BILL ANALYSIS SENATE COMMITTEE ON PUBLIC SAFETY Senator Mark Leno, Chair A 2009-2010 Regular Session B 1 9 8 AB 1985 (Galgiani) 5 As Amended June 21, 2010 Hearing date: June 29, 2010 Penal Code SM:dl CORRECTIONS: DURABLE MEDICAL EQUIPMENT HISTORY Source: California Prison Health Care Services (Federal Receiver) Prior Legislation: AB 2119 (Galgiani) - 2008, held on suspense in Assembly Appropriations Committee; AB 1762 (Committee on Budget) - Chapter 230, Statutes of 2003 AB 747 (Matthews) - Chap. 659, Statutes of 2003 Support: None known Opposition:Disability Rights California Assembly Floor Vote: Ayes 52 - Noes 22 KEY ISSUES SHOULD THE CALIFORNIA DEPARTMENT OF CORRECTIONS AND REHABILITATION (CDCR) BE REQUIRED BY JANUARY 1, 2011 TO ADOPT STANDARD FORMS FOR USE BY CONTRACT HEALTH SERVICE PROVIDERS, DEVELOP THE ABILITY TO ACCEPT SECURE ELECTRONIC SUBMISSION OF (More) AB1985 (Galgiani) PageB CLAIMS FROM CONTRACT HEALTHCARE SERVICE PROVIDERS, PROVIDE ELECTRONIC CLAIM STATUS INFORMATION TO THOSE PROVIDERS, AND AUDIT THOSE CLAIMS, AS SPECIFIED? (CONTINUED) SHOULD CDCR BE AUTHORIZED, SUBJECT TO APPROVAL BY THE FEDERAL RECEIVER OF MEDICAL CARE SO LONG AS THE RECEIVERSHIP EXISTS, TO ADOPT THE METHODOLOGIES USED IN THE MEDI-CAL PROGRAM FOR PROCUREMENT OF DURABLE MEDICAL EQUIPMENT (DME)? SHOULD EACH OF THESE PROVISIONS BE EXEMPT FROM THE REQUIREMENTS OF THE ADMINISTRATIVE PROCEDURES ACT? PURPOSE The purpose of this bill is to (1) adopt specified legislative findings and declarations; (2) require the CDCR by January 1, 2011, to adopt standard forms for use by contract health service providers, develop the ability to accept secure electronic submission of claims from contract healthcare service providers, provide electronic claim status information to those providers, and audit those claims, as specified; (3) authorize, subject to approval by the federal receiver of medical care so long as the receivership exists, to adopt the methodologies used in the Medi-Cal program regarding procurement of durable medical equipment (DME); and (4) exempt provisions of the bill from the Administrative Procedures Act. Current law establishes the following Durable Medical Goods (DME) reimbursement rules for Medi-Cal: a) Requires the Department of Health Care Services (DHCS) to establish a list of covered services and maximum allowable reimbursement rates for DME, as defined, and requires the list to specify utilization controls to be (More) AB1985 (Galgiani) PageC applied to each type of DME; b) Requires reimbursement for DME, except wheelchairs and speech-generating devices to be the lesser of: i) The amount billed pursuant to DHCS regulations; ii) An amount that does not exceed 80% Medicare allowance; or, iii) The guaranteed negotiated acquisition cost by means of exclusive or nonexclusive contracts on a bid plus a specified percentage markup. c) Requires reimbursement for wheelchairs and speech-generating devices and their related accessories to be the lesser of: i) The amount billed pursuant to DHCS regulations; ii) An amount that does not exceed 100% of Medicare allowance; or, iii) The guaranteed negotiated acquisition cost by means of exclusive or nonexclusive contracts on a bid plus a specified percentage markup. d) Requires reimbursement for all DME utilizing codes with no specified maximum allowable rate to be the lesser of: i) The amount billed pursuant to DHCS regulations; ii) The guaranteed negotiated acquisition cost negotiated by means of exclusive or nonexclusive contracts on a bid plus a specified percentage markup; iii) The actual acquisition cost plus a markup established by DHCS; iv) A specified percentage of the manufacturer's suggested retail purchase price on June 1, 2006, as specified, not to exceed 15% for wheelchairs and wheelchair accessories if the provider employs or contracts with a qualified rehabilitation professional; or, v) A price established through targeted product-specific cost containment provisions developed with providers. e) Requires reimbursement for all DME supplies and accessories billed to the Medi-Cal Program to be the lesser of the amount billed pursuant to pursuant to DHCS regulations or the acquisition cost plus a 23% markup; and,(Welfare & Inst. Code 14105.48.) (More) AB1985 (Galgiani) PageD This bill requires CDCR, by January 1, 2011, to do the following: Adopt industry standard claims forms for use by contract healthcare service providers. Be able to accept secure electronic submission of claims from contract healthcare service providers. Perform periodic audits of claims paid to contract healthcare providers. Provide secure, remote electronic access to claim status information to those contract healthcare service providers submitting claims electronically in the manner required by the department. This bill would permit CDCR to adopt policies and procedures for the purpose of enabling electronic healthcare claims management and processing and would exempt the adoption, amendment, or repeal of policies and procedures for this limited purpose from the rulemaking provisions of the Administrative Procedure Act, as specified. This bill authorizes CDCR, upon approval of the federal receiver, or at such time as CDCR is no longer under the authority of the federal receiver, to do all of the following: The department may establish a list of covered services and maximum allowable reimbursement rates for durable medical equipment as defined in Section 51160 of Title 22 of the California Code of Regulations. The list may specify utilization controls to be applied to each type of durable medical equipment. The department may set reimbursement for durable medical equipment, except wheelchairs, wheelchair accessories, and speech-generating devices and related accessories, at the lesser of (1) the amount billed pursuant to Section 51008.1 (More) AB1985 (Galgiani) PageE of Title 22 of the California Code of Regulations, (2) an amount that does not exceed 80 percent of the lowest maximum allowance for California established by the federal Medicare Program for the same or similar item or service, or (3) the guaranteed acquisition cost negotiated by means of the contracting process provided for pursuant to Section 14105.3 of the Welfare and Institutions Code plus a percentage markup to be established by the department. The department may set reimbursement for wheelchairs, wheelchair accessories, and speech-generating devices and related accessories at the lesser of (1) the amount billed pursuant to Section 51008.1 of Title 22 of the California Code of Regulations, (2) an amount that does not exceed 100 percent of the lowest maximum allowance for California established by the federal Medicare Program for the same or similar item or service, or (3) the guaranteed acquisition cost negotiated by means of the contracting process provided for pursuant to Section 14105.3 of the Welfare and Institutions Code plus a percentage markup to be established by the department. The department may set reimbursement for all durable medical equipment billed to the department utilizing codes with no specified maximum allowable rate at the lesser of (1) the amount billed pursuant to Section 51008.1 of Title 22 of the California Code of Regulations, (2) the guaranteed acquisition cost negotiated by means of the contracting process provided for pursuant to Section 14105.3 of the Welfare and Institutions Code plus a percentage markup to be established by the department, (3) the actual acquisition cost plus a markup to be established by the department, (4) the manufacturer's suggested retail purchase price on June 1, 2006, and documented by a printed catalog or a hard copy of an electronic catalog page showing the price on that date, reduced by a percentage discount not to exceed 20 percent, or not to exceed 15 percent for wheelchairs and wheelchair accessories if the provider employs or contracts with a qualified rehabilitation professional, as defined in paragraph (3) of (More) AB1985 (Galgiani) PageF subdivision (c) of Section 14105.485 of the Welfare and Institutions Code, or (5) a price established through targeted product-specific cost containment provisions developed with providers. The department may set reimbursement for all durable medical equipment supplies and accessories billed to the department at the lesser of (1) the amount billed pursuant to Section 51008.1 of Title 22 of the California Code of Regulations, or (2) the acquisition cost plus a 23-percent markup. The department may establish "capped rental" reimbursement for specific items of durable medical equipment. Items in this category may be reimbursed on a monthly rental basis not to exceed a period of continuous use of 10 months. After 10 months of rent have been paid, the provider shall continue to provide the item without charge, except for maintenance and servicing fees, until the medical necessity ends. If the department establishes "capped rental" reimbursement pursuant to this subdivision, monthly reimbursement for the rental of these specific items of durable medical equipment may not exceed 80 percent of the lowest maximum allowance for California established by the federal Medicare Program for the same or similar item or service. This bill would exempt each of the above actions from the rulemaking provisions of the Administrative Procedures Act or to the review and approval of the Office of Administrative Law. RECEIVERSHIP/OVERCROWDING CRISIS AGGRAVATION The severe prison overcrowding problem California has experienced for the last several years has not been solved. In December of 2006 plaintiffs in two federal lawsuits against the Department of Corrections and Rehabilitation sought a court-ordered limit on the prison population pursuant to the federal Prison Litigation Reform Act. On January 12, 2010, a federal three-judge panel issued an order requiring the state to (More) AB1985 (Galgiani) PageG reduce its inmate population to 137.5 percent of design capacity -- a reduction of roughly 40,000 inmates -- within two years. In a prior, related 184-page Opinion and Order dated August 4, 2009, that court stated in part: "California's correctional system is in a tailspin," the state's independent oversight agency has reported. . . . (Jan. 2007 Little Hoover Commission Report, "Solving California's Corrections Crisis: Time Is Running Out"). Tough-on-crime politics have increased the population of California's prisons dramatically while making necessary reforms impossible. . . . As a result, the state's prisons have become places "of extreme peril to the safety of persons" they house, . . . (Governor Schwarzenegger's Oct. 4, 2006 Prison Overcrowding State of Emergency Declaration), while contributing little to the safety of California's residents, . . . . California "spends more on corrections than most countries in the world," but the state "reaps fewer public safety benefits." . . . . Although California's existing prison system serves neither the public nor the inmates well, the state has for years been unable or unwilling to implement the reforms necessary to reverse its continuing deterioration. (Some citations omitted.) . . . The massive 750% increase in the California prison population since the mid-1970s is the result of political decisions made over three decades, including the shift to inflexible determinate sentencing and the passage of harsh mandatory minimum and three-strikes laws, as well as the state's counterproductive parole system. Unfortunately, as California's prison population has grown, California's political decision-makers have failed to provide the resources and facilities required to meet the additional need for space and for other necessities of prison existence. Likewise, although state-appointed experts (More) AB1985 (Galgiani) PageH have repeatedly provided numerous methods by which the state could safely reduce its prison population, their recommendations have been ignored, underfunded, or postponed indefinitely. The convergence of tough-on-crime policies and an unwillingness to expend the necessary funds to support the population growth has brought California's prisons to the breaking point. The state of emergency declared by Governor Schwarzenegger almost three years ago continues to this day, California's prisons remain severely overcrowded, and inmates in the California prison system continue to languish without constitutionally adequate medical and mental health care.<1> The court stayed implementation of its January 12, 2010 ruling pending the state's appeal of the decision to the U.S. Supreme Court. On Monday, June 14, 2010, The U.S. Supreme Court agreed to hear the state's appeal in this case. This bill does not appear to aggravate the prison overcrowding crisis described above. COMMENTS 1. Need for This Bill According to the author: As a cost-saving measure to address the exorbitant cost of durable medical equipment (DME) for Medi-Cal, Assembly Bill 747 (Matthews, 2003) was introduced to ---------------------- <1> Three Judge Court Opinion and Order, Coleman v. Schwarzenegger, Plata v. Schwarzenegger, in the United States District Courts for the Eastern District of California and the Northern District of California United States District Court composed of three judges pursuant to Section 2284, Title 28 United States Code (August 4, 2009). (More) AB1985 (Galgiani) PageI require the then-titled Department of Health Services to establish a list of covered services and maximum allowable reimbursement rates for durable medical equipment. The bill would have provided that reimbursement for these items, of durable medical equipment, would be the lesser of specified amounts. The bill also would have required the department to establish "capped rental" reimbursement for specific items, of durable medical equipment, and would require that items in this category be reimbursed on a monthly rental basis as prescribed. This language was later adopted in the Budget Trailer bill on Health (AB 1762; Budget Act of 2003) as a cost saver for the Medi-Cal program under the then-titled Department of Health Services. The Department of Corrections and Rehabilitation's medical care system is in a current state of crisis, as evidenced by the fact it was placed in a federal receivership. Any way the state of California can assist the Receiver in finding ways to cut state costs in the prison medical care system is a plus. Assembly Bill 1985 is a re-introduction of Assembly Bill 2119 (Galgiani) intended to streamline the costs of the Department of Corrections and Rehabilitation medical care system as it has already been accomplished under the Medi-Cal program under the Department of Health Care Services. AB 1985 will provide cost savings to the Department of Corrections and Rehabilitation by permitting the department (1) to establish a list of covered services and maximum allowable reimbursement rates for durable medical equipment used for inmate medical care; (2) provide that reimbursement for these items of durable medical equipment may be the lesser of specified amounts; and (3) to establish capped rental (More) AB1985 (Galgiani) PageJ reimbursement for specific items of durable medical equipment and provide that items in this category be reimbursed on a monthly basis as prescribed. The intent of this legislation is to achieve the same cost savings in prison healthcare as it was achieved for the Medi-Cal program under the Department of Health Care Services, by mirroring the language from Assembly Bill 747 adopted by the Budget Act of 2003. 2. The Federal Prison Health Care Receivership The inadequate provision of medical services to inmates at CDCR prompted several class action lawsuits and court-ordered reforms over the last several years. After "numerous experts testified as to the 'incompetence and indifference' of prison physicians and medical staff and described an 'abysmal' medical delivery system where 'medical care too often sinks below gross negligence to out-right cruelty'. . .[i]n February 2006, the district court issued an order appointing a Receiver and conferring upon the Receiver all of the powers of the Secretary of the CDCR with respect to the delivery of medical care, while concurrently suspending the Secretary's exercise of the same." (Plata v. Schwarzenegger, 2010 U.S. App. LEXIS 8969, 5-6 (9th Cir. Cal. Apr. 30, 2010).) The California Prison Health Care Services (CPHCS) is a non-profit organization created to house the activities of the federal Receiver and works at the direction of federal Health Care Receiver, J. Clark Kelso. 3. Background In December 2002, the State Auditor published a report regarding the purchasing and contracting practices of DHCS for DME, medical supplies, and hearing aids under Medi-Cal. The report found that Medi-Cal expenditures for DME rose by 70% from 1998 through 2001 while expenditures for medical supplies decreased by 6.3%. As a response to these cost increases, the Legislature implemented major cost savings provisions by passing AB 1762, which were implemented in 2004. According to DHCS, Medi-Cal spending on DME has decreased significantly from $143 million in (More) AB1985 (Galgiani) PageK 2003 to $99 million in 2009. DHCS notes that other factors may have played a role in reducing costs such as change in demand, participation of DME providers, and activities of Medi-Cal Audits and Investigations Branch. 4. Current CDCR DME Procurement According to CDCR, prisons purchase DME in the same manner as other non-medical equipment. For purchase contracts of less than $100,000, individual CDCR facilities must obtain at least two or three bids and choose the lowest qualified bidder (with certain exceptions designed to favor purchases from small businesses and disabled veterans business enterprises). Purchases of $100,000 or more are processed through DGS to determine if DGS has a contract in place to purchase the specific item or items. DGS secures contracts by using the competitive invitation for bid process. This process includes advertising DGS' requirements through the state contracts register, receiving bids from at least three vendors, and accepting the lowest competitive bid that meets DGS' requirements. The Receiver may, but is not required to, follow existing state law in the acquisition of DME. (More) 5. Purchasing DME: Medi-Cal and CDCR As noted above, following a Bureau of State Audits report in 2002 about prohibitive DME cost escalation in Medi-Cal, AB 1762 was enacted to require Medi-Cal to establish price caps and fee schedules. Following enactment of those provisions, Medi-Cal DME costs were reduced substantially. While the enactment of AB 1762 may have generated cost savings and alleviated escalating expenditures under Medi-Cal, the funding and circumstances of health care provided in California prisons are fundamentally different. It is not clear whether the approach that was effective for Medi-Cal would be workable or effective in the corrections environment. The CDCR approach to DME is focused around competitive bidding for costs of less than $100,000 and for costs in excess of $100,000 the Department of General Services handles procurement. It is unclear how easily CDCR could adapt to the approach contained in this bill. However, the Receiver's office observes that the permissive nature of this bill would allow CDCR to use this procurement methodology for those types of medical equipment for which it feels this would be appropriate and it would not be locked in to using this approach for all medical equipment. ARE THE MEDI-CAL DME PROCUREMENT RULES APPROPRIATE FOR CDCR? IS THERE A DEMONSTRATED NEED FOR CDCR TO ADOPT THESE PROCUREMENT RESTRICTIONS? BECAUSE THIS PORTION OF THE BILL IS ENTIRELY PERMISSIVE, IS IT NECESSARY? 6. Administrative Procedures Act Exemption This bill would require CDCR to establish the capability to accept secure electronic submission of claims from contract healthcare service providers and provide secure, remote electronic access to claim status information to those contract healthcare service providers submitting claims electronically. It would also permit CDCR to adopt the Medi-Cal procurement (More) AB1985 (Galgiani) PageM rules for purchasing durable medical equipment. As to both of these the bill would currently exempt these provisions from the rulemaking provisions of the Administrative Procedures Act (APA) or to the review and approval of the Office of Administrative Law. The author has indicated she will take an amendment to delete these exemptions. SHOULD THIS AMENDMENT BE TAKEN? 7. Argument in Opposition Disability Rights California states: AB 1985 would permit the Department of Corrections and Rehabilitation to establish a list of covered services and maximum allowable reimbursement rates for durable medical equipment (DME) used for inmate medical care. The list may specify utilization controls to be applied to each type of DME and adopts the definition of DME under the Medi-Cal program. Adoption of Medi-Cal's limited definition of DME, permission to impose utilization controls, and requirement for the cheapest DME purchase and rental will further curtail an already reduced access to medical equipment in penal correctional facilities. Coupled with the lower standard of medical care available to inmates, AB 1985 will compromise health services to inmates with disabilities by resulting in the selection of inappropriate DME or denial of appropriate DME. AB 1985 runs counter to inmates' rights under the Americans with Disabilities Act (ADA). Under the ADA, inmates with disabilities must be afforded equal access to the same services and activities, and receive the same benefits and aids as inmates without disabilities. The program restrictions of AB 1985 will arbitrarily limit the determination, and in many cases deny the receipt, of items of DME that would be AB1985 (Galgiani) PageN necessary to afford equal access and benefits as mandated by the ADA. ***************