to local initiatives, commercial plans, geographic managed care program health plans, and county organized health systems, the department shall not include the additional dollar amount applicable to cost-based reimbursement that would otherwise be paid, absent cost-based reimbursement, to federally qualified health centers and rural health clinics in the Medi-Cal fee-for-service program. (g) On or before September 30, 2002, the director shall conduct a study of the actual and projected impact of the transition from a cost-based reimbursement system to a prospective payment system for federally qualified health centers and rural health clinics. In conducting the study, the director shall evaluate the extent to which the prospective payment system stimulates expansion of services, including new facilities to expand capacity of the centers, and the extent to which actual and estimated prospective payment rates of federally qualified health centers and rural health clinics for the first five years of the prospective payment system are reflective of the cost of providing services to Medi-Cal beneficiaries. Clinics may submit cost reporting information to the department to provide data for the study. (h) The department shall approve all contracts between federally qualified health centers or rural health clinics and any local initiative, commercial plan, geographic managed care program health plan, or county organized health system in order to ensure compliance with this section. (i) This section shall not preclude the department from establishing pilot programs pursuant to Section 14087.329. SEC. 1.5. Section 14087.325 of the Welfare and Institutions Code is amended to read: 14087.325. (a) The department shall require, as a condition of obtaining a contract with the department, that any local initiative, as defined in subdivision (v) of Section 53810 of Title 22 of the California Code of Regulations, offer a subcontract to any entity defined in Section 1396d(l)(2)(B) of Title 42 of the United States Code providing services as defined in Section 1396d(a)(2)(C) of Title 42 of the United States Code and operating in the service area covered by the local initiative's contract with the department. These entities are also known as federally qualified health centers. (b) Except as otherwise provided in this section, managed care subcontracts offered to a federally qualified health center or a rural health clinic, as defined in Section 1396d(l)(1) of Title 42 of the United States Code, by a local initiative, county organized health system, as defined in Section 12693.05 of the Insurance Code, commercial plan, as defined in subdivision (h) of Section 53810 of Title 22 of the California Code of Regulations, or a health plan contracting with a geographic managed care program, as defined in subdivision (g) of Section 53902 of Title 22 of the California Code of Regulations, shall be on the same terms and conditions offered to other subcontractors providing a similar scope of service. Any beneficiary, subscriber, or enrollee of a program or plan who affirmatively selects, or is assigned by default to, a federally qualified health center or rural health clinic under the terms of a contract between a plan, government program, or any subcontractor of a plan or program, and a federally qualified health center or rural health clinic, shall be assigned directly to the federally qualified health center or rural health clinic, and not to any individual provider performing services on behalf of the federally qualified health center or rural health clinic. (c) The department shall provide incentives in the competitive application process described in paragraph (1) of subdivision (b) of Section 53800 of Title 22 of the California Code of Regulations, to encourage potential commercial plans as defined in subdivision (h) of Section 53810 of Title 22 of the California Code of Regulations to offer subcontracts to these federally qualified health centers. (d) Reimbursement to federally qualified health centers and rural health centers for services provided pursuant to a subcontract with a local initiative, a commercial plan, geographic managed care program health plan, or a county organized health system, shall be paid in a manner that is not less than the level and amount of payment that the plan would make for the same scope of services if the services were furnished by a provider that is not a federally qualified health center or rural health clinic. (e) (1) The department shall administer a program to ensure that total payments to federally qualified health centers and rural health clinics operating as managed care subcontractors pursuant to subdivision (d) comply with applicable federal law pursuant to Sections 1902(aa) and 1903(m)(2)(A)(ix) of the Social Security Act (42 U.S.C.A. Secs. 1396a(aa) and 1396b(m)(2)(A)(ix)). Under the department's program, federally qualified health centers and rural health clinics subcontracting with local initiatives, commercial plans, county organized health systems, and geographic managed care program health plans shall seek supplemental reimbursement from the department through a per visit fee-for-service billing system utilizing the state's Medi-Cal fee-for-service claims processing system contractor. To carry out this per visit payment process, each federally qualified health center and rural health clinic shall submit to the department for approval a rate differential calculated to reflect the amount necessary to reimburse the federally qualified health center or rural health clinic for the difference between the payment the center or clinic received from the managed care health plan and either the interim rate established by the department based on the center's or clinic's reasonable cost or the center's or clinic' s prospective payment rate. The department shall adjust the computed rate differential as it deems necessary to minimize the difference between the center's or clinic's revenue from the plan and the center' s or clinic's cost-based reimbursement or the center's or clinic's prospective payment rate. (2) In addition, to the extent feasible, within six months of the end of the center's or clinic's fiscal year, the department shall perform an annual reconciliation to reasonable cost, and make payments to, or obtain a recovery from, the center or clinic. (f) In calculating the capitation rates to be paid to local initiatives, commercial plans, geographic managed care program health plans, and county organized health systems, the department shall not include the additional dollar amount applicable to cost-based or prospective payment reimbursement that would otherwise be paid, absent cost-based or prospective payment reimbursement, to federally qualified health centers and rural health clinics in the Medi-Cal fee-for-service program. (g) On or before September 30, 2002, the director shall conduct a study of the actual and projected impact of the transition from a cost-based reimbursement system to a prospective payment system for federally qualified health centers and rural health clinics. In conducting the study, the director shall evaluate the extent to which the prospective payment system stimulates expansion of services, including new facilities to expand capacity of the centers, and the extent to which actual and estimated prospective payment rates of federally qualified health centers and rural health clinics for the first five years of the prospective payment system are reflective of the cost of providing services to Medi-Cal beneficiaries. Clinics may submit cost reporting information to the department to provide data for the study. (h) The department shall approve all contracts between federally qualified health centers or rural health clinics and any local initiative, commercial plan, geographic managed care program health plan, or county organized health system, in order to ensure compliance with this section. (i) This section shall not preclude the department from establishing pilot programs pursuant to Section 14087.329. SEC. 2. Section 14105 of the Welfare and Institutions Code is amended to read: 14105. (a) The director shall prescribe the policies to be followed in the administration of this chapter, may limit the rates of payment for health care services, and shall adopt any rules and regulations as are necessary for carrying out, but are not inconsistent with, the provisions thereof. The policies and regulations shall include rates for payment for services not rendered under a contract pursuant to Chapter 8 (commencing with Section 14200). In order to implement expeditiously the budgeting decisions of the Legislature, the director shall, to the extent permitted by federal law, adopt regulations setting rates that reflect these budgeting decisions within one month after the enactment of the Budget Act and of any other appropriation that changes the level of funding for Medi-Cal services. The proposed regulations shall be submitted to the Department of Finance no later than five days prior to the date of adoption. With the written approval of the Department of Finance, the director shall adopt the regulations as emergency regulations in accordance with the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340), Part 1, Division 3, Title 2 of the Government Code). For purposes of that act, the adoption of these regulations shall be deemed an emergency and necessary for the immediate preservation of the public peace, health, and safety or general welfare. (b) (1) Insofar as practical, consistent with the efficient and economical administration of this part, the department shall afford recipients of public assistance a choice of managed care arrangements under which they shall receive health care benefits and a choice of primary care providers under each managed care arrangement. (2) Notwithstanding any other provision of law, Medi-Cal beneficiaries shall be entitled to affirmatively select, or to be assigned by default to, any primary care provider as defined in paragraph (1) of subdivision (b) of Section 14088. (3) Notwithstanding any other provision of law, when a Medi-Cal beneficiary is assigned, from any source, to a primary care physician, as defined in Section 14254, and that primary care physician is an employee of a primary care provider, as defined in paragraph (1) of subdivision (b) of Section 14088, the assignment shall constitute an assignment to the primary care provider. (c) If, in the judgment of the director, the actions taken by the director under subdivision (c) of Section 14120 will not be sufficient to operate the Medi-Cal program within the limits of appropriated funds, he or she may limit the scope and kinds of health care services, except for minimum coverage as defined in Section 14056, available to persons who are not eligible under Section 14005.1. When and if necessary, that action shall be taken by the director in ways consistent with the requirements of the federal Social Security Act. (d) The director shall adopt regulations implementing regulatory changes required to initially implement, and annually update, the United States Health Care Financing Administration's common procedure coding system as emergency regulations in accordance with Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code. For the purposes of the Administrative Procedure Act, the adoption of the regulations shall be deemed to be an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare. These regulations shall become effective immediately upon filing with the Secretary of State. (e) Notwithstanding any other provision of law, prospective reimbursement for any services provided to a Medi-Cal beneficiary in a nursing facility that is a distinct part of an acute care hospital shall not exceed the audited costs of the facility providing the services. (f) Notwithstanding any other provision of law, reimbursement for anesthesiology, surgical services, and the professional component of radiology procedures except for comprehensive perinatal and obstetrical services shall be reduced by 9.5 percent of the amount of reimbursement provided for any of those services prior to the operative date of this subdivision. The director may exclude emergency surgical services performed in the emergency department of a general acute care hospital. To be excluded, emergency surgical services must be performed by an emergency room physician or a physician on the emergency department's on-call list. (g) (1) It is the intent of the Legislature in enacting this subdivision to enable the department to obtain Medicare cost reports for the purpose of evaluating its Medi-Cal reimbursement rate methodology for nursing facilities. (2) Skilled nursing facilities licensed pursuant to Chapter 2 (commencing with Section 1250) of Division 2 of the Health and Safety Code shall submit copies of all Medicare cost reports to the department by October 1, 1995, for reporting periods that ended between July 1, 1993, and June 30, 1995. On or after July 1, 1995, those facilities shall submit the copies to the department on the date that the Medicare cost reports are submitted to the Medicare fiscal intermediary. (3) Hospitals providing skilled nursing care licensed pursuant to Chapter 2 (commencing with Section 1250) of Division 2 of the Health and Safety Code shall submit a copy of all Medicare cost reports for reporting periods ended: (A) January 1, 1993, through June 30, 1995, to the department by October 1, 1995. (B) On or after July 1, 1995, to the department when the Medicare cost reports are submitted to the Medicare fiscal intermediary. SEC. 3. Section 1.5 of this bill incorporates amendments to Section 14087.325 of the Welfare and Institutions Code proposed by both this bill and SB 1413. It shall become operative only if (1) both bills are enacted and become effective on or before January 1, 2003, (2) each bill amends Section 14087.325 of the Welfare and Institutions Code, and (3) this bill is enacted after SB 1413, in which case Section 1 of this bill shall not become operative.