BILL ANALYSIS                                                                                                                                                                                                    



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          SENATE THIRD READING
          SB 853 (Budget and Fiscal Review Committee)
          As Amended  October 7, 2010
          2/3 vote.  Urgency 

           SENATE VOTE  :Vote not relevant  
           
           SUMMARY  :  Contains necessary statutory changes to amend  
          appropriations contained in the 2010 Budget Act for the  
          Departments of: Developmental Services (DDS), Health Care  
          Services (DHCS), Mental Health (DMH), and Public Health (DPH),  
          the Health and Human Services Agency (Agency), and the Managed  
          Risk Medical Insurance Board (MRMIB).  Specifically,  this bill  :

          1)DDS Proposals

             a)   Enacts legislation mirrored after the Agnews  
               Developmental Center that is necessary for the closure of  
               Lanterman Developmental Center.  This includes:

               i)     Ensuring continuity of care for clients by allowing  
                 employees to provide services in furtherance of the  
                 orderly closure and to be contracted out to work in the  
                 community.  This includes a two-year sunset after the  
                 last consumer transfers into the community;

               ii)    Expanding Adult Residential Facilities for Persons  
                 with Special Health Care needs (also known as 962 Homes)  
                 to Lanterman Developmental Center;

               iii)   Allowing for the DDS to operate an outpatient clinic  
                 throughout the closure process at Lanterman;

               iv)    Assuring that the Secretary of the Health and Human  
                 Services Agency verifies protocols throughout the  
                 closure; and,

               v)     Allowing for cost-based reimbursements for health  
                 plans of Lanterman consumers.

             b)   Specifies the notification of exemption process for DDS  
               consumers.

             c)   Allows the DDS to make supplemental payments to a  








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               Medi-Cal provider that is a licensed intermediate care  
               facility-developmental disabled for day treatment and  
               transportation services (ICF-DD payments).  To the extent  
               that federal financial participation is available, it is  
               effective retroactive to July 1, 2007. 

             d)   In response to the additional 1.25% regional center  
               reduction, it provides flexibility to providers (excluding  
               residential licensed or certified providers) by allowing  
               them to modify personnel requirements, functions, or  
               qualifications and suspend staff training requirements,  
               until June 30, 2011.

          2)DHCS Proposals

             a)   Discontinues Medi-Cal coverage of Medicare Part B  
               premiums for elderly and disabled beneficiaries who have a  
               Medi-Cal share-of-cost of less than $500.  The 2008 Budget  
               trailer bill (AB 1183) eliminated Medi-Cal coverage of this  
               premium for beneficiaries with a Medi-Cal share-of-cost of  
               over $500.

             b)   Eliminates acetaminophen products, with the exception of  
               children's Tylenol, as a Medi-Cal benefit.

             c)   Implements provisions of federal health care reform  
               which allow for the Family PACT program to be implemented  
               through a State Plan Amendment rather than through a  
               Medicaid Waiver.  These provisions also expand the list of  
               benefits that qualify for federal funds based on a 9-1  
               federal-state match, resulting in the receipt of increased  
               federal funds for the same services.

             d)   Delays implementation of, and sunsets, the California  
               Discount Prescription Drug Program (CDPDP) in 2015.  The  
               CDPDP is a discount prescription drug program, for  
               uninsured individuals, established by AB 2911 (N??ez),  
               Chapter 619, Statutes of 2006, which has never been  
               implemented due to Budget constraints.  

             e)   Authorizes the DHCS to implement a new reimbursement  
               rate for physician administered drugs, to be the lower of: 

               i)     The Medi-Cal reimbursement for pharmacy providers  








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                 (average wholesale price minus 17%); or, 

               ii)       The federal Medicare rate (average sales price  
                 plus 6%), unless federal law requires a higher  
                 reimbursement level, effective February 1, 2011.

             f)   Reduces Medi-Cal rates for radiology services to 80% of  
               federal Medicare rates, effective October 1, 2010.

             g)   Suspends the cost of living adjustment (COLA) for the  
               2010-11 Budget year for counties for their administration  
               of eligibility functions for the Medi-Cal Program.  The  
               bill also establishes a process for developing a new  
               methodology for the DHCS to annually establish the rates  
               paid to counties for eligibility services in order to  
               increase clarity and transparency in this process.

             h)   Freezes the rates paid to private hospitals beginning  
               July 1, 2010, retroactive to January 1, 2010, and  
               continuing until the date on which the Medicaid Management  
               Information System converts to processing claims according  
               to the new rate setting methodology established in the  
               bill, as follows:  The bill establishes a process for the  
               implementation of a new rate setting methodology which  
               utilizes Diagnosis-Related Groups (DRGs).  Utilized by  
               Medicare and other state Medicaid programs, DRGs group  
               similar diagnoses into groups and establish a single  
               reimbursement rate for the group, as compared to the  
               current system of setting individual rates for individual  
               services provided by hospitals.  DRGs are similar to a  
               capitated payment system and are expected to lead to  
               cost-savings for the state.

             i)   Last year the Legislature passed, and the Governor  
               signed, AB 1383 (Jones), Chapter 627, Statues of 2009, to  
               assess a Quality Assurance Fee (QAF) on hospitals.  The  
               state anticipates receiving $3.5 billion in revenue from AB  
               1383, including $80 million that AB 1383 specifically  
               designates for children's health services.  The proposed  
               2010 Budget Act appropriates all of the revenue, including  
               that which is designated for children's health services, to  
               Medi-Cal to backfill for General Fund (GF).  This bill  
               establishes legislative intent to utilize the hospital QAF  
               revenue, already designated for children's health services,  








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               to expand children's health services in future years, if  
               and when the QAF is in effect in stronger budget and  
               economic times.

             j)   This bill reauthorizes the QAF on skilled nursing  
               facilities (SNF), established by AB 1629 (Frommer), Chapter  
               875, Statutes of 2004, for one year from July 2011 to July  
               2012 and makes the following changes which are GF neutral: 

               i)     Extends a rate increase to SNFs of up to 3.93%.

               ii)    Increases the QAF revenue by: 

                  (1)       Using "trend forward" data, instead of  
                    historical data, to calculate the fees;

                  (2)       Assessing the QAF on Multi-Level Retirement  
                    Communities that are currently exempt; and,

                  (3)       Increasing the QAF.

               iii)   Implements various rate methodology accountability  
                 provisions, including: 

                  (1)       Limits professional liability insurance costs  
                    to the 75th percentile; 

                  (2)       Disallows legal costs for cases not found in  
                    favor of the facilities; and 

                  (3)       Eliminates the Labor Driven Operating  
                    Allocation.

               iv)    Establishes quality and accountability requirements  
                 on SNFs, including:

                  (1)       Assessment of penalties for noncompliance with  
                    the existing statutorily-required 3.2 staffing  
                    standard of $15,000 for noncompliance on 5-49% of  
                    audited days and $30,000 for noncompliance on 50% or  
                    more of audited days; and,

                  (2)       Provision of supplemental payments to  
                    facilities that meet or exceed quality of care  








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                    benchmarks that are to be established by a stakeholder  
                    workgroup.  Requires quality benchmarks to include:  
                    immunizations, physical restraints, facility-acquired  
                    pressure ulcers, 3.2 staffing standard, direct care  
                    staff retention (if data is available), and resident  
                    and family satisfaction.

               v)     Appropriates $1.9 million to the Long-Term Care  
                 Ombudsman Program within the Department of Aging.

             a)   Reassigns the responsibility for negotiating Medi-Cal  
               Geographic Managed Care rates from the California Medical  
               Assistance Commission (CMAC) to the DHCS.

             b)   For a variety of reasons, Medi-Cal at times reimburses  
               health care providers for care provided to patients who  
               have private insurance that should have reimbursed the  
               provider for the services.  When the state becomes aware of  
               these cases, it seeks to recover these costs either from  
               the provider directly or from the patient's private  
               insurer.  When the state recovers these funds from the  
               provider, the provider then seeks reimbursement from the  
               private insurer, however typically is permitted only 30 to  
               180 days to file such claims.  The state is provided 3  
               years to make such claims and this bill seeks to extend  
               this same amount of time to providers making such claims.

             c)   The 2008 Budget Act adopted semi-annual eligibility  
               reporting requirements for children in Medi-Cal, shortened  
               from annual eligibility renewal requirements, with a sunset  
               of July 1, 2011.  Continuous annual eligibility was  
               restored in 2009 in response to eligibility-related  
               maintenance of effort (MOE) requirements included in the  
               American Reinvestment and Recovery Act (ARRA), and set to  
               sunset at the time that ARRA expires on June 30, 2011.   
               Subsequently, federal health care reform also contained an  
               eligibility-related MOE, thereby prohibiting California  
               from restoring semi-annual reporting.  This bill clarifies  
               that continuous annual eligibility will remain in effect  
               indefinitely.

             d)   Establishes that prior to October 1, 2011, the Medi-Cal  
               risk-adjusted countywide capitation rate, being used by the  
               DHCS in "Two-Plan Counties," shall comprise no more than  








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               20% of the total capitation rate paid to each Medi-Cal  
               managed care plan.  The DHCS administratively implemented  
               this risk-adjustment factor in the 2009-10 rate year in the  
               Two-Plan Counties and the affected plans did not realize  
               the full impact of it until December of 2009.  This  
               risk-adjustment factor warrants additional research and  
               analysis prior to being expanded.

             e)   In anticipation of the expiration of the State's  
               contract for processing all Medi-Cal claims, the DHCS  
               undertook a procurement process and contracted with a new  
               entity beginning in May of 2010.  This new entity is  
               responsible for processing all Medi-Claims annually, and  
               for the development of a new computer system to update and  
               improve the efficiency of this system.  This bill imposes  
               various requirements on the State in order to increase the  
               level of oversight by the Legislature of this new contract  
               including: 

               i)     Requires DHCS to submit quarterly reports to the  
                 Legislature, Legislative Analyst, Office of the State  
                 Chief Information Officer (OCIO), and the Bureau of State  
                 Audits (BSA);

               ii)  Makes the contract subject to reviews and  
                 recommendation of the OCIO; and,

               iii) Requires the BSA to review all project documents and  
                 reports and make recommendations as necessary.

             a)   Requires the DHCS to provide the fiscal committees of  
               the Legislature with updates, in March and October of each  
               year, on all of California's Medi-Cal waivers.

             b)   In his proposed 2010 Budget, the Governor requested 56  
               new positions at the DHCS for purposes of implementing a  
               new 1115 Medicaid Waiver, which includes transitioning  
               vulnerable populations into managed care, county health  
               coverage initiatives, and hospital financing.   
               Subsequently, the Budget Conference Committee approved a  
               total of 39 positions, which includes 13 at the Department  
               of Managed Health Care (DMHC).  In order to implement this  
               increase in state staff, this bill: 









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               i)     Authorizes the DMHC to impose an adjustment to the  
                 annual assessment on managed care plans to cover the cost  
                 of the DMHC positions; and,

               ii)  Requires the DHCS and DMHC to have an interagency  
                 agreement to coordinate specified activities related to  
                 the mandatory enrollment of seniors and persons with  
                 disabilities into managed care.

             a)   Extends the sunset for one year on the state statute  
               that implements the federal "Roger's Amendment."  Enacted  
               as part of the Deficit Reduction Act of 2005, the Roger's  
               Amendment sets a limit on the amount that a Medicaid  
               (Medi-Cal) managed care plan can reimburse a non-contracted  
               hospital that provides emergency services to one of the  
               plan's members.  It requires hospitals to accept, as  
               payment in full, no more than the amounts that it could  
               collect under the fee-for-service Medicaid program.  In  
               2008, California enacted Welfare & Institutions Code  
               Section 14091.3, which sets the rate methodology for  
               non-contracted emergency inpatient services and  
               non-contracted post-stabilization services, thereby  
               implementing the federal Roger's Amendment.  This statute  
               requires the DHCS to report to the Legislature on the  
               implementation of these rates by August 1, 2010 and the  
               statute sunsets on January 1, 2011.  The DHCS has not yet  
               provided this report to the Legislature, and therefore has  
               proposed a one-year extension of the sunset to allow  
               sufficient time for review of the report and discussions on  
               the merits of a longer extension.

             b)   Requires the DHCS to seek private support to develop  
               studies of the California Children's Services (CCS)  
               Program, to be provided to the Legislature and stakeholders  
               by March 2011, addressing: systems analysis of core  
               business processes and practices, provider certification  
               and enrollment processes, medical eligibility processing,  
               oversight and monitoring of quality of care, best practices  
               for case management, and advanced information technology  
               tools.

          3)DMH Proposals

             a)   Extends the contract length for the Office of Patient  








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               Rights, within the DMH, from three years to five years, in  
               order to increase efficiency and reduce costs for both the  
               State and the contractor. 

             b)   Requires the DMH to include a detailed accounting of the  
               proposed expenditures of MHSA funds for State  
               administration of the MHSA in its statutorily required  
               semi-annual reports on the MHSA (Proposition 63).

             c)   Establishes maximum rates for outside medical contracts  
               for services provided to state mental hospital patients.

          1)DPH Proposals

             a)   Places into statute a requirement that was adopted as  
               "Supplemental Report Language" in the Budget Act of 2007  
               that required the DPH to provide the LAO and fiscal  
               committees of the Legislature with an annual vacancy report  
               by no later than January 20th of each year.  The DPH has  
               not complied with this requirement, indicating that they do  
               not deem this to be a required report given that it was  
               adopted through Supplemental Report Language. 
           
             b)   Deletes the requirement that HIV testing sites must  
               receive funding from the DPH in order to conduct rapid HIV  
               tests.  Current law requires sites to receive state  
               funding, however the budget reductions to the Office of  
               AIDS programs contained in the Governor's vetoes in 2009  
               have rendered approximately 40 counties ineligible to  
               conduct rapid HIV tests as they have lost all of their  
               state funding.

             c)   Requires the DHCS and the DPH to ensure the integrity of  
               the AIDS Drug Assistance Program (ADAP) in meeting its  
               maintenance of effort requirements to receive federal funds  
               and to obtain all drug rebates, in the event that state  
               expenditures for the ADAP are identified to be used as  
               certified public expenditures (CPEs) for the purpose of  
               obtaining federal financial participation under the  
               Medi-Cal program.

             d)   Requires the DPH to include detailed estimate packages  
               in the Governor's January and May budget proposals each  
               year for the Women Infant and Children (WIC) Program,  








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               Licensing and Certification Program, and the Every Woman  
               Counts Program.

             e)   In addition to the estimate package to be required, as  
               identified in the previous item, this bill requires the DPH  
               to provide the Legislature with quarterly reports that  
               include all expenditure data available for this program.

          1)The Agency's proposal pertaining to the Health Information  
            Technology Act authorizes the state to contract with a  
            qualified nonprofit entity to operate a federally-funded  
            health information exchange.  It establishes a process for a  
            nonprofit entity to implement a statewide collaborative  
            process for expanding capacity for electronic health  
            information exchange, as well as, establishes the parameters  
            and requirements of entering into a contract with a nonprofit  
            entity for this purpose.

          2)MRMIB Proposals

             a)   AB 1422 (Bass), Chapter 157, Statutes 2009 extended the  
               gross premium tax on insurers to Medi-Cal Managed Care  
               Plans for the purpose of raising additional revenue for the  
               State's Healthy Families Program.  AB 1422 includes a  
               sunset of December 31, 2010 and this bill extends that  
               sunset to July 1, 2011.

             b)   As proposed by the administration, this bill provides  
               the MRMIB with emergency regulation authority for purposes  
               of implementing the federal Children's Health Insurance  
               Program Reauthorization Act of 2009 (CHIPRA) and  
               CHIPRA-related program activities through fiscal year  
               2011-12, in order to facilitate prompt completion of CHIPRA  
               tasks and avoid delays and state costs resulting from  
               justifying emergency regulations at a later date.  This  
               emergency regulation authority applies specifically and  
               only to CHIPRA activities.

          7)Urgency Clause.  Declares this bill take effect immediately as  
            an urgency statute.
           
          FISCAL EFFECT  :  Consistent with the 2010-11 Budget package.










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           Analysis Prepared by  :   Andrea Margolis / BUDGET / (916)  
          319-2099

                                                                FN: 0007188