BILL ANALYSIS Ó
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: AB 969
AUTHOR: Atkins
AMENDED: June 6, 2012
HEARING DATE: June 20, 2012
CONSULTANT: Bain
SUBJECT : Medi-Cal: clinical laboratory and laboratory services.
SUMMARY : Prohibits donations of, or discounts for, clinical
laboratory tests to a federally qualified health center (FQHC)
for the purpose of serving its uninsured patients from being
considered by the Department of Health Care Services (DHCS) as a
basis for the reduction of Medi-Cal payments below the existing
Medi-Cal reimbursement rates for clinical laboratory or
laboratory services.
Existing law:
1.Establishes the Medi-Cal program, administered by DHCS, under
which qualified low-income individuals receive health care
services.
2.Establishes a schedule of benefits of the Medi-Cal program,
which includes outpatient laboratory services.
3.Prohibits Medi-Cal reimbursement for clinical laboratory or
laboratory services from exceeding 80 percent of the lowest
maximum allowance established by the federal Medicare program
for the same or similar services. Establishes, through
Medi-Cal regulation, reimbursement for laboratory services as
the least of the following:
a. The amount billed;
b. The charge to the general public; or
c. Medicare's maximum allowance.
4.Prohibits, through Medi-Cal regulation:
a. A provider from charging for any service or any article
more than would have been charged for the same service or
article to other purchasers of comparable services or
articles under comparable circumstances (this regulation is
referred to as the Medi-Cal "Best Price" regulation);
b. A provider from billing or submitting a claim for
reimbursement for rendering health care services to a
Medi-Cal beneficiary in any amount greater or higher than
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the usual fee charged by the provider to the general public
for the same service.
5. Establishes, for FQHCs, a state and federal "safe harbor"
exception to the anti-kickback statutes that prohibit health
care providers from receiving rebates, refunds, discounts,
commissions or other consideration for referring patients,
clients, or customers, subject to specified conditions
contained in federal regulation. The conditions specified in
federal regulation include that the arrangement contributes
to the FQHC's ability to maintain or increase the
availability of services provided to a medically underserved
population served by the FQHC.
This bill: Prohibits, notwithstanding any other provision of
law, donations of, or discounts for, clinical laboratory tests
or examinations or laboratory services to a FQHC for the purpose
of serving its uninsured patients from being considered by DHCS
as a basis for the reduction of Medi-Cal payments below the
reimbursement rate for clinical laboratory or laboratory
services established under existing Medi-Cal law.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, by protecting discount arrangements between FQHCs and
clinical laboratories, this bill is likely to increase future
Medi-Cal laboratory costs as compared to what would occur under
a status-quo scenario where these discount arrangements are
threatened. The extent of the increase is unknown because market
forces would influence the ultimate price paid by Medi-Cal in
the absence of this protection. However, the increase in
Medi-Cal costs is likely to be in the range of tens of millions
of dollars annually in total funds (50 percent state General
Fund ÝGF], 50 percent federal funds).
In addition, this bill could potentially weaken the legal
arguments used by the state in enforcing Medi-Cal's low price
rule, decreasing the state's chances for successfully enforcing
the rule and decreasing the likelihood of the state receiving
lower prices, monetary awards, or settlements related to
enforcement of the rule.
PRIOR VOTES :
Assembly Health: 17- 0
Assembly Appropriations:17- 0
Assembly Floor: 73- 0
COMMENTS :
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1.Author's statement. AB 969 reaffirms the existing protections
for FQHCs to enter into business arrangements that enhance
their ability to provide quality health care to California's
uninsured population. In effect, AB 969 maintains the status
quo for FQHCs by protecting them from the unintended
consequences of enforcement of Medi-Cal's Best Price
regulation. Uninsured discounts for laboratory services
offered to FQHCs fall outside the scope of Medi-Cal's Best
Price regulation due to the nature of their obligations to
their patients. The uniqueness of FQHCs compared to other
purchasers is acknowledged through the federal and state
anti-kickback safe harbors that they enjoy. If FQHCs are
treated identically to other purchasers under Medi-Cal's Best
Price regulation- despite their safe harbor protections and
their special mandate to serve uninsured patients - they may
no longer be able to obtain discounted pricing for laboratory
services. Clinics rely on discounted laboratory services to
assure that the greatest numbers of health center patients are
served. If the discounting of laboratory services below
Medi-Cal rates is eliminated for them, the California Primary
Care Association (CPCA) estimates that the financial impact on
FQHCs will be between $40-55 million annually.
2.Litigation involving violations of "Best Price regulation" and
anti-kickback statutes. In 2008, the state Attorney General
(AG) brought a lawsuit against several laboratories, alleging
the laboratories submitted false claims for payment to the
Medi-Cal program by charging Medi-Cal more for laboratory
tests than they charged other purchasers of "comparable
services" under "comparable circumstances," in violation of
several regulations, including the Best Price regulation. The
AG alleged that labs fraudulently billed Medi-Cal some of the
highest rates, while deeply discounting many of their fees
charged to private payors to attract Medi-Cal business and
referrals from physicians, clinics, and hospitals. In
addition, the AG's lawsuit alleged the discounts provided on
laboratory tests for non-Medi-Cal services was done to induce
health care providers, clinics and hospitals to refer Medi-Cal
business to the laboratories in violation of federal, state
and Medi-Cal specific anti-kickback statutes. The AG has
reached settlement agreements with 7 laboratories for a total
of $299.6 million, of which $213 million will go to the state
and federal government.
Following the filing of the AG lawsuit, DHCS directed
laboratories to self-audit to identify all instances where
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their pricing was below the Medi-Cal rate. DHCS indicated the
required self-audit was the result of DHCS' Laboratory Price
Sweeps Special Project, where it was discovered that
laboratory providers had routinely charged and been reimbursed
by Medi-Cal with rates higher than the rates charged to other
payors for the same services under comparable circumstances.
In meetings with DHCS and in a memo to the California Health
and Human Services Secretary, CPCA argued DHCS' actions
jeopardized FQHCs' ability to negotiate discounted pricing for
laboratory services for the uninsured. CPCA argued that if
DHCS did not provide an exemption from the Best Price
regulation for laboratory services for FQHC patients, the most
likely outcome was that labs would increase their charges to
FQHCs to be in line with Medi-Cal rates. CPCA also argued
DHCS' interpretation of the Best Price regulation undercut a
"safe harbor" provision in state and federal law that exempted
discounts provided to FQHC patients from prosecution under
state and federal anti-kickback statutes.
3.Prior legislation. Federal regulations, enacted as a result of
the Medicare Prescription Drug, Improvement, and Modernization
Act of 2003 (MMA), (Public Law 108-173), establish a "safe
harbor" for health centers (such as FQHCs) from the federal
anti-kickback, subject to specified conditions, including that
the arrangement contributes to the health center's ability to
maintain or increase the availability or enhance the quality
of services available to a medically underserved population.
Following the adoption of the MMA safe harbor regulations, AB
2282 (Oropeza), Chapter 772, Statutes of 2006, enacted
conforming changes to state law by providing FQHCs with an
exception from the state's anti-kickback statute and the
Medi-Cal anti-kickback statute, only to the extent sanctioned
or permitted by federal law.
4.Budget proposal. The Governor proposed to reduce rates for
laboratory services by 10 percent until a new methodology for
reimbursing for lab services is developed. Estimated savings
from this proposal are $7.7 million GF for 2012-13.
Trailer bill language (AB 1467 and SB 1007) implementing this
provision establishes a new rate methodology for clinical
laboratory or laboratory services that prohibits reimbursement
from exceeding the lowest of the following:
a. The amount billed;
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b. The charge to the general public;
c. Eighty percent of the lowest maximum allowance
established by the federal Medicare program for the same or
similar services; or
d. A reimbursement rate based on an average of the lowest
amount that other payers and other state Medicaid programs
are paying for similar clinical laboratory services.
Until the new rate methodology has been approved by the
federal government, payments for clinical laboratory or
laboratory services are reduced by the trailer bill language
by up to 10 percent. This reduction is in addition to a
previous rate reduction, and it applies to dates of service
provided on and after July 1, 2012. The trailer bill language
also states that the Best Price regulation does not apply to
the rate methodology developed for clinical laboratories or
laboratory services.
5.Support. This bill is sponsored by CPCA to clarify that
Medi-Cal Best Pricing regulations do not apply when discounts
are provided for services to the uninsured through
arrangements with FQHCs that are protected by the federal
anti-kickback safe harbor rule. CPCA states the FQHC safe
harbor rule was designed to protect arrangements between
health center grantees and other providers, suppliers, and
vendors for no-cost, low-cost, and discounted services
furnished to the health center's underserved and uninsured
patients without the risk of prosecution under the
anti-kickback laws. Due to recent action by the state as
related to discounted lab services, FQHCs have become
exceedingly concerned that the current arrangements between
clinical laboratories and the health centers to provide
essential discounted pricing for uninsured patients may be at
risk. This bill will allow FQHCs to obtain discounted pricing
for laboratory services by providing an exception from the
Best Pricing regulation. CPCA argues this bill is imperative
to the success and sustainability of California's community
health centers.
6.Opposition. Last year, the Department of Finance (DOF)
indicated in its analysis of a prior version of this bill last
year that it opposes for the following reasons: (a) this bill
would likely have a negative fiscal impact on the state GF;
(b) this bill would likely impede the state's ability to
prevail in current litigation against seven laboratory
providers for Medi-Cal fraud; (c) this bill would set an
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unwanted precedent by authorizing laboratories to charge
higher rates to Medi-Cal than other payers, and this could
create pressure to provide this option to additional Medi-Cal
providers; and (d) the defendants in the ongoing litigation
claim that current law does not clearly require providers to
offer Medi-Cal the lowest rate offered to another provider.
DOF argues current law is clear with respect to this issue,
and this bill would be an attempt to clarify the law where the
Administration believes no clarification is needed. Finally,
DOF concludes by arguing this bill would exempt laboratory
providers from provisions that guarantee Medi-Cal receives the
lowest available rate.
7.Policy issue. This bill poses a trade-off between competing
policy goals. On the one hand, Medi-Cal's Best Price
regulation ensures the state receives the best price possible
from health care providers (including laboratories) providing
services to Medi-Cal beneficiaries, and exemptions from the
Best Price regulation prevent DHCS from receiving the lowest
available rates from Medi-Cal providers and increase state GF
expenditures.
On the other hand, the state has a policy interest in ensuring
low-income uninsured individuals have access to health care
services, which FQHCs provide. If laboratories can no longer
provide laboratory services for uninsured patients at rates
below their Medi-Cal rates, the laboratories will likely
increase the price charged to FQHC who pay for the services on
behalf of these patients. This will affect FQHCs' ability to
provide services to the uninsured or could result in the FQHCs
having their uninsured patients bear the cost of lab work
themselves.
8.Recommended amendment. This bill contains language
"notwithstanding any other provision of law." Committee staff
recommends an amendment to specify the provision of state
regulation that the "notwithstanding" language applies to.
SUPPORT AND OPPOSITION :
Support: California Primary Care Association (co-sponsor)
Council of Community Clinics (co-sponsor)
Community Clinic Association of Los Angeles County
Family Health Centers of San Diego
Latino Coalition for a Healthy California
Salud Para La Gente
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Oppose: Department of Finance
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