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, Page 2 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 Page 3 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.