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 Continued--- AB 969 | Page 2 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 : AB 969 | Page 3 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 AB 969 | Page 4 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; AB 969 | Page 5 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 AB 969 | Page 6 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 AB 969 | Page 7 Oppose: Department of Finance -- END --