BILL ANALYSIS SB 853 Page 1 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 SB 853 Page 2 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 SB 853 Page 3 (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, SB 853 Page 4 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 SB 853 Page 5 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 SB 853 Page 6 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: SB 853 Page 7 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 SB 853 Page 8 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, SB 853 Page 9 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. SB 853 Page 10 Analysis Prepared by : Andrea Margolis / BUDGET / (916) 319-2099 FN: 0007188