BILL ANALYSIS                                                                                                                                                                                                    




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                           342 (J. Perez)
          
          Hearing Date:  8/12/2010        Amended: 8/2/2010
          Consultant: Katie Johnson       Policy Vote: Health 7-1
          _________________________________________________________________ 
          ____
          BILL SUMMARY:  AB 342, an urgency measure, would enact the  
          California Section 1115 Comprehensive Demonstration Project  
          Waiver to replace the Section 1115 Hospital Financing Waiver  
          that expires August 31, 2010.
          _________________________________________________________________ 
          ____
                            Fiscal Impact (in thousands)

           Major Provisions         2010-11      2011-12       2012-13     Fund
                                                                  
          Delayed checkwrite       ($357,496) Spend similar      General/*
          savings due to SPD                  amount commencing  Federal
          managed care enrollment             FY 2011-2012; could be 
                                              cost neutral-see staff  
          comments

          DHCS waiver implementation      $9,498                  
          $9,201unknown General/*
          staff and contracts                                    Federal/
                                                                 Special

          *50 percent General Fund, 50 percent federal funds
          *Roughly 50 percent General Fund and Mental Health Services  
          Fund, and 50 percent federal funds
          _________________________________________________________________ 
          ____

          STAFF COMMENTS: SUSPENSE FILE.

          In June 2010, the Department of Health Care Services (DHCS)  
          released its 1115 waiver application and submitted it to the  
          Centers for Medicare and Medicaid Services (CMS). It outlines 6  
          goals that the state would like to accomplish through the  
          waiver. 

             1)   Immediately begin phasing in coverage for adults aged 19  
               - 64 with incomes up to 133 percent of the federal poverty  










               line (FPL) in order to maximize California's opportunity to  
               access enhanced federal funding effective January 1, 2014; 
             2)   Immediately begin phasing in coverage for adults with  
               incomes between 133 and 200 percent FPL by building upon  
               its existing county coverage initiatives; 
             3)   Create more accountable, coordinated systems of care for  
               individuals enrolled in Medi-Cal who are seniors and  
               persons with disabilities (SPDs). In years 2 and 3 of the  
               waiver, DHCS would incorporate a new delivery system  
               approach for people with mental health and/or substance  
               abuse challenges and children with special health care  
               needs; 
             4)   Continue and expand the Safety Net Care Pool (SNCP)  
               which provides funds for health care coverage; 
             5)   Implement a series of improvements to the existing  
               delivery system; and, 

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          AB 342 (J. Perez)

             6)   Explore payment reforms within the public hospitals  
               system that better align payment and care delivery  
               incentives.
          
          This bill is the vehicle for the waiver mentioned above, along  
          with SB 208 (Steinberg/Alquist), its identical companion  
          measure. This bill does not yet incorporate DHCS's entire vision  
          or the proposed hospital financing pieces for public and private  
          hospitals, including the continuation and expansion of the SNCP,  
          since many provisions continue to be subject to negotiation with  
          the federal government; however, this bill would address several  
          aspects of the waiver plan:

             1)   Authorize DHCS to require the mandatory enrollment of  
               about 380,000 SPDs in Medi-Cal managed care, commencing  
               upon federal approval or February 1, whichever is later,  
               and phasing in over the next calendar year. Funding for  
               this proposal would be shared 50 percent General Fund, 50  
               percent federal funds. There would be savings in FY  
               2010-2011 of $357 million due to a delayed checkwrite. In  
               FY 2011-2012 and throughout the life of the waiver, it is  
               estimated that treating SPDs through a managed care plan  
               versus in fee-for-service would make the following years at  
               least cost neutral; however, due to the uncertainty of  
               actual implementation, it would depend on how quickly SPDs  
               would be enrolled compared to the planned timeframe and  










               whether DHCS expenditures to treat SPDs in managed care  
               would be equal or less the cost of treating them in  
               fee-for-service. 
             2)   Require DHCS to establish organized health care delivery  
               models for children eligible for the California Children's  
               Services (CCS) program, commencing January 1, 2012. This  
               bill does not describe how the funds would flow to the  
               various models. There could be General Fund cost pressure  
               in the millions of dollars to the extent that these models  
               are required to perform duties above and beyond those that  
               are currently part of CCS services. 
             3)   Establish up to 4 pilot projects to test methods for how  
               to best manage the care of approximately 1.1 million  
               Californians who are dually eligible for Medi-Cal and  
               Medicare (dual eligibles) to create quality, cost effective  
               health outcomes, and to work to integrate funding and  
               services. These provisions would prohibit the use of  
               General Fund moneys and would provide that the nonfederal  
               share of funding would consist of local certified public  
               expenditures (CPEs) or intergovernmental transfers (IGTs).  
               There would be an unknown expenditure of likely millions of  
               federal funds for this program commencing April 1, 2011.
             4)   Create coverage expansion and enrollment demonstration  
               (CEED) projects, commencing January 1, 2011, or 180 days  
               after the successor waiver is approved by CMS, whichever is  
               later, for coverage of low-income individuals who are not  
               otherwise eligible for Medi-Cal in order to enable  
               California to expand Medi-Cal to childless adults pursuant  
               to the federal Patient Protection and Affordable Care Act  
               (ACA) on January 1, 2014. These provisions would extend the  
               current health care coverage initiatives (HCCIs) and would  
               expand the HCCIs to be statewide rather than in 10  
               counties, as they are currently. DHCS expects 56 of the 58  
               counties would participate and a total of 512,000  
               individuals to enroll. Enrollment within a county would be  
               limited to the availability of local funds. Currently,  
               localities provide the non-federal share through CPEs and  
               are 

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          AB 342 (J. Perez)

               reimbursed at a matching rate of 50 percent. The HCCI  
               expansion would work to shift the reimbursement mechanism  
               from a direct CPE structure to one of three 
               financing approaches: IGT/CPE Combination; IGT-Based; or  










               Actuarial Payment to Plan Basis for CPE.

          In order to administer the four programs above, in addition to  
          planning to implement the other aspects of the waiver included  
          in DHCS's proposal to CMS, DHCS would need approximately 50  
          staff at a total cost of $9.5 million in FY 2010-2011 and $9.2  
          million in FY 2011-2012, as proposed in a department budget  
          change proposal. Staffing costs beyond the first two years are  
          unknown, but would probably be of similar magnitude. 

          Existing law, SB 1100 (Perata and Ducheny), Chapter 560,  
          Statutes of 2005, creates a hospital funding demonstration  
          project to implement a five-year Section 1115 Medicaid waiver to  
          support public hospitals, including the five University of  
          California medical centers and county clinics that serve  
          Medicaid and uninsured patients. Section 1115 waivers are  
          approved for an initial five years and may be subsequently  
          renewed for three years. Federal law requires Section 1115  
          waivers to be budget neutral over their 5 year lifetimes. 

          Under the current waiver, public hospitals have access to over  
          $1 billion in federal DSH funds for uncompensated care provided  
          to Medi-Cal and uninsured patients. Public hospitals are able to  
          access SNCP funding through a CPE process. The SNCP is capped at  
          $766 million annually. The SNCP allotment includes $180 million  
          in the last 3 years of the waiver to implement the health care  
          coverage initiatives. Since one of the stated goals is to  
          continue and expand the SNCP, the waiver funding could be  
          expected to be of similar magnitude.

          The waiver provides federal matching funds to CPEs for health  
          care services provided by public hospitals. For example, if a  
          hospital performs a procedure for $1, the federal government  
          would pay $0.50. While there are no state General Fund monies  
          involved in the public hospitals' CPE reimbursement process,  
          there is limited use of IGTs, or a combination of local and  
          state General Fund moneys, to draw down federal matching funds  
          for the disproportionate share hospital (DSH) Fund. Each  
          safety-net hospital receives a baseline amount of funding  
          annually and may receive an additional amount of stabilization  
          funding from the SNCP. Private hospitals negotiate individual  
          rates of reimbursement with the California Medical Assistance  
          Commission (CMAC) and receive supplemental DSH-like  
          payments-funds meant to defray uncompensated costs of treating  
          Medicaid and uninsured patients-from the General Fund and  
          federal funds. As noted above in the health care coverage  










          initiative expansion, CPEs and IGTs will continue to be funding  
          mechanisms in the proposed waiver.