BILL NUMBER: AB 1066	ENROLLED
	BILL TEXT

	PASSED THE SENATE  JULY 5, 2011
	PASSED THE ASSEMBLY  JULY 7, 2011
	AMENDED IN SENATE  JUNE 15, 2011
	AMENDED IN SENATE  MAY 31, 2011
	AMENDED IN ASSEMBLY  APRIL 4, 2011

INTRODUCED BY   Assembly Member John A. Pérez
   (Coauthor: Assembly Member Monning)

                        FEBRUARY 18, 2011

   An act to amend Sections 14166.1, 14166.2, 14166.3, 14166.35,
14166.4, 14166.5, 14166.6, 14166.7, 14166.75, 14166.8, 14166.9,
14166.20, 14166.21, 14166.24, 14166.26, 14182, 14182.3, 14182.4,
15908, 15909.1, 15910, 15910.1, 15910.2, 15910.3, 15911, 15912, and
15914 of, to amend the heading of Part 3.6 (commencing with Section
15909) of Division 9 of, and to add Sections 14166.61, 14166.71,
14166.77, and 14182.45 to, the Welfare and Institutions Code,
relating to public health care, making an appropriation therefor, and
declaring the urgency thereof, to take effect immediately.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 1066, John A. Pérez. Public health care: Medi-Cal:
demonstration project waivers.
   Existing law provides for the Medi-Cal program, which is
administered by the State Department of Health Care Services, under
which qualified low-income individuals receive health care services.
The Medi-Cal program is, in part, governed and funded by federal
Medicaid Program provisions. Existing law establishes the Medi-Cal
Hospital/Uninsured Care Demonstration Project Act, which revises
hospital supplemental payment methodologies under the Medi-Cal
program in order to maximize the use of federal funds consistent with
federal Medicaid law and to stabilize the distribution of funding
for hospitals that provide care to Medi-Cal beneficiaries and
uninsured patients. This demonstration project provides for funding,
in supplementation of Medi-Cal reimbursement, to various hospitals,
including designated public hospitals, nondesignated public
hospitals, and private hospitals, as defined, in accordance with
certain provisions relating to disproportionate share hospitals.
   Existing law requires the department to seek another demonstration
project or federal waiver of Medicaid law to implement specified
objectives, which may include better care coordination for seniors,
persons with disabilities, and children with special health care
needs. Existing law provides that to the extent the provisions under
the Medi-Cal Hospital/Uninsured Care Demonstration Project Act do not
conflict with the provisions of, or the Special Terms and Conditions
of, this demonstration project, the provisions of the Medi-Cal
Hospital/Uninsured Care Demonstration Project Act shall apply.
   Existing law establishes the following continuously appropriated
funds to be expended by the department:
   (1) The Demonstration Disproportionate Share Hospital Fund, which
consists of federal funds claimed and received by the department as
federal financial participation with respect to certified public
expenditures.
   (2) The Health Care Support Fund, which consists of safety net
care pool funds claimed and received by the department under the
demonstration projects.
   (3) The Private Hospital Supplemental Fund, the Nondesignated
Public Hospital Supplemental Fund, and the Distressed Hospital Fund,
which consist of moneys from various sources, and are used as the
source of the nonfederal share of payments to private hospitals,
nondesignated hospitals, and distressed hospitals, respectively.
   (4) The Public Hospital Investment, Improvement, and Incentive
Fund, which consists of moneys that a county, other political
subdivision of the state, or other governmental entity in the state
elects to transfer to the department for use as the nonfederal share
of investment, improvement, and incentive payments to participating
designated hospitals and the governmental entities with which they
are affiliated.
   (5) The Medi-Cal Inpatient Payment Adjustment Fund, which consists
of moneys transferred to the fund and used as the nonfederal share
of payment adjustments made to hospitals under the Medi-Cal program.
   This bill would further distinguish which provisions of the
Medi-Cal Hospital/Uninsured Care Demonstration Project Act apply to
the successor demonstration project, as defined, and would make other
conforming changes. By extending the term of some of the
continuously appropriated funds, this bill would make an
appropriation. By revising the purposes for which moneys in the
Health Care Support Fund and moneys in the Public Hospital
Investment, Improvement, and Incentive Fund shall be used, this bill
would make an appropriation. By extending the period of time during
which transfers are made to the continuously appropriated Medi-Cal
Inpatient Payment Adjustment Fund, this bill would make an
appropriation.
   Existing law provides for the Health Care Coverage Initiative,
which is a federal waiver demonstration project established to expand
health care coverage to low-income uninsured individuals who are not
currently eligible for the Medi-Cal program, the Healthy Families
Program, or the Access for Infants and Mothers program. Existing law
also, to the extent that federal financial participation is available
and federal financial participation is not jeopardized, requires the
department, on or after November 1, 2010, but no later than March 1,
2011, or 180 days after federal approval of a successor
demonstration project, as defined, to authorize local Coverage
Expansion and Enrollment Demonstration (CEED) projects, as specified,
to provide scheduled health care benefits for uninsured adults 19 to
64 years of age, inclusive, with incomes up to 133% of the federal
poverty level who are not otherwise eligible for Medi-Cal or
Medicare. Existing law also provides that, to the extent federal
financial participation is made available under the Special Terms and
Conditions of the demonstration project, CEED project services may
be made available to individuals with incomes between 134% to 200%,
inclusive, of the federal poverty level.
   This bill would rename a CEED project a Low Income Health Program
(LIHP) and would instead provide that the department shall authorize
local LIHPs no later than July 1, 2011. This bill would also provide
that LIHP health care services may be provided to eligible
individuals, as described, including those with incomes above 133%
through 200% of the federal poverty level. This bill also would make
technical, nonsubstantive changes to these provisions.
   This bill would declare that it is to take effect immediately as
an urgency statute.
   Appropriation: yes.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 14166.1 of the Welfare and Institutions Code is
amended to read:
   14166.1.  For purposes of this article, the following definitions
shall apply:
   (a) "Allowable costs" means those costs recognized as allowable
under Medicare reasonable cost principles and additional costs
recognized under the demonstration project and successor
demonstration project, including those expenditures identified in
Appendix D to the Special Terms and Conditions for the demonstration
project and successor demonstration project. Allowable costs under
this subdivision shall be determined in accordance with the Special
Terms and Conditions and implementation documents for the
demonstration project and successor demonstration project approved by
the federal Centers for Medicare and Medicaid Services.
   (b) "Base year private DSH hospital" means a nonpublic hospital,
nonpublic-converted hospital, or converted hospital, as those terms
are defined in paragraphs (26), (27), and (28), respectively, of
subdivision (a) of Section 14105.98, that was an eligible hospital
under paragraph (3) of subdivision (a) of Section 14105.98 for the
2004-05 state fiscal year.
   (c) "Demonstration project" means the Medi-Cal Hospital/Uninsured
Care Demonstration, Number 11-W-00193/9, as approved by the federal
Centers for Medicare and Medicaid Services, effective for the period
of September 1, 2005, through October 31, 2010.
   (d) "Designated public hospital" means any one of the following
hospitals to the extent identified in Attachment C,
"Government-operated Hospitals to be Reimbursed on a Certified Public
Expenditure Basis," to the Special Terms and Conditions for the
demonstration project and successor demonstration project, as
applicable, issued by the federal Centers for Medicare and Medicaid
Services:
   (1) UC Davis Medical Center.
   (2) UC Irvine Medical Center.
   (3) UC San Diego Medical Center.
   (4) UC San Francisco Medical Center.
   (5) UC Los Angeles Medical Center, including Santa Monica/UCLA
Medical Center.
   (6) LA County Harbor/UCLA Medical Center.
   (7) LA County Martin Luther King Jr.-Harbor Hospital.
   (8) LA County Olive View UCLA Medical Center.
   (9) LA County Rancho Los Amigos National Rehabilitation Center.
   (10) LA County University of Southern California Medical Center.
   (11) Alameda County Medical Center.
   (12) Arrowhead Regional Medical Center.
   (13) Contra Costa Regional Medical Center.
   (14) Kern Medical Center.
   (15) Natividad Medical Center.
   (16) Riverside County Regional Medical Center.
   (17) San Francisco General Hospital.
   (18) San Joaquin General Hospital.
   (19) San Mateo Medical Center.
   (20) Santa Clara Valley Medical Center.
   (21) Tuolumne General Hospital.
   (22) Ventura County Medical Center.
   (e) "Federal medical assistance percentage" means the federal
medical assistance percentage applicable for federal financial
participation purposes for medical services under the Medi-Cal state
plan pursuant to Section 1396b(a) of Title 42 of the United States
Code.
   (f) "Nondesignated public hospital" means a public hospital
defined in paragraph (25) of subdivision (a) of Section 14105.98,
excluding designated public hospitals.
   (g) "Project year" means the applicable state fiscal year of the
Medi-Cal Hospital/Uninsured Care Demonstration Project through
October 31, 2010.
   (h) "Project year private DSH hospital" means a nonpublic
hospital, nonpublic-converted hospital, or converted hospital, as
those terms are defined in paragraphs (26), (27), and (28),
respectively, of subdivision (a) of Section 14105.98, that was an
eligible hospital under paragraph (3) of subdivision (a) of Section
14105.98, for the particular project year.
   (i) "Prior supplemental funds" means the Emergency Services and
Supplemental Payments Fund, the Medi-Cal Medical Education
Supplemental Payment Fund, the Large Teaching Emphasis Hospital and
Children's Hospital Medi-Cal Medical Education Supplemental Payment
Fund, and the Small and Rural Hospital Supplemental Payments Fund,
established under Sections 14085.6, 14085.7, 14085.8, and 14085.9,
respectively.
   (j) "Private hospital" means a nonpublic hospital,
nonpublic-converted hospital, or converted hospital, as those terms
are defined in paragraphs (26) to (28), inclusive, respectively, of
subdivision (a) of Section 14105.98.
   (k) "Safety net care pool" means the federal funds available under
the Medi-Cal Hospital/Uninsured Care Demonstration Project and the
successor demonstration project to ensure continued government
support for the provision of health care services to uninsured
populations.
   (l) "Uninsured" shall have the same meaning as that term has in
the Special Terms and Conditions issued by the federal Centers for
Medicare and Medicaid Services for the demonstration project and the
successor demonstration project.
   (m) "Successor demonstration project" means the Medicaid
demonstration project entitled "California's Bridge to Reform," No.
11-W-00193/9, as approved by the federal Centers for Medicare and
Medicaid Services, effective for the period of November 1, 2010,
through October 31, 2015.
   (n) "Successor demonstration year" means the demonstration year as
identified in the Special Terms and Conditions for the successor
demonstration project that corresponds to a specific period of time
as follows:
   (1) Successor demonstration year 6 corresponds to the period of
November 1, 2010, through June 30, 2011.
   (2) Successor demonstration year 7 corresponds to the period of
July 1, 2011, through June 30, 2012.
   (3) Successor demonstration year 8 corresponds to the period of
July 1, 2012, through June 30, 2013.
   (4) Successor demonstration year 9 corresponds to the period of
July 1, 2013, through June 30, 2014.
   (5) Successor demonstration year 10 corresponds to July 1, 2014,
through October 31, 2015.
   (o) "Low Income Health Program" means the county-based elective
program to provide benefits for low-income individuals that is
authorized by the successor demonstration project and implemented by
Part 3.6 (commencing with Section 15909).
   (p) "Delivery system reform incentive pool" means the separate
federal funding pool created within the safety net care pool under
the successor demonstration project that is available to support
programs of activity to enhance the quality of care and health of
patients served by designated public hospitals and nonhospital
clinics and other provider types with which they are affiliated, and,
under specified conditions and approval of the federal Centers for
Medicare and Medicaid Services, to private disproportionate share
hospitals and nondesignated public hospitals.
  SEC. 2.  Section 14166.2 of the Welfare and Institutions Code is
amended to read:
   14166.2.  (a) The demonstration project, and the successor
demonstration project, as applicable, shall be implemented and
administered pursuant to this article.
   (b) (1) The director may modify any process or methodology
specified in this article to the extent necessary to comply with
federal law or the terms of the demonstration project or the
successor demonstration project, as applicable, but only if the
modification results in the equitable distribution of funding,
consistent with this article, among the hospitals affected by the
modification. If the director, after consulting with affected
hospitals, determines that an equitable distribution cannot be
achieved, the director shall execute a declaration stating that this
determination has been made. The director shall retain the
declaration and provide a copy, within five working days of the
execution of the declaration, to the fiscal and appropriate policy
committees of the Legislature. This article shall become inoperative
on the date that the director executes a declaration pursuant to this
subdivision, and as of January 1 of the following year shall be
repealed.
   (2) In addition to the requirements specified in paragraph (1),
the director shall post the declaration on the department's Internet
Web site and the director shall send the declaration to the Secretary
of State and the Legislative Counsel.
   (c) The director shall administer the demonstration project, the
successor demonstration project, and related Medi-Cal payment
programs in a manner that attempts to maximize available payment of
federal financial participation, consistent with federal law, the
applicable Special Terms and Conditions for the demonstration project
and successor demonstration project issued by the federal Centers
for Medicare and Medicaid Services, and this article.
   (d) As permitted by the federal Centers for Medicare and Medicaid
Services, this article shall be effective with regard to services
rendered throughout the term of the demonstration project, and
retroactively, with regard to services rendered on or after July 1,
2005, but prior to the implementation of the demonstration project,
and with regard to services rendered throughout the term of the
successor demonstration project.
   (e) In the administration of this article, the state shall
continue to make payments to hospitals that meet the eligibility
requirements for participation in the supplemental reimbursement
program for hospital facility construction, renovation, or
replacement pursuant to Section 14085.5 and shall continue to make
inpatient hospital payments not covered by the contract. These
payments shall not duplicate any other payments made under this
article.
   (f) The department shall continue to operate the selective
provider contracting program in accordance with Article 2.6
(commencing with Section 14081) in a manner consistent with this
article. A designated public hospital participating in the certified
public expenditure process shall maintain a selective provider
contracting program contract. These contracts shall continue to be
exempt from Chapter 2 (commencing with Section 10290) of Part 2 of
Division 2 of the Public Contract Code.
   (g) (1) In the event of a final judicial determination made by any
state or federal court that is not appealed in any action by any
party or a final determination by the administrator of the federal
Centers for Medicare and Medicaid Services that federal financial
participation is not available with respect to any payment made under
any of the methodologies implemented pursuant to this article
because the methodology is invalid, unlawful, or is contrary to any
provision of federal law or regulation, the director may modify the
process or methodology to comply with law, but only if the
modification results in the equitable distribution of demonstration
project funding, consistent with this article, among the hospitals
affected by the modification. If the director, after consulting with
affected hospitals, determines that an equitable distribution cannot
be achieved, the director shall execute a declaration stating that
this determination has been made. The director shall retain the
declaration and provide a copy, within five working days of the
execution of the declaration, to the fiscal and appropriate policy
committees of the Legislature. This article shall become inoperative
on the date that the director executes a declaration pursuant to this
subdivision, and as of January 1 of the following year shall be
repealed.
   (2) In addition to the requirements specified in paragraph (1),
the director shall post the declaration on the department's Internet
Web site and the director shall send the declaration to the Secretary
of State and the Legislative Counsel.
   (h) (1) The department may adopt regulations to implement this
article. These regulations may initially be adopted as emergency
regulations in accordance with the rulemaking provisions of the
Administrative Procedure Act (Chapter 3.5 (commencing with Section
11340) of Part 1 of Division 3 of Title 2 of the Government Code).
For purposes of this article, the adoption of regulations shall be
deemed an emergency and necessary for the immediate preservation of
the public peace, health, and safety or general welfare. Any
emergency regulations adopted pursuant to this section shall not
remain in effect subsequent to 24 months after the effective date of
this article.
   (2) As an alternative, and notwithstanding the rulemaking
provisions of Chapter 3.5 (commencing with Section 11340) of Part 1
of Division 3 of Title 2 of the Government Code, or any other
provision of law, the department may implement and administer this
article by means of provider bulletins, manuals, or other similar
instructions, without taking regulatory action. The department shall
notify the fiscal and appropriate policy committees of the
Legislature of its intent to issue a provider bulletin, manual, or
other similar instruction, at least five days prior to issuance. In
addition, the department shall provide a copy of any provider
bulletin, manual, or other similar instruction issued under this
paragraph to the fiscal and appropriate policy committees of the
Legislature. The department shall consult with interested parties and
appropriate stakeholders, regarding the implementation and ongoing
administration of this article.
   (i) To the extent necessary to implement this article, the
department shall submit, by September 30, 2005, to the federal
Centers for Medicare and Medicaid Services proposed amendments to the
Medi-Cal state plan, including, but not limited to, proposals to
modify inpatient hospital payments to designated public hospitals,
modify the disproportionate share hospital payment program, and
provide for supplemental Medi-Cal reimbursement for certain physician
and nonphysician professional services. The department shall,
subsequent to September 30, 2005, submit any additional proposed
amendments to the Medi-Cal state plan that may be required by the
federal Centers for Medicare and Medicaid Services, to the extent
necessary to implement this article.
   (j) Each designated public hospital shall implement a
comprehensive process to offer individuals who receive services at
the hospital the opportunity to apply for the Medi-Cal program, the
Healthy Families Program, or any other public health coverage program
for which the individual may be eligible, and shall refer the
individual to those programs, as appropriate.
   (k) In any judicial challenge of the provisions of this article,
nothing shall create an obligation on the part of the state to fund
any payment from state funds due to the absence or shortfall of
federal funding.
   (l) Any reference in this article to the "Medicare cost report"
shall be deemed a reference to the Medi-Cal cost report to the extent
that report is approved by the federal Centers for Medicare and
Medicaid Services for any of the uses described in this article.
  SEC. 3.  Section 14166.3 of the Welfare and Institutions Code is
amended to read:
   14166.3.  (a) During the demonstration project and successor
demonstration project terms, payment adjustments to disproportionate
share hospitals shall not be made pursuant to Section 14105.98.
Payment adjustments to disproportionate share hospitals shall be made
solely in accordance with this article.
   (b) Except as otherwise provided in this article, the department
shall continue to make all eligibility determinations and perform all
payment adjustment amount computations under the disproportionate
share hospital payment adjustment program pursuant to Section
14105.98 and pursuant to the disproportionate share hospital
provisions of the Medicaid state plan in effect as of the 2004-05
state fiscal year. For purposes of these determinations and
computations, services that are rendered under the Health Care
Coverage Initiative authorized pursuant to Part 3.5 (commencing with
Section 15900) or the Low Income Health Program authorized pursuant
to Part 3.6 (commencing with Section 15909) shall be included.
   (c) (1) Notwithstanding Section 14105.98, the federal
disproportionate share hospital allotment specified for California
under Section 1396r-4(f) of Title 42 of the United States Code for
each of federal fiscal years 2006 to 2015, inclusive, and federal
fiscal year 2016 with respect to the pro rata portion of the
allotment that will apply during successor demonstration year 10
pursuant to paragraph (2), shall be distributed solely among the
following hospitals:
   (A) Eligible hospitals, as determined pursuant to Section 14105.98
for each project year and successor demonstration year in which the
particular federal fiscal year commences, which meet the definition
of a public hospital as specified in paragraph (25) of subdivision
(a) of Section 14105.98.
   (B) Hospitals that are licensed to the University of California,
which meet the requirements set forth in Section 1396r-4(d) of Title
42 of the United States Code.
   (2) The federal disproportionate share hospital allotment for each
of the federal fiscal years 2006 to 2015, inclusive, shall be
aligned with the project year or successor demonstration year in
which the applicable federal fiscal year commences. The payment
adjustment year, as used within the meaning of paragraph (6) of
subdivision (a) of Section 14105.98, shall be the corresponding
project year or successor demonstration year. With respect to
successor demonstration year 10, the period of July 1, 2015, through
October 31, 2015, shall be aligned with a pro rata portion of the
federal disproportionate share hospital allotment for federal fiscal
year 2016.
   (3) Uncompensated Medi-Cal and uninsured costs as reported
pursuant to Section 14166.8, shall be used by the department as the
basis for determining the hospital-specific disproportionate share
hospital payment limits required by Section 1396r-4(g) of Title 42 of
the United States Code for the hospitals described in paragraph (1).

   (4) The distribution of the federal disproportionate share
hospital allotment to hospitals described in paragraph (1) shall
satisfy the state's payment obligations, if any, with respect to
those hospitals under Section 1396r-4 of Title 42 of the United
States Code.
   (d) Eligible hospitals, as determined pursuant to Section 14105.98
for each project year and each successor demonstration year, which
are nonpublic hospitals, nonpublic-converted hospitals, and converted
hospitals, as those terms are defined in paragraphs (26), (27), and
(28), respectively, of subdivision (a) of Section 14105.98, shall
receive Medi-Cal disproportionate share hospital replacement payment
adjustments pursuant to Section 14166.11 and other provisions of this
chapter. The payment adjustments so provided shall satisfy the state'
s payment obligations, if any, with respect to those hospitals under
Section 1396r-4 of Title 42 of the United States Code. The federal
share of these payments shall not be claimed from the federal
disproportionate share hospital allotment described in subdivision
(c).
   (e) The nonfederal share of payments described in subdivisions (c)
and (d) shall be derived from the following sources:
   (1) With respect to the payments described in paragraph (1) of
subdivision (c) that are made to designated public hospitals, the
nonfederal share shall consist of certified public expenditures
described in subparagraphs (A) and (C) of paragraph (2) of
subdivision (a) of Section 14166.9, and intergovernmental transfer
amounts described in paragraph (2) of subdivision (d) of Section
14166.6.
   (2) With respect to the payments described in paragraph (1) of
subdivision (c) that are made to nondesignated public hospitals, the
nonfederal share shall consist solely of state General Fund
appropriations.
   (3) With respect to the payments described in subdivision (d), the
nonfederal share shall consist of state General Fund appropriations.

   (f) (1)  During the terms of the demonstration project and
successor demonstration project, for the 2005-06 state fiscal year
and any subsequent state fiscal years, no public entity shall be
obligated to make any intergovernmental transfer pursuant to Section
14163, and all transfer amount determinations for those state fiscal
years shall be suspended. However, during the demonstration project
and successor demonstration project terms, intergovernmental
transfers shall be made with respect to the disproportionate share
hospital payment adjustments made in accordance with paragraph (2) of
subdivision (d) of Section 14166.6, or paragraph (2) of subdivision
(d) of Section 14166.61, as applicable.
   (2) During the terms of the demonstration project and successor
demonstration project, for the 2005-06 state fiscal year and any
subsequent state fiscal years, transfer amounts from the Medi-Cal
Inpatient Payment Adjustment Fund to the Health Care Deposit Fund, as
provided for pursuant to paragraph (2) of subdivision (d) of Section
14163, are hereby reduced to zero. Unless otherwise specified in
this article, this paragraph shall be disregarded for purposes of the
calculations made under Section 14105.98 during the demonstration
project and successor demonstration project.
  SEC. 4.  Section 14166.35 of the Welfare and Institutions Code is
amended to read:
   14166.35.  (a) For each project year through October 31, 2010,
designated public hospitals shall be eligible to receive the
following:
   (1) Payments for Medi-Cal inpatient hospital services and
supplemental payments for physician and nonphysician practitioner
services, as specified in Section 14166.4.
   (2) Disproportionate share hospital payment adjustments, as
specified in Section 14166.6.
   (3) Safety net care pool funding, as specified in Section 14166.7.

   (4) Stabilization funding, as specified in Section 14166.75.
   (5) Grants to distressed hospitals as negotiated by the California
Medical Assistance Commission pursuant to Section 14166.23.
   (b) For each successor demonstration year, designated public
hospitals shall be eligible to receive the following:
   (1) Payments for Medi-Cal inpatient hospital services and
supplemental payments for physician and nonphysician practitioner
services, as specified in Section 14166.4.
   (2) Disproportionate share hospital payment adjustments, as
specified in Section 14166.61.
   (3) Safety net care pool funding, as specified in Section
14166.71.
   (4) Delivery system reform incentive pool payments, as specified
in Section 14166.77.
   (5) Grants to distressed hospitals as negotiated by the California
Medical Assistance Commission to the extent the funding is available
pursuant to Section 14166.23 or any other provisions of this
article.
   (c) Payments under this section shall be in addition to other
payments that may be made in accordance with law.
  SEC. 5.  Section 14166.4 of the Welfare and Institutions Code is
amended to read:
   14166.4.  (a) Notwithstanding Article 2.6 (commencing with Section
14081), and any other provision of law, fee-for-service payments to
the designated public hospitals for inpatient services to Medi-Cal
beneficiaries shall be governed by this section. Each of the
designated public hospitals shall receive as payment for inpatient
hospital services provided to Medi-Cal beneficiaries during any
project year or successor demonstration year, the hospital's
allowable costs incurred in providing those services, multiplied by
the federal medical assistance percentage. These costs shall be
determined, certified, and claimed in accordance with Sections
14166.8 and 14166.9. All Medicaid federal financial participation
received by the state for the certified public expenditures of the
hospital, or the governmental entity with which the hospital is
affiliated, for inpatient hospital services rendered to Medi-Cal
beneficiaries shall be paid to the hospital.
   (b) With respect to each project year and successor demonstration
year, each of the designated public hospitals shall receive an
interim payment for each day of inpatient hospital services rendered
to Medi-Cal beneficiaries based upon claims filed by the hospital in
accordance with the claiming process set forth in Division 3
(commencing with Section 50000) of Title 22 of the California Code of
Regulations. The interim per diem payment amount shall be based on
estimated costs, which shall be derived from statistical data from
the following sources and which shall be multiplied by the federal
medical assistance percentage:
   (1) For allowable costs reflected in the Medicare cost report, the
cost report most recently audited by the hospital's Medicare fiscal
intermediary adjusted by a trend factor to reflect increased costs,
as approved by the federal Centers for Medicare and Medicaid Services
for the demonstration project.
   (2) For allowable costs not reflected in the Medicare cost report,
each hospital shall provide hospital-specific cost data requested by
the department. The department shall adjust the data by a trend
factor as necessary to reflect project year allowable costs.
   (c) Until the department commences making payments pursuant to
subdivision (b), the department may continue to make fee-for-service,
per diem payments to the designated public hospitals, pursuant to
the selective provider contracting program in accordance with Article
2.6 (commencing with Section 14081), for services rendered on and
after July 1, 2005, for a period of 120 days following the award of
this demonstration. Per diem payments shall be adjusted retroactively
to the amounts determined under the payment methodology prescribed
in this article.
   (d) No later than April 1 following the end of the relevant
reporting period for the project year or successor demonstration
year, the department shall undertake an interim reconciliation of
payments made pursuant to subdivisions (a) to (c), inclusive, based
on Medicare and other cost and statistical data submitted by the
hospital for the year and shall adjust payments to the hospital
accordingly.
   (e) (1) The designated public hospitals shall receive supplemental
reimbursement for the costs incurred for physician and nonphysician
practitioner services provided to Medi-Cal beneficiaries who are
patients of the hospital, to the extent that those services are not
claimed as inpatient hospital services by the hospital and the costs
of those services are not otherwise recognized under subdivision (a).

   (2) Expenditures made by the designated public hospital, or a
governmental entity with which it is affiliated, for the services
identified in paragraph (1) shall be reduced by any payments received
pursuant to Article 7 (commencing with Section 51501) of Title 22 of
the California Code of Regulations. The remainder shall be certified
by the appropriate public official and claimed by the department in
accordance with Sections 14166.8 and 14166.9. These expenditures may
include any of the following:
                                                         (A)
Compensation to physicians or nonphysician practitioners pursuant to
contracts with the designated public hospital.
   (B) Salaries and related costs for employed physicians and
nonphysician practitioners.
   (C) The costs of interns, residents, and related teaching
physician and supervision costs.
   (D) Administrative costs associated with the services described in
subparagraphs (A) to (C), inclusive, including billing costs.
   (3) Designated public hospitals shall receive federal funding
based on the expenditures identified and certified in paragraph (2).
All federal financial participation received by the department for
the certified public expenditures identified in paragraph (2) shall
be paid to the designated public hospital, or a governmental entity
with which it is affiliated.
   (4) To the extent that the supplemental reimbursement received
under this subdivision relates to services provided to hospital
inpatients, the reimbursement shall be applied in determining whether
the designated public hospital has received full baseline payments
for purposes of paragraph (1) of subdivision (b) of Section 14166.21.

   (5) Supplemental reimbursement under this subdivision may be
distributed as part of the interim payments under subdivision (b), on
a per-visit basis, on a per-procedure basis, or on any other
federally permissible basis.
   (6) The department shall submit for federal approval, by September
30, 2005, a proposed amendment to the Medi-Cal state plan to
implement this subdivision, retroactive to July 1, 2005, to the
extent permitted by the federal Centers for Medicare and Medicaid
Services. If necessary to obtain federal approval, the department may
limit the application of this subdivision to costs determined
allowable by the federal Centers for Medicare and Medicaid Services.
If federal approval is not obtained, this subdivision shall not be
implemented.
  SEC. 6.  Section 14166.5 of the Welfare and Institutions Code is
amended to read:
   14166.5.  (a) With respect to each project year through October
31, 2010, the director shall determine a baseline funding amount for
each designated public hospital. A hospital's baseline funding amount
shall be an amount equal to the total amount paid to the hospital
for inpatient hospital services rendered to Medi-Cal beneficiaries
during the 2004-05 fiscal year, including the following Medi-Cal
payments, but excluding payments received under the Medi-Cal
Specialty Mental Health Services Consolidation Program:
   (1) Base payments under the selective provider contracting program
as provided for under Article 2.6 (commencing with Section 14081).
   (2) Emergency Services and Supplemental Payments Fund payments as
provided for under Section 14085.6.
   (3) Medi-Cal Medical Education Supplemental Payment Fund payments
and Large Teaching Emphasis Hospital and Children's Hospital Medi-Cal
Medical Education Supplemental Payment Fund payments as provided for
under Sections 14085.7 and 14085.8, respectively.
   (4) Disproportionate share hospital payment adjustments as
provided for under Section 14105.98.
   (5) Administrative day payments as provided for under Section
51542 of Title 22 of the California Code of Regulations.
   (b) The baseline funding amount for each designated public
hospital shall reflect a reduction for the total amount of
intergovernmental transfers made pursuant to Sections 14085.6,
14085.7, 14085.8, 14085.9, and 14163 for the 2004-05 state fiscal
year by the designated public hospital, or the governmental entity
with which it is affiliated.
   (c) With respect to each project year beginning after the 2005-06
project year through October 31, 2010, the department shall determine
an adjusted baseline funding amount for each designated public
hospital to reflect any increase or decrease in volume. The
adjustment for designated public hospitals shall be calculated as
follows:
   (1) Applying the cost-finding methodology approved under the
demonstration project, and applying accounting and reporting
practices consistent with those applied in paragraph (2), the
department shall determine the total allowable costs incurred by the
hospital, or the governmental entity with which it is affiliated, in
rendering hospital services that would be recognized under the
demonstration project to Medi-Cal beneficiaries and the uninsured
during the 2004-05 state fiscal year.
   (2) Applying the cost-finding methodology approved under the
demonstration project, and applying accounting and reporting
practices consistent with those applied in paragraph (1), the
department shall determine the total allowable costs incurred by the
hospital, or the governmental entity with which it is affiliated, in
rendering hospital services under the demonstration project to
Medi-Cal beneficiaries and the uninsured during the state fiscal year
preceding the project year for which the volume adjustment is being
calculated.
   (3) The department shall:
   (A) Calculate the difference between the amount determined under
paragraph (1) and the amount determined under paragraph (2).
   (B) Determine the percentage increase or decrease by dividing the
difference in subparagraph (A) by the amount in paragraph (1).
   (C) Apply the percentage determined in subparagraph (B) to that
amount that results from the hospital's baseline funding amount
determined under subdivision (a) as adjusted by subdivision (b),
except for the reduction for the amount of intergovernmental
transfers made pursuant to Section 14163, minus the amount of
disproportionate share hospital payments in paragraph (4) of
subdivision (a).
   (4) The designated public hospital's adjusted baseline for the
project year is the amount determined for the hospital in subdivision
(a) as adjusted by subdivision (b), plus the amount in subparagraph
(C) of paragraph (3).
   (5) Notwithstanding paragraphs (3) and (4), when, as determined by
the department, in consultation with the designated public hospital,
there has been a material reduction in patient services at the
designated public hospital during the project year, and the reduction
has resulted in a diminution of access for Medi-Cal and uninsured
patients and a related reduction in total costs at the designated
public hospital of at least 20 percent, the department may utilize
current or adjusted data that are reflective of the diminution of
access, even if the data are not annual data, to determine the
hospital's adjusted baseline amount.
   (d) The aggregate designated public hospital baseline funding
amount for each project year through October 31, 2010, shall be the
sum of all baseline funding amounts determined under subdivisions (a)
and (b), as adjusted in subdivision (c), as appropriate, for all
designated public hospitals.
   (e) (1) If, with respect to any project year, the difference
between the percentage adjustment in subparagraph (B) of paragraph
(3) of subdivision (c) of this section, computed in the aggregate for
designated public hospitals, excluding the percentage adjustment for
any designated public hospital that was not in operation for the
full project year, is greater than five percentage points more than
the aggregate percentage adjustment for private DSH hospitals
determined under subparagraph (B) of paragraph (3) of subdivision (c)
of Section 14166.13, then the aggregate percentage adjustment for
designated public hospitals shall be reduced in the amount necessary
to reduce the difference to five percentage points. The reduction
required by the previous sentence shall be allocated among designated
public hospitals pro rata based on the relationship between each
hospital's percentage determined under subparagraph (B) of paragraph
(3) of subdivision (c) of this section and the aggregate percentage
for designated public hospitals.
   (2) Notwithstanding paragraph (1), the department may apply the
adjustments set forth in paragraph (5) of subdivision (c).
   (f) The provisions of this section shall apply only with respect
to the demonstration project term, and shall not apply with respect
to the successor demonstration project term. All references to
baseline funding amounts and adjusted baseline funding amounts with
respect to designated public hospitals shall be disregarded for
purposes of successor demonstration year determinations.
  SEC. 7.  Section 14166.6 of the Welfare and Institutions Code is
amended to read:
   14166.6.  (a) For the 2005-06 project year and subsequent project
years through October 31, 2010, each designated public hospital
described in subdivision (c) of Section 14166.3 shall be eligible to
receive an allocation of federal Medicaid funding from the applicable
federal disproportionate share hospital allotment pursuant to this
section. The department shall establish the allocations in a manner
that maximizes federal Medicaid funding to the state during the term
of the demonstration project, and shall consider, at a minimum, all
of the following factors, taking into account all other payments to
each hospital under this article:
   (1) The optimal use of intergovernmental transfer-funded payments
described in subdivision (d).
   (2) Each hospital's pro rata share of the applicable aggregate
designated public hospital baseline funding amount described in
subdivision (d) of Section 14166.5.
   (3) That the allocation under this section, in combination with
the federal share of certified public expenditures for Medicaid
inpatient hospital services for the project year determined under
subdivision (a) of Section 14166.4, any supplemental reimbursement
for professional services rendered to hospital inpatients determined
for the project year under subdivision (e) of Section 14166.4, and
the distribution of safety net care pool funds from the Health Care
Support Fund determined under subdivision (a) of Section 14166.7,
shall not exceed the baseline funding amount or adjusted baseline
funding amount, as appropriate, for the hospital.
   (4) Minimizing the need to redistribute federal funds that are
based on the certified public expenditures of designated public
hospitals as described in subdivision (c).
   (b) Each designated public hospital shall receive its allocation
of federal disproportionate share hospital payments in one or both of
the following forms:
   (1) Distributions from the Demonstration Disproportionate Share
Hospital Fund established pursuant to subdivision (d) of Section
14166.9, consisting of federal funds claimed and received by the
department, pursuant to subparagraphs (A) and (C) of paragraph (2) of
subdivision (a) of Section 14166.9 based on designated public
hospitals' certified public expenditures up to 100 percent of
uncompensated Medi-Cal and uninsured costs.
   (2) Intergovernmental transfer-funded payments, as described in
subdivision (d). For purposes of determining whether the hospital has
received its allocation of federal disproportionate share hospital
payments established under this section, only the federal share of
intergovernmental transfer-funded payments shall be considered.
   (c) The distributions described in paragraph (1) of subdivision
(b) may be made to a designated public hospital independent of the
amount of uncompensated Medi-Cal and uninsured costs certified as
public expenditures by that hospital pursuant to Section 14166.8,
provided that, in accordance with the Special Terms and Conditions
for the demonstration project, the recipient hospital does not return
any portion of the funds received to any unit of government,
excluding amounts recovered by the state or federal government.
   (d) Designated public hospitals that meet the requirement of
Section 1396r-4(b)(1)(A) of Title 42 of the United States Code
regarding the Medicaid inpatient utilization rate or Section 1396r-4
(b)(1)(B) of Title 42 of the United States Code regarding the
low-income utilization rate, may receive intergovernmental
transfer-funded disproportionate share hospital payments as follows:
   (1) The department shall establish the amount of the hospital's
intergovernmental transfer-funded disproportionate share hospital
payment. The total amount of that payment, consisting of the federal
and nonfederal components, shall in no case exceed that amount equal
to 75 percent of the hospital's uncompensated Medi-Cal and uninsured
costs of hospital services, determined in accordance with the Special
Terms and Conditions for the demonstration project.
   (2) A transfer amount shall be determined for each hospital that
is subject to this subdivision, equal to the nonfederal share of the
payment amount established for the hospital pursuant to paragraph
(1). The transfer amount so determined shall be paid by the hospital,
or the public entity with which the hospital is affiliated, and
deposited into the Medi-Cal Inpatient Payment Adjustment Fund
established pursuant to subdivision (b) of Section 14163. The sources
of funds utilized for the transfer amount shall not include
impermissible provider taxes or donations as defined under Section
1396b(w) of Title 42 of the United States Code or other federal
funds. For this purpose, federal funds do not include patient care
revenue received as payment for services rendered under programs such
as Medicare or Medicaid.
   (3) The department shall pay the amounts established pursuant to
paragraph (1) to each hospital using the transfer amounts deposited
pursuant to paragraph (2) as the nonfederal share of those payments.
The total intergovernmental transfer-funded payment amount,
consisting of the federal and nonfederal share, paid to a hospital
shall be retained by the hospital in accordance with the Special
Terms and Conditions for the demonstration project.
   (e) The total federal disproportionate share hospital funds
allocated under this section to designated public hospitals with
respect to each project year, in combination with the federal share
of disproportionate share hospital payment adjustments made to
nondesignated public hospitals pursuant to Section 14166.16 for the
same project year, shall not exceed the applicable federal
disproportionate share hospital allotment.
   (f) (1) Each designated public hospital shall receive quarterly
interim payments of its disproportionate share hospital allocation
during the project year. The determinations set forth in subdivisions
(a) to (e), inclusive, shall be made on an interim basis prior to
the start of each project year, except that, with respect to the
2005-06 project year, the interim determinations shall be made prior
to January 1, 2006. The department shall use the same cost and
statistical data used in determining the interim payments for
Medi-Cal inpatient hospital services under Section 14166.4, and
available payments and uncompensated and uninsured cost data,
including data from the Medi-Cal paid claims file and the hospital's
books and records, for the corresponding period.
   (2) Prior to the distribution of payments in accordance with
paragraph (1) and with subdivision (g) to a designated public
hospital that is part of a hospital system containing multiple
designated public hospitals licensed to the same governmental entity,
the department shall consult with the applicable governmental
entity. The department shall implement any adjustments to the payment
distributions for the hospitals in that hospital system as requested
by the governmental entity if the net effect of the requested
adjustments for those hospitals is zero. These payment
redistributions shall recognize the level of care provided to
Medi-Cal and uninsured patients and shall maintain the viability and
effectiveness of the hospital system. The adjustments made pursuant
to this paragraph with respect to an affected hospital shall be
disregarded in the application of the limitations described in
paragraph (3) of subdivision (a), and in paragraph (1) of subdivision
(a) of Section 14166.7.
   (g) No later than April 1 following the end of the relevant
reporting period for the project year, the department shall undertake
an interim reconciliation of payments based on Medicare and other
cost, payment, and statistical data submitted by the hospital for the
project year, and shall adjust payments to the hospital accordingly.

   (h) Each designated public hospital shall receive its
disproportionate share hospital allocation, as computed pursuant to
subdivisions (a) to (e), inclusive, subject to final audits of all
applicable Medicare and other cost, payment, and statistical data for
the project year.
   (i) The provisions of this section shall apply only with respect
to the demonstration project term, and shall not apply with respect
to the successor demonstration project term.
  SEC. 8.  Section 14166.61 is added to the Welfare and Institutions
Code, to read:
   14166.61.  (a) For successor demonstration year 6 and subsequent
successor demonstration years, each designated public hospital
described in subdivision (c) of Section 14166.3 shall be eligible to
receive an allocation of federal Medicaid funding from the applicable
federal disproportionate share hospital allotment pursuant to this
section. The department shall establish the allocations and claim the
federal funding in a manner that maximizes federal Medicaid funding
to the state during the term of the successor demonstration project,
and shall consider, at a minimum, all of the following factors:
   (1) The optimal use of intergovernmental transfer-funded payments
described in subdivision (d).
   (2) Minimizing the need to redistribute federal funds that are
based on the certified public expenditures of designated public
hospitals as described in paragraph (1) of subdivision (c).
   (b) Disproportionate share hospital allocations for designated
public hospitals shall be determined for each successor demonstration
year as set forth below. With respect to successor demonstration
year 10, allocations shall be determined separately for each of the
periods of July 1, 2014, through June 30, 2015, and July 1, 2015,
through October 31, 2015.
   (1) The department shall determine the maximum federal
disproportionate share hospital allotment that is available under
this section for the successor demonstration year.
   (2) An initial allocation shall be made to Kern Medical Center for
the periods and in the amounts specified below:
   (A) For successor demonstration year 6, the amount of eight
million dollars ($8,000,000).
   (B) For successor demonstration years 7 through 9, the amount of
twelve million dollars ($12,000,000).
   (C) For the period of July 1, 2014, through June 30, 2015, the
amount of twelve million dollars ($12,000,000).
   (D) For the period of July 1, 2015, through October 31, 2015, the
amount of four million dollars ($4,000,000).
   (3) Each designated public hospital shall be allocated an amount
per hospital discharge as specified in this paragraph. The number of
discharges per category occurring in the relevant period shall be
derived from each hospital's data as reported pursuant to Section
14166.8. The reported discharges shall relate to the same hospital
services for which costs are calculated for purposes of this section.

   (A) One thousand one hundred dollars ($1,100) per hospital
discharge with respect to an uninsured individual.
   (B) Nine hundred dollars ($900) per hospital discharge with
respect to an individual enrolled in the Low Income Health Program.
   (C) Seven hundred fifty dollars ($750) per hospital discharge with
respect to a Medi-Cal beneficiary, excluding discharges for which
Medicare payments were received.
   (4) The remaining available federal disproportionate share
hospital allotment, after the allocations are made pursuant to
paragraphs (2) and (3), shall be allocated to designated public
hospitals as follows:
   (A) The department shall calculate for each designated public
hospital an initial DSH claiming ability amount. For the purposes of
this article, the "initial DSH claiming ability amount" means the
total sum of the hospital's uncompensated Medi-Cal, Low Income Health
Program, and uninsured costs of hospital services that are reported
as eligible certified public expenditures for disproportionate share
hospital payments pursuant to Section 14166.8. For hospitals
described in subdivision (d), the total sum shall be multiplied by
175 percent.
   (B) The remaining available federal disproportionate share
hospital allotment shall be allocated pro rata among the designated
public hospitals based upon each hospital's initial DSH claiming
ability amount as determined pursuant to subparagraph (A).
   (c) Each designated public hospital shall receive its allocation
of federal disproportionate share hospital payments in one or both of
the following forms:
   (1) Distributions from the Demonstration Disproportionate Share
Hospital Fund established pursuant to subdivision (d) of Section
14166.9, consisting of federal funds claimed and received by the
department, pursuant to clauses (ii) and (iii) of subparagraph (A) of
paragraph (2) of subdivision (a) of Section 14166.9 based on
designated public hospitals' certified public expenditures up to 100
percent of uncompensated Medi-Cal and uninsured costs. These
distributions may be made to a designated public hospital independent
of the amount of uncompensated Medi-Cal and uninsured costs
certified as public expenditures by that hospital pursuant to Section
14166.8.
   (2) Intergovernmental transfer-funded payments, as described in
subdivision (d). For purposes of determining whether the hospital has
received its allocation of federal disproportionate share hospital
payments established under this section, only the federal share of
intergovernmental transfer-funded payments shall be considered.
   (d) Designated public hospitals that meet the requirements of
Section 1396r-4(b)(1)(A) of Title 42 of the United States Code
regarding the Medicaid inpatient utilization rate or Section 1396r-4
(b)(1)(B) of Title 42 of the United States Code regarding the
low-income utilization rate, may receive intergovernmental
transfer-funded disproportionate share hospital payments as follows:
   (1) The department shall establish the amount of the hospital's
intergovernmental transfer-funded disproportionate share hospital
payment. The total amount of that payment, consisting of the federal
and nonfederal components, shall in no case exceed an amount equal to
75 percent of the hospital's uncompensated Medi-Cal, Low Income
Health Program, and uninsured costs of hospital services, determined
in accordance with the Special Terms and Conditions for the successor
demonstration project and the applicable provisions of the Medi-Cal
State Plan.
   (2) A transfer amount shall be determined for each hospital that
is subject to this subdivision, equal to the nonfederal share of the
payment amount established for the hospital pursuant to paragraph
(1). The transfer amount determined shall be paid by the hospital, or
the public entity with which the hospital is affiliated, and
deposited into the Medi-Cal Inpatient Payment Adjustment Fund
established pursuant to subdivision (b) of Section 14163. The sources
of funds utilized for the transfer amount shall not include
impermissible provider taxes or donations as defined under Section
1396b(w) of Title 42 of the United States Code or other federal
funds. For this purpose, federal funds do not include delivery system
reform incentive pool payments or patient care revenue received as
payment for services rendered under programs such as designated state
health programs, the Low Income Health Program, Medicare, or
Medicaid.
   (3) The department shall pay the amounts established pursuant to
paragraph (1) to each hospital using the transfer amounts deposited
pursuant to paragraph (2) as the nonfederal share of those payments.
   (e) The total federal disproportionate share hospital funds
allocated under this section to designated public hospitals with
respect to each successor demonstration year, in combination with the
federal share of disproportionate share hospital payment adjustments
made to nondesignated public hospitals pursuant to Section 14166.16
and applicable provisions of the Medi-Cal State Plan for the same
successor demonstration year, shall not exceed the applicable federal
disproportionate share hospital allotment.
   (f) (1) Each designated public hospital shall receive quarterly
interim payments of its disproportionate share hospital allocation
during the successor demonstration year, except that, with respect to
the period of July 1, 2015, through October 31, 2015, the interim
payment shall be made in October 2015. The determinations set forth
in subdivisions (a) to (e), inclusive, shall be made on an interim
basis prior to the start of each successor demonstration year. The
department shall use the same cost and statistical data used in
determining the interim payments for Medi-Cal inpatient hospital
services under Section 14166.4, and available payments and
uncompensated and uninsured cost data, including data from the
Medi-Cal paid claims file and the hospital's books and records, for
the corresponding period.
   (2) Prior to the distribution of payments in accordance with
paragraph (1) and subdivisions (g) and (h) to a designated public
hospital that is part of a hospital system containing multiple
designated public hospitals licensed to the same governmental entity,
the department shall consult with the applicable governmental
entity. The department shall implement any adjustments to the payment
distributions for the hospitals in that hospital system as requested
by the governmental entity if the net effect of the requested
adjustments for those hospitals is zero. These payment
redistributions shall recognize the level of care provided to
Medi-Cal and uninsured patients and shall maintain the viability and
effectiveness of the hospital system.
   (g) No later than April 1 following the end of the relevant
reporting period for the successor demonstration year, the department
shall undertake an interim reconciliation of payments based on
Medicare and other cost, payment, discharge, and statistical data
submitted by the hospital for the successor demonstration year, and
shall adjust payments to the hospital accordingly.
   (h) Each designated public hospital shall receive its
disproportionate share hospital allocation, as computed pursuant to
subdivisions (a) to (e), inclusive, subject to final audits of all
applicable Medicare and other cost, payment, discharge, and
statistical data for the successor demonstration year.
  SEC. 9.  Section 14166.7 of the Welfare and Institutions Code is
amended to read:
   14166.7.  (a) (1) With respect to each project year through
October 31, 2010, designated public hospitals, or governmental
entities with which they are affiliated, shall be eligible
                                    to receive safety net care pool
payments from the Health Care Support Fund established pursuant to
Section 14166.21. The total amount of these payments, in combination
with the federal share of certified public expenditures for Medicaid
inpatient hospital services determined for the project year under
subdivision (a) of Section 14166.4, any supplemental reimbursement
for physician and nonphysician practitioner services rendered to
hospital inpatients determined for the project year under subdivision
(e) of Section 14166.4, and the federal disproportionate share
hospital allocation determined under Section 14166.6, shall not
exceed the hospital's baseline funding amount or adjusted baseline
funding amount, as appropriate.
   (2) The department shall establish the amount of the safety net
care pool payment described in paragraph (1) for each designated
public hospital in a manner that maximizes federal Medicaid funding
to the state during the term of the demonstration project.
   (3) A safety net care pool payment amount may be paid to a
designated public hospital, or governmental entity with which it is
affiliated, pursuant to this section independent of the amount of
uncompensated Medi-Cal and uninsured costs that is certified as
public expenditures pursuant to Section 14166.8, provided that, in
accordance with the Special Terms and Conditions for the
demonstration project, the recipient hospital does not return any
portion of the funds received to any unit of government, excluding
amounts recovered by the state or federal government.
   (4) In establishing the amount to be paid to each designated
public hospital under this subdivision, the department shall minimize
to the extent possible the redistribution of federal funds that are
based on certified public expenditures as described in paragraph (3).

   (b) (1) Each designated public hospital, or governmental entity
with which it is affiliated, shall receive the amount established
pursuant to subdivision (a) in quarterly interim payments during the
project year. The determination of the interim payments shall be made
on an interim basis prior to the start of each project year, except
that, with respect to the 2005-06 project year, the determination of
the interim payments shall be made prior to January 1, 2006. The
department shall use the same cost and statistical data that is used
in determining the interim payments for Medi-Cal inpatient hospital
services under Section 14166.4 and for the disproportionate share
hospital allocations under Section 14166.6, for the corresponding
period.
   (2) Prior to the distribution of payments in accordance with
paragraph (1) and with subdivision (c) to a designated public
hospital that is part of a hospital system containing multiple
designated public hospitals licensed to the same governmental entity,
the department shall consult with the applicable governmental
entity. The department shall implement any adjustments to the payment
distributions for the hospitals in that hospital system as requested
by the governmental entity if the net effect of the requested
adjustments for those hospitals is zero. These payment
redistributions shall recognize the level of care provided to
Medi-Cal and uninsured patients and shall maintain the viability and
effectiveness of the hospital system. The adjustments made pursuant
to this paragraph with respect to an affected hospital shall be
disregarded in the application of the limitations described in
paragraph (1) of subdivision (a), and in paragraph (3) of subdivision
(a) of Section 14166.6.
   (c) (1) No later than April 1 following the end of the project
year, the department shall undertake an interim reconciliation of the
payment amount established pursuant to subdivision (a) for each
designated public hospital using Medicare and other cost, payment,
and statistical data submitted by the hospital for the project year,
and shall adjust payments to the hospital accordingly.
   (2) The final payment to a designated public hospital for purposes
of subdivision (b) and paragraph (1) of this subdivision, shall be
subject to final audits of all applicable Medicare and other cost,
payment, and statistical data for the project year, and the
distribution priorities set forth in Section 14166.20.
   (d) (1) Each designated public hospital, or governmental entity
with which it is affiliated, shall be eligible to receive additional
safety net care pool payments above the baseline funding amount or
adjusted baseline funding amount, as appropriate, from the Health
Care Support Fund, established pursuant to Section 14166.21, for the
project year through October 31, 2010, in accordance with the
stabilization funding determination for the hospital made pursuant to
Section 14166.75.
   (2) Payment of the additional safety net care pool amounts shall
be subject to the distribution priorities set forth in Section
14166.21.
   (3) The provisions of this section shall apply only with respect
to the demonstration project term, and shall not apply with respect
to the successor demonstration project term.
  SEC. 10.  Section 14166.71 is added to the Welfare and Institutions
Code, to read:
   14166.71.  (a) (1) With respect to each successor demonstration
year, designated public hospitals, or governmental entities with
which they are affiliated, shall be eligible to receive safety net
care pool payments for uncompensated care from the Health Care
Support Fund established pursuant to Section 14166.21. Safety net
care pool payments for uncompensated care shall be allocated to
designated public hospitals as follows:
   (A) The department shall determine the maximum amount of safety
net pool payments for uncompensated care that is available to
designated public hospitals for the successor demonstration year.
   (B) The department shall calculate for each designated public
hospital an initial SNCP claiming ability amount. For the purposes of
this article, "initial SNCP claiming ability amount" means the total
sum of the uncompensated Medi-Cal, Low Income Health Program, and
uninsured costs of services incurred by the designated public
hospital, the governmental entity, nonhospital clinics, and other
provider types with which it is affiliated, that are reported as
eligible certified public expenditures for safety net care pool
uncompensated care claiming pursuant to Section 14166.8.
   (C) The available safety net pool payments shall be allocated pro
rata among the designated public hospitals based upon each hospital's
initial SNCP claiming ability amount as determined pursuant to
subparagraph (B).
   (2) The department shall establish the amount of the safety net
care pool payment described in paragraph (1) for each designated
public hospital in a manner that maximizes federal Medicaid funding
to the state during the term of the successor demonstration project.
   (3) A safety net care pool payment amount may be paid to a
designated public hospital, or governmental entity with which it is
affiliated, pursuant to this section independent of the amount of
uncompensated Medi-Cal and uninsured costs that is certified as
public expenditures pursuant to Section 14166.8, provided that, in
accordance with the Special Terms and Conditions for the successor
demonstration project, the recipient hospital does not return any
portion of the funds received to any unit of government, excluding
amounts recovered by the state or federal government.
   (4) In establishing the amount to be paid to each designated
public hospital under this subdivision, the department shall minimize
to the extent possible the redistribution of federal funds that are
based on certified public expenditures as described in paragraph (3).

   (b) (1) Each designated public hospital, or governmental entity
with which it is affiliated, shall receive the amount established
pursuant to subdivision (a) in quarterly interim payments during the
successor demonstration year. The determination of the interim
payments shall be made on an interim basis prior to the start of each
successor demonstration year. The department shall use the same cost
and statistical data that is used in determining the interim
payments for Medi-Cal inpatient hospital services under Section
14166.4 and for the disproportionate share hospital allocations under
Section 14166.61, for the corresponding period.
   (2) Prior to the distribution of payments in accordance with
paragraph (1) and subdivision (c) to a designated public hospital
that is part of a hospital system containing multiple designated
public hospitals licensed to the same governmental entity, the
department shall consult with the applicable governmental entity. The
department shall implement any adjustments to the payment
distributions for the hospitals in that hospital system as requested
by the governmental entity if the net effect of the requested
adjustments for those hospitals is zero. These payment
redistributions shall recognize the level of care provided to
Medi-Cal and uninsured patients and shall maintain the viability and
effectiveness of the hospital system.
   (c) (1) No later than April 1 following the end of the relevant
reporting period for the successor demonstration year, the department
shall undertake an interim reconciliation of the payment amount
established pursuant to subdivision (a) for each designated public
hospital using Medicare and other cost, payment, and statistical data
submitted by the hospital for the successor demonstration year, and
shall adjust payments to the hospital accordingly.
   (2) The final payment to a designated public hospital for purposes
of subdivision (b) and paragraph (1) of this subdivision, shall be
subject to final audits of all applicable Medicare and other cost,
payment, discharge, and statistical data for the successor
demonstration year.
  SEC. 11.  Section 14166.75 of the Welfare and Institutions Code is
amended to read:
   14166.75.  (a) For services provided during the 2005-06 and
2006-07 project years, the amount allocated to designated public
hospitals pursuant to subparagraph (A) of paragraph (2) and
subparagraph (A) of paragraph (5) of subdivision (b) of Section
14166.20 shall be allocated, in accordance with this section, among
the designated public hospitals. For services provided during the
2007-08, 2008-09, and 2009-10 project years through October 31, 2010,
amounts allocated to designated public hospitals as stabilization
funding pursuant to any provision of this article, unless otherwise
specified, shall be allocated among the designated public hospitals
in accordance with this section. All amounts allocated to designated
public hospitals in accordance with this section shall be paid as
direct grants, which shall not constitute Medi-Cal payments.
   (b) The baseline funding amount, as determined under Section
14166.5, for San Mateo Medical Center shall be increased by eight
million dollars ($8,000,000) for purposes of this section.
   (c) The following payments shall be made from the amount
identified in subdivision (a), in addition to any other payments due
to the University of California hospitals and health system and
County of Los Angeles hospitals under this section:
   (1) The lower of eleven million dollars ($11,000,000) or 3.67
percent of the amount identified in subdivision (a) to the University
of California hospitals and health system.
   (2) For each of the 2005-06 and 2006-07 project years, in the
event that the one hundred eighty million dollars ($180,000,000)
identified in paragraph 41 of the Special Terms and Conditions for
the demonstration project is available in the safety net care pool
for the project year, the lower of twenty-three million dollars
($23,000,000) or 7.67 percent of the amount identified in subdivision
(a) to the County of Los Angeles, Department of Health Services,
hospitals. If an amount less than the one hundred eighty million
dollars ($180,000,000) is available during the project year, the
amount determined under this paragraph shall be reduced
proportionately.
   (d) For the 2005-06 and 2006-07 project years, the amount
identified in subdivision (a), as reduced by the amounts identified
in subdivision (c), shall be distributed among the designated public
hospitals pursuant to this subdivision.
   (1) Designated public hospitals that are donor hospitals, and
their associated donated certified public expenditures, shall be
identified as follows:
   (A) An initial pro rata allocation of the amount subject to this
subdivision shall be made to each designated public hospital, based
upon the hospital's baseline funding amount determined pursuant to
Section 14166.5, and as further adjusted in subdivision (b). This
initial allocation shall be used for purposes of the calculations
under subparagraph (C) and paragraph (3).
   (B) The federal financial participation amount arising from the
certified public expenditures of each designated public hospital,
including the expenditures of the governmental entity, nonhospital
clinics, and other provider types with which it is affiliated, that
were claimed by the department from the federal disproportionate
share hospital allotment pursuant to subparagraphs (A) and (C) of
paragraph (2) of subdivision (a) of Section 14166.9, and from the
safety net care pool funds pursuant to paragraph (3) of subdivision
(a) of Section 14166.9, shall be determined.
   (C) The amount of federal financial participation received by each
designated public hospital, and by the governmental entity,
nonhospital clinics, and other provider types with which it is
affiliated, based on certified public expenditures from the federal
disproportionate share hospital allotment pursuant to paragraph (1)
of subdivision (b) of Section 14166.6, and from the safety net care
pool payments pursuant to subdivision (a) of Section 14166.7 shall be
identified. With respect to this identification, if a payment
adjustment for a hospital has been made pursuant to paragraph (2) of
subdivision (f) of Section 14166.6, or paragraph (2) of subdivision
(b) of Section 14166.7, the amount of federal financial participation
received by the hospital based on certified public expenditures
shall be determined as though no such payment adjustment had been
made. The resulting amount shall be increased by amounts distributed
to the hospital pursuant to subdivision (c) of this section,
paragraph (1) of subdivision (b) of Section 14166.20, and the initial
allocation determined for the hospitals in subparagraph (A).
   (D) If the amount in subparagraph (B) is greater than the amount
determined in subparagraph (C), the hospital is a donor hospital, and
the difference between the two amounts is deemed to be that donor
hospital's associated donated certified public expenditures amount.
   (2) Seventy percent of the total amount subject to this
subdivision shall be allocated pro rata among the designated public
hospitals based upon each hospital's baseline funding amount
determined pursuant to Section 14166.5, and as further adjusted in
subdivision (b).
   (3) The lesser of the remaining 30 percent of the total amount
subject to this subdivision or the total amounts of donated certified
public expenditures for all donor hospitals, shall be distributed
pro rata among the donor hospitals based upon the donated certified
public expenditures amount determined for each donor hospital. Any
amounts not distributed pursuant to this paragraph shall be
distributed in the same manner as set forth in paragraph (2).
   (e) For the 2007-08 and subsequent project years through October
31, 2010, the amount identified in subdivision (a), as reduced by the
amounts identified in subdivision (c), shall be distributed among
the designated public hospitals pursuant to this subdivision.
   (1) Each designated public hospital that renders inpatient
hospital services under the health care coverage initiative program
authorized pursuant to Part 3.5 (commencing with Section 15900) shall
be allocated an amount equal to the amount of the federal safety net
pool funds claimed and received with respect to the services
rendered by the hospital, including services rendered to enrollees of
a managed care organization, to the extent the amount was included
in the determination of total stabilization funding for the project
year pursuant to Section 14166.20.
   (2) Each designated public hospital for which, during the project
year, the sum of the allowable costs incurred in rendering inpatient
hospital services to Medi-Cal beneficiaries and the allowable costs
incurred with respect to supplemental reimbursement for physician and
nonphysician practitioner services rendered to Medi-Cal hospital
inpatients, as specified in Section 14166.4, exceeds the allowable
costs incurred for those services rendered in the prior year, shall
be allocated an amount equal to 60 percent of the difference in the
allowable costs, multiplied by the applicable federal medical
assistance percentage. The allocations under this paragraph, however,
shall be reduced pro rata as necessary to ensure that the total of
those allocations does not exceed 80 percent of the amount subject to
this subdivision after the allocations in paragraph (1). For
purposes of this paragraph, the most recent cost data that are
available at the time of the department's determinations for the
project year pursuant to Section 14166.20 shall be used.
   (3) The remaining amount subject to this subdivision that is not
otherwise allocated pursuant to paragraphs (1) and (2) shall be
allocated as set forth below:
   (A) Designated public hospitals that are donor hospitals, and
their associated donated certified public expenditures, shall be
identified as follows:
   (i) An initial pro rata allocation of the amount subject to this
paragraph shall be made to each designated public hospital, based
upon the total allowable costs incurred by each hospital, or
governmental entity with which it is affiliated, in rendering
hospital services to the uninsured during the project year as
reported pursuant to Section 14166.8. This initial allocation shall
be used for purposes of the calculations under clause (iii) and
subparagraph (C).
   (ii) The federal financial participation amount arising from the
certified public expenditures of each designated public hospital,
including the expenditures of the governmental entity, nonhospital
clinics, and other provider types with which it is affiliated, that
were claimed by the department from the federal disproportionate
share hospital allotment pursuant to subparagraphs (A) and (C) of
paragraph (2) of subdivision (a) of Section 14166.9, and from the
safety net care pool funds pursuant to paragraph (3) of subdivision
(a) of Section 14166.9, shall be determined.
   (iii) The amount of federal financial participation received by
each designated public hospital, and by the governmental entity,
nonhospital clinics, and other provider types with which it is
affiliated, based on certified public expenditures from the federal
disproportionate share hospital allotment pursuant to paragraph (1)
of subdivision (b) of Section 14166.6, and from the safety net care
pool payments pursuant to subdivision (a) of Section 14166.7 shall be
identified. With respect to this identification, if a payment
adjustment for a hospital has been made pursuant to paragraph (2) of
subdivision (f) of Section 14166.6, or paragraph (2) of subdivision
(b) of Section 14166.7, the amount of federal financial participation
received by the hospital based on certified public expenditures
shall be determined as though no payment adjustment had been made.
The resulting amount shall be increased by amounts distributed to the
hospital pursuant to subdivision (c), paragraphs (1) and (2) of this
subdivision, paragraph (1) of subdivision (b) of Section 14166.20,
and the initial allocation determined for the hospitals in clause
(i).
   (iv) If the amount in clause (ii) is greater than the amount
determined in clause (iii), the hospital is a donor hospital, and the
difference between the two amounts is deemed to be that donor
hospital's associated donated certified public expenditures amount.
   (B) Fifty percent of the total amount subject to this paragraph
shall be allocated pro rata among the designated public hospitals in
the same manner described in clause (i) of subparagraph (A).
   (C) The lesser of the remaining 50 percent of the total amount
subject to this paragraph, the total amounts of donated certified
public expenditures for all donor hospitals or that amount that is 30
percent of the amount subject to this subdivision after the
allocations in paragraph (1), shall be distributed pro rata among the
donor hospitals based upon the donated certified public expenditures
amount determined for each donor hospital. Any amounts not
distributed pursuant to this subparagraph shall be distributed in the
same manner as set forth in subparagraph (B).
   (D) The federal financial participation amount arising from the
certified public expenditures that has been paid to designated public
hospitals, or the governmental entities with which they are
affiliated, pursuant to subdivision (g) of Section 14166.221 shall be
disregarded for purposes of this paragraph.
   (f) The department shall consult with designated public hospital
representatives regarding the appropriate distribution of
stabilization funding before stabilization funds are allocated and
paid to hospitals. No later than 30 days after this consultation, the
department shall issue a final allocation of stabilization funding
under this section that shall not be modified for any reason other
than mathematical errors or mathematical omissions on the part of the
department.
   (g) The provisions of this section shall apply only with respect
to the demonstration project term, and shall not apply with respect
to the successor demonstration project term.
  SEC. 12.  Section 14166.77 is added to the Welfare and Institutions
Code, to read:
   14166.77.  (a) (1) The amount of delivery system reform incentive
pool funding, consisting of both the federal and nonfederal share of
payments, that is made available to each designated public hospital
system in the aggregate for the term of the successor demonstration
project shall be based initially on the delivery system reform
proposals that are submitted by the designated public hospitals to
the department for review and submission to the federal Centers for
Medicare and Medicaid Services for final approval. The initial
percentages of delivery system reform incentive pool funding among
the designated public hospital systems for each successor
demonstration year shall be determined based on the annual components
as contained in the approved proposals.
   (2) The actual receipt of funds shall be conditioned on the
designated public hospital system's progress toward, and achievement
of, the specified milestones and other metrics established in its
approved delivery system reform incentive pool proposal. A designated
public hospital system may carry forward available incentive pool
funding associated with milestones and metrics from one year to a
subsequent period as authorized by the Special Terms and Conditions
and the final delivery system reform incentive pool protocol.
   (3) The department may reallocate incentive pool funding under
conditions specified, and as authorized by, the Special Terms and
Conditions and the final delivery system reform incentive pool
protocol.
   (b) Each designated public hospital system shall be individually
responsible for progress toward, and achievement of, milestones and
other metrics in its proposal, as well as other applicable
requirements specified in the Special Terms and Conditions and the
final delivery system reform incentive pool protocol, in order to
receive its specified allocation of incentive pool funding under this
section.
   (1) The designated public hospital system shall submit semiannual
reports and requests for payment to the department by March 31 and
the September 30 following the end of the second and fourth quarters
of the successor demonstration year, or comply with such other
process as approved by the federal Centers for Medicare and Medicaid
Services. A standardized report form shall be developed jointly by
the department and designated public hospital systems for this
purpose.
   (2) Within 14 days after the semiannual report due date, the
designated public hospital system or its affiliated governmental
entity shall make an intergovernmental transfer of funds equal to the
nonfederal share that is necessary to draw down the federal funding
for the pool payment related to the achievement or progress metric
that is certified. The intergovernmental transfers shall be deposited
into the Public Hospital Investment, Improvement, and Incentive
Fund, established pursuant to Section 14182.4.
   (3) The department shall draw down the federal funding and pay
both the nonfederal and federal shares of the incentive payment to
the designated public hospital system or other affiliated
governmental provider as applicable. If the intergovernmental
transfer is made within the appropriate 14-day timeframe, the
incentive payment shall be disbursed within seven days with the
expedited payment process as approved by the federal Centers for
Medicare and Medicaid Services, otherwise the payment shall be
disbursed within 20 days of when the transfer is made.
   (4) Notwithstanding any other provision of this subdivision,
payment requests for successor demonstration year 6 shall be
submitted, processed, and paid in accordance with the expedited
payment process as approved by the federal Centers for Medicare and
Medicaid Services.
   (5) The designated public hospital system or other affiliated
governmental provider is responsible for any fee or cost required to
implement the expedited payment process in accordance with Section
8422.1 of the State Administrative Manual.
   (c) In the event of a conflict between any provision of this
section and the Special Terms and Conditions for the successor
demonstration project and the final delivery system reform incentive
pool protocol, the Special Terms and Conditions and the final
delivery system reform incentive pool protocol shall control.
  SEC. 13.  Section 14166.8 of the Welfare and Institutions Code is
amended to read:
   14166.8.  (a) Within five months after the end of each project
year or successor demonstration year, each of the designated public
hospitals shall submit to the department all of the following
reports:
   (1) The hospital's Medicare cost report for the project year or
successor demonstration year.
   (2) Other cost reporting and statistical data necessary for the
determination of amounts due the hospital under the demonstration
project or successor demonstration project,
                       as requested by the department.
   (b) For each project year or successor demonstration year, the
reports shall identify all of the following:
   (1) The costs incurred in providing inpatient hospital services to
Medi-Cal beneficiaries on a fee-for-service basis and physician and
nonphysician practitioner services costs, as identified in
subdivision (e) of Section 14166.4.
   (2) The amount of uncompensated costs incurred in providing
hospital services to Medi-Cal beneficiaries, including managed care
enrollees.
   (3) The costs incurred in providing hospital services to uninsured
individuals.
   (4) (A) Discharge data, commencing with successor demonstration
year 6, and retrospectively for prior periods as necessary to
establish interim payment determinations, for the following patient
categories:
   (i) Uninsured patients.
   (ii) Low Income Health Program patients.
   (iii) Medi-Cal patients, excluding discharges for which Medicare
payments were received.
   (B) The department shall consult with the designated public
hospitals regarding a methodology for adjusting prior period
discharge data to reflect the projected number of discharges relating
to Low Income Health Program patients for the period at issue.
   (c) Each designated public hospital, or governmental entity with
which it is affiliated, that operates nonhospital clinics or provides
physician, nonphysician practitioner, or other health care services
that are not identified as hospital services under the Special Terms
and Conditions for the demonstration project and successor
demonstration project, may report and certify all, or a portion, of
the uncompensated Medi-Cal and uninsured costs of the services
furnished. The amount of these uncompensated costs to be claimed by
the department shall be determined by the department in consultation
with the governmental entity so as to optimize the level of claimable
federal Medicaid funding.
   (d) Reports submitted under this section shall include all
allowable costs.
   (e) The appropriate public official shall certify to all of the
following:
   (1) The accuracy of the reports required under this section.
   (2) That the expenditures to meet the reported costs comply with
Section 433.51 of Title 42 of the Code of Federal Regulations.
   (3) That the sources of funds used to make the expenditures
certified under this section do not include impermissible provider
taxes or donations as defined under Section 1396b(w) of Title 42 of
the United States Code or other federal funds. For this purpose,
federal funds do not include delivery system reform incentive pool
payments, patient care revenue received as payment for services
rendered under programs such as designated state health programs, the
Low Income Health Program, Medicare, or Medicaid.
   (f) The certification of public expenditures made pursuant to this
section shall be based on a schedule established by the department.
The director may require the designated public hospitals to submit
quarterly estimates of anticipated expenditures, if these estimates
are necessary to obtain interim payments of federal Medicaid funds.
All reported expenditures shall be subject to reconciliation to
allowable costs, as determined in accordance with applicable
implementing documents for the demonstration project and successor
demonstration project.
   (g) Except as provided in subdivision (c), the director shall seek
Medicaid federal financial participation for all certified public
expenditures reported by the designated public hospitals and
recognized under the demonstration project and successor
demonstration project, to the extent consistent with Section 14166.9.

   (h) Governmental or public entities other than those that operate
a designated public hospital may, at the request of a governmental or
public entity, certify uncompensated Medi-Cal and uninsured costs in
accordance with this section, subject to the department's discretion
and prior approval of the federal Centers for Medicare and Medicaid
Services.
   (i) The timeframes for data submission and reporting periods may
be adjusted as necessary with respect to the 2010-11 project year
through October 31, 2010, and successor demonstration years 6 and 10.

  SEC. 14.  Section 14166.9 of the Welfare and Institutions Code is
amended to read:
   14166.9.  (a) The department, in consultation with the designated
public hospitals, shall determine the mix of sources of federal funds
for payments to the designated public hospitals in a manner that
provides baseline funding to hospitals as applicable during the
demonstration project term and maximizes federal Medicaid funding to
the state during the terms of the demonstration project and successor
demonstration project.
   (1) During the demonstration project term through October 31,
2010, federal funds shall be claimed according to the following
priorities:
   (A) The certified public expenditures of the designated public
hospitals for inpatient hospital services and physician and
nonphysician practitioner services, as identified in subdivision (e)
of Section 14166.4, rendered to Medi-Cal beneficiaries.
   (B) Federal disproportionate share hospital allotment, subject to
the federal hospital-specific limit, in the following order:
   (i) Those hospital expenditures that are eligible for federal
financial participation only from the federal disproportionate share
hospital allotment.
   (ii) Payments funded with intergovernmental transfers, consistent
with the requirements of the demonstration project, up to the
hospital's baseline funding amount or adjusted baseline funding
amount, as appropriate, for the project year.
   (iii) Any other certified public expenditures for hospital
services that are eligible for federal financial participation from
the federal disproportionate share hospital allotment.
   (C) Safety net care pool funds, using the optimal combination of
hospital-certified public expenditures and certified public
expenditures of a hospital, or governmental entity with which the
hospital is affiliated, that operates nonhospital clinics or provides
physician, nonphysician practitioner, or other health care services
that are not identified as hospital services under the Special Terms
and Conditions for the demonstration project, except that certified
public expenditures reported by the County of Los Angeles or its
designated public hospitals shall be the exclusive source of
certified public expenditures for claiming those federal funds
deposited in the South Los Angeles Medical Services Preservation Fund
under Section 14166.25.
   (D) Health care expenditures of the state that represent alternate
state funding mechanisms approved by the federal Centers for
Medicare and Medicaid Services under the demonstration project as set
forth in Section 14166.22.
   (2) During each successor demonstration year, federal funds for
payments to the designated public hospitals pursuant to Sections
14166.61 and 14166.71 shall be claimed according to the following
priorities:
   (A) With respect to the applicable federal disproportionate share
hospital allotment, subject to the federal hospital-specific limit,
in the following order:
   (i) Payments funded with intergovernmental transfers, as
determined pursuant to subdivision (d) of Section 14166.61.
   (ii) Those hospital expenditures that are eligible for federal
financial participation only from the federal disproportionate share
hospital allotment.
   (iii) Any other certified public expenditures for hospital
services that are eligible for federal financial participation from
the federal disproportionate share hospital allotment.
   (B) With respect to safety net care pool payments for
uncompensated care, in the following order:
   (i) The certified public expenditures of the designated public
hospitals, or the governmental entities with which they are
affiliated that operate nonhospital clinics or provide physician,
nonphysician practitioner, or other health care services, that are
not identified as hospital services under the Special Terms and
Conditions for the successor demonstration project and eligible for
federal financial participation from the safety net care pool for
uncompensated care.
   (ii) The available certified public expenditures of designated
public hospitals for hospital services that are eligible for federal
financial participation from either the federal disproportionate
share hospital allotment or safety net care pool for uncompensated
care, that were not otherwise claimed for purposes of subparagraph
(A).
   (b) The department shall implement these priorities, to the extent
possible, in a manner that minimizes the redistribution of federal
funds that are based on the certified public expenditures of the
designated public hospitals.
   (c) The department may adjust the claiming priorities to the
extent that these adjustments result in additional federal medicaid
funding during the term of the demonstration project and successor
demonstration project, or facilitate the objectives of subdivision
(b).
   (d) There is hereby established in the State Treasury the
"Demonstration Disproportionate Share Hospital Fund." All federal
funds received by the department with respect to the certified public
expenditures claimed pursuant to subparagraphs (A) and (C) of
paragraph (2) of subdivision (a) shall be transferred to the fund.
Notwithstanding Section 13340 of the Government Code, the fund shall
be continuously appropriated to the department solely for the
purposes specified in Sections 14166.6 and 14166.61.
   (e) (1) Except as provided in Section 14166.25, all federal safety
net care pool funds claimed and received by the department based on
health care expenditures incurred by the designated public hospitals,
or other governmental entities, shall be transferred to the Health
Care Support Fund, established pursuant to Section 14166.21.
   (2) The department shall separately identify and account for
federal safety net care pool funds claimed and received by the
department under the health care coverage initiative program
authorized under Part 3.5 (commencing with Section 15900) and under
paragraphs 43 and 44 of the Special Terms and Conditions for the
demonstration project.
   (3) With respect to those funds identified under paragraph (2),
the department shall separately identify and account for federal
safety net care pool funds claimed and received for inpatient
hospital services rendered under the health care coverage initiative,
including services rendered to enrollees of a managed care
organization, by designated public hospitals, nondesignated public
hospitals, and project year private DSH hospitals.
  SEC. 15.  Section 14166.20 of the Welfare and Institutions Code is
amended to read:
   14166.20.  (a) With respect to each project year through October
31, 2010, the total amount of stabilization funding shall be the sum
of the following:
   (1) (A) Federal Medicaid funds available in the Health Care
Support Fund, established pursuant to Section 14166.21, reduced by
the amount necessary to meet the baseline funding amount, or the
adjusted baseline funding amount, as appropriate, for project years
after the 2005-06 project year for each designated public hospital,
project year private DSH hospitals in the aggregate, and
nondesignated public hospitals in the aggregate as determined in
Sections 14166.5, 14166.13, and 14166.18, respectively, taking into
account all other payments to each hospital under this article. This
amount shall be not less than zero.
   (B) For purposes of subparagraph (A), federal Medicaid funds
available in the Health Care Support Fund shall not include health
care coverage initiative amounts identified under paragraph (2) of
subdivision (e) of Section 14166.9.
   (C) The federal financial participation amount arising from the
certified public expenditures that has been paid to designated public
hospitals, or the governmental entities with which they are
affiliated, pursuant to subdivision (g) of Section 14166.221, shall
be disregarded for purposes of this section.
   (2) The state general funds that were made available due to the
receipt of federal funding for previously state-funded programs
through the safety net care pool and any federal Medicaid hospital
reimbursements resulting from these expenditures, unless otherwise
recognized under paragraph (1), to the extent those funds are in
excess of the amount necessary to meet the baseline funding amount,
or the adjusted baseline funding amount, as appropriate, for project
years after the 2005-06 project year for each designated public
hospital, for project year private DSH hospitals in the aggregate,
and for nondesignated public hospitals in the aggregate, as
determined in Sections 14166.5, 14166.13, and 14166.18, respectively.

   (3) To the extent not included in paragraph (1) or (2), the amount
of the increase in state General Fund expenditures for Medi-Cal
inpatient hospital services for the project year for project year
private DSH hospitals and nondesignated public hospitals, including
amounts expended in accordance with paragraph (1) of subdivision (c)
of Section 14166.23, that exceeds the expenditure amount for the same
purpose and the same hospitals necessary to provide the aggregate
baseline funding amounts applicable to the project determined
pursuant to Sections 14166.13 and 14166.18, and any direct grants to
designated public hospitals for services under the demonstration
project.
   (4) To the extent not included in paragraph (2), federal Medicaid
funds received by the state as a result of the General Fund
expenditures described in paragraph (3).
   (5) The federal Medicaid funds received by the state as a result
of federal financial participation with respect to Medi-Cal payments
for inpatient hospital services made to project year private DSH
hospitals and to nondesignated public hospitals for services rendered
during the project year, the state share of which was derived from
intergovernmental transfers or certified public expenditures of any
public entity that does not own or operate a public hospital.
   (6) Federal safety net care pool funds claimed and received for
inpatient hospital services rendered under the health care coverage
initiative identified under paragraph (3) of subdivision (e) of
Section 14166.9.
   (b) With respect to the 2005-06, 2006-07, and subsequent project
years through October 31, 2010, the stabilization funding determined
under subdivision (a) shall be allocated as follows:
   (1) Eight million dollars ($8,000,000) shall be paid to San Mateo
Medical Center. All or a portion of this amount may be paid as
disproportionate share hospital payments in addition to the hospital'
s allocation that would otherwise be determined under Section
14166.6. The amount provided for in this paragraph shall be
disregarded in the application of the limitations described in
paragraph (3) of subdivision (a) of Section 14166.6, and in paragraph
(1) of subdivision (a) of Section 14166.7.
   (2) (A) Ninety-six million two hundred twenty-eight thousand
dollars ($96,228,000) shall be allocated to designated public
hospitals to be paid in accordance with Section 14166.75.
   (B) Forty-two million two hundred twenty-eight thousand dollars
($42,228,000) shall be allocated to private DSH hospitals to be paid
in accordance with Section 14166.14.
   (C) Five hundred forty-four thousand dollars ($544,000) shall be
allocated to nondesignated public hospitals to be paid in accordance
with Section 14166.17.
   (D) In the event that stabilization funding is less than one
hundred forty-seven million dollars ($147,000,000), the amounts
allocated to designated public hospitals, private DSH hospitals, and
nondesignated public hospitals under this paragraph shall be reduced
proportionately.
   (3) (A) An amount equal to the lesser of 10 percent of the total
amount determined under subdivision (a) or twenty-three million five
hundred thousand dollars ($23,500,000), but at least fifteen million
three hundred thousand dollars ($15,300,000), shall be made available
for additional payments to distressed hospitals that participate in
the selective provider contracting program under Article 2.6
(commencing with Section 14081), including designated public
hospitals, in amounts to be determined by the California Medical
Assistance Commission. The additional payments to designated public
hospitals shall be negotiated by the California Medical Assistance
Commission, but shall be paid by the department in the form of a
direct grant rather than as Medi-Cal payments.
   (B) Notwithstanding subparagraph (A) and solely for the 2006-07
fiscal year, if the amount that otherwise would be made available for
additional payments to distressed hospitals under subparagraph (A)
is equal to or greater than eighteen million three hundred thousand
dollars ($18,300,000), that amount shall be reduced by eighteen
million three hundred thousand dollars ($18,300,000) and the state's
obligation to make these payments shall be reduced by this amount. In
the event the amount that otherwise would be made available under
subparagraph (A) is less than eighteen million three hundred thousand
dollars ($18,300,000), but greater than or equal to the minimum
amount of fifteen million three hundred thousand dollars
($15,300,000), then the amount available under this paragraph shall
be zero and the state's obligation to make these payments shall be
zero.
   (C) Notwithstanding subparagraph (A) and solely for the 2008-09
and 2009-10 fiscal years, the amount to be made available shall be
reduced by fifteen million three hundred thousand dollars
($15,300,000) in each of the two years. The funds generated from this
reduction shall be retained in the General Fund.
   (4) An amount equal to 0.64 percent of the total amount determined
under subdivision (a), to nondesignated public hospitals to be paid
in accordance with Section 14166.19.
   (5) The amount remaining after subtracting the amount determined
in paragraphs (1) and (2), subparagraph (A) of paragraph (3), and
paragraph (4), without taking into account subparagraphs (B) and (C)
of paragraph (3), shall be allocated as follows:
   (A) Sixty percent to designated public hospitals to be paid in
accordance with Section 14166.75.
   (B) Forty percent to project year private DSH hospitals to be paid
in accordance with Section 14166.14.
   (c) By April 1 of the year following the project year for which
the payment is made, and after taking into account final amounts
otherwise paid or payable to hospitals under this article, the
director shall calculate in accordance with subdivision (a), allocate
in accordance with subdivision (b), and pay to hospitals in
accordance with Sections 14166.75, 14166.14, and 14166.19, as
applicable, the stabilization funding.
   (d) For purposes of determining amounts paid or payable to
hospitals under subdivision (c), the department shall apply the
following:
   (1) In determining amounts paid or payable to designated public
hospitals that are based on allowable costs incurred by the hospital,
or the governmental entity with which it is affiliated, the
following shall apply:
   (A) If the final payment amount is based on the hospital's
Medicare cost report, the department shall rely on the cost report
filed with the Medicare fiscal intermediary for the project year for
which the calculation is made, reduced by a percentage that
represents the average percentage change from total reported costs to
final costs for the three most recent cost reporting periods for
which final determinations have been made, taking into account all
administrative and judicial appeals. Protested amounts shall not be
considered in determining the average percentage change unless the
same or similar costs are included in the project year cost report.
   (B) If the final payment amount is based on costs not included in
subparagraph (A), the reported costs as of the date the determination
is made under subdivision (c), shall be reduced by 10 percent.
   (C) In addition to adjustments required in subparagraphs (A) and
(B), the department shall adjust amounts paid or payable to
designated public hospitals by any applicable deferrals or
disallowances identified by the federal Centers for Medicare and
Medicaid Services as of the date the determination is made under
subdivision (c) not otherwise reflected in subparagraphs (A) and (B).

   (2) Amounts paid or payable to project year private DSH hospitals
and nondesignated public hospitals shall be determined by the most
recently available Medi-Cal paid claims data increased by a
percentage to reflect an estimate of amounts remaining unpaid.
   (e) The department shall consult with hospital representatives
regarding the appropriate calculation of stabilization funding before
stabilization funds are paid to hospitals. The calculation may be
comprised of multiple steps involving interim computations and
assumptions as may be necessary to determine the total amount of
stabilization funding under subdivision (a) and the allocations under
subdivision (b). No later than 30 days after this consultation, the
department shall establish a final determination of stabilization
funding that shall not be modified for any reason other than
mathematical errors or mathematical omissions on the part of the
department.
   (f) The department shall distribute 75 percent of the estimated
stabilization funding on an interim basis throughout the project
year.
   (g) The allocation and payment of stabilization funding shall not
reduce the amount otherwise paid or payable to a hospital under this
article or any other provision of law, unless the reduction is
required by the demonstration project's Special Terms and Conditions
or by federal law.
   (h) It is the intent of the Legislature that the amendments made
to Sections 14166.12 and to this section by the act that added this
subdivision in the 2007-08 Regular Session shall not be construed to
amend or otherwise alter the ongoing structure of the department's
Medicaid Demonstration Project and Waiver approved by the federal
Centers for Medicare and Medicaid Services to begin on September 1,
2005.
   (i) The provisions of this section shall only apply with respect
to the demonstration project term, and shall not apply with respect
to the successor demonstration project term.
  SEC. 16.  Section 14166.21 of the Welfare and Institutions Code is
amended to read:
   14166.21.  (a) The Health Care Support Fund is hereby established
in the State Treasury. Notwithstanding Section 13340 of the
Government Code, the fund shall be continuously appropriated to the
department for the purposes specified in this article. The fund shall
include any interest that accrues on amounts in the fund.
   (b) During the term of the demonstration project, amounts in the
Health Care Support Fund shall be paid in the following order of
priority:
   (1) To hospitals for services rendered to Medi-Cal beneficiaries
and the uninsured in an amount necessary to meet the aggregate
baseline funding amount, or the adjusted aggregate baseline funding
amount for project years after the 2005-06 project year, as specified
in subdivision (d) of Section 14166.5, subdivision (b) of Section
14166.13, and Section 14166.18, taking into account all other
payments to each hospital under this article, except payments made
from the Distressed Hospital Fund pursuant to Section 14166.23 and
payments made to distressed hospitals pursuant to paragraph (3) of
subdivision (b) of Section 14166.20. If the amount in the Health Care
Support Fund is inadequate to provide full aggregate baseline
funding, or adjusted aggregate baseline funding, to all designated
public hospitals, project year private DSH hospitals, and
nondesignated public hospitals, each group's payments shall be
reduced pro rata.
   (2) To the extent necessary to maximize federal funding under the
demonstration project and consistent with Section 14166.22, the
department may claim safety net care pool funds based on health care
expenditures incurred by the department for uncompensated medical
care costs of medical services provided to uninsured individuals, as
approved by the federal Centers for Medicare and Medicaid Services.
   (3) Stabilization funding, allocated and paid in accordance with
Sections 14166.75, 14166.14, and 14166.19, and paragraph (3) of
subdivision (b) of Section 14166.20.
   (4) Any amounts remaining after final reconciliation of all
amounts due at the end of a project year shall remain available for
payments in accordance with this section in the next project year.
   (c) Subdivision (b) shall not apply to federal safety net care
pool funds claimed and received for services rendered under the
health care coverage initiative identified under paragraph (2) of
subdivision (e) of Section 14166.9, which shall be paid in accordance
with Part 3.5 (commencing with Section 15900) and under paragraphs
43 and 44 of the Special Terms and Conditions for the demonstration
project.
   (d) During the term of the successor demonstration project,
amounts in the Health Care Support Fund shall be paid as follows:
   (1) To the department consistent with Section 14166.22, with
respect to amounts claimed by the department based on health care
expenditures incurred by the state for uncompensated medical care
costs of medical services provided to uninsured individuals, or
expenditures incurred by the state for uncompensated costs of
state-funded workforce development programs, as approved by the
federal Centers for Medicare and Medicaid Services.
   (2) To designated public hospitals and the governmental entities
with which they are affiliated pursuant to Section 14166.71, with
respect to amounts claimed based on certified public expenditures as
reported pursuant to Section 14166.8.
   (3) Any amounts remaining after final reconciliation of all
amounts due at the end of a successor demonstration year shall remain
available for payments in accordance with this section in the next
successor demonstration year, as authorized by the Special Terms and
Conditions for the successor demonstration project.
  SEC. 17.  Section 14166.24 of the Welfare and Institutions Code is
amended to read:
   14166.24.  (a) Any determination of the amount due a designated
public hospital that is based in whole or in part on costs reported
to or audited by a Medicare fiscal intermediary shall not be deemed
final for purposes of this article unless the hospital has received a
final determination of Medicare payment for the cost reporting for
Medicare purposes. Designated public hospitals shall be entitled to
pursue all administrative and judicial review available under the
Medicare Program and any final determination shall be incorporated
into the department's
final determination of payment due the hospital under this article.
   (b) If as a result of an audit performed by the department or any
state or federal agency, the department determines that any hospital
has been overpaid under the demonstration project or the successor
demonstration project, the department shall recoup the overpayment in
accordance with Section 14172.5 or 14115.5. The hospital may appeal
the overpayment determinations and any related audit determination in
accordance with the appeal procedures set forth in Sections 51016 to
51047, inclusive, of Title 22 of the California Code of Regulations.
The hospital may seek judicial review of the final administrative
decision as set forth in Section 14171.
   (c) The department shall promptly consult with the affected
governmental entity regarding a dispute between a designated public
hospital and the department regarding the validity of the hospital's
certified public expenditures. If the department determines that the
hospital's certification is valid, the department shall submit the
claim to obtain federal reimbursement for the certified expenditure
in question.
   (d) (1) Upon receipt of a notice of disallowance or deferral from
the federal government related to the certified public expenditures
or intergovernmental transfers of any governmental entity
participating in the demonstration project, the department shall
promptly notify the affected governmental entity. The governmental
entity that certified the public expenditure shall be the entity
responsible for the federal portion of that expenditure.
   (2) The department and the affected governmental entity shall
promptly consult regarding the proposed disallowance or deferral.
   (3) After consulting with the governmental entity, the department
shall determine whether the disallowance or response to a deferral
should be filed with the federal government. If the department
determines the appeal or response has merit, the department shall
timely appeal. If necessary, the department may request an extension
of the deadline to file an appeal or response to a deferral. The
affected governmental entity may provide the department with the
legal and factual basis for the appeal or response.
   (e) Notwithstanding any other provision of law, if the department
has exercised the authority set forth in subdivision (g) of Section
14166.221 and subdivision (e) of Section 14167.5, then all of the
following shall occur:
   (1) (A) The state shall be solely responsible for the repayment of
the federal portion of any federal disallowance associated with any
certified public expenditures for the 2009, 2010, and 2011 project
years through October 31, 2010, and paragraph (1) of subdivision (d)
of Section 14166.24 shall be disregarded, up to the total amount of
the grant funds retained by the state under subdivision (e) of
Section 14167.5.
   (B) If the hospitals have additional certified public expenditures
for which federal funds have not been received but for which federal
funds could have been received under the demonstration project had
additional federal funds been available, including federal funds made
available under an extension of the demonstration project, the state
shall first be allowed to respond to a deferral or disallowance
based on the certified public expenditures of designated public
hospitals, or the governmental entities with which they are
affiliated, by substituting the additional certified public
expenditures for those deferred or disallowed.
   (2) The department shall not recoup any overpayment from a
designated public hospital, or a governmental entity with which it is
affiliated, with respect to payments under this article for the
2009, 2010, and 2011 project years through October 31, 2010, until
the state has repaid all federal funds due up to the amount of the
grant funds retained by the state under subdivision (e) of Section
14167.5.
  SEC. 18.  Section 14166.26 of the Welfare and Institutions Code is
amended to read:
   14166.26.  (a) Unless this article is repealed pursuant to
subdivision (b) or (g) of Section 14166.2, this article shall become
inoperative on the date that the director executes a declaration,
which shall be retained by the director and provided to the fiscal
and appropriate policy committees of the Legislature, stating that
the federal demonstration project or the successor demonstration
project provided for in this article has been terminated by the
federal Centers for Medicare and Medicaid Services, and shall, six
months after the date the declaration is executed, be repealed.
   (b) In addition to the requirements specified in subdivision (a),
the director shall post the declaration on the department's Internet
Web site and the director shall send the declaration to the Secretary
of State and the Legislative Counsel.
  SEC. 19.  Section 14182 of the Welfare and Institutions Code is
amended to read:
   14182.  (a) (1) In furtherance of the waiver or demonstration
project developed pursuant to Section 14180, the department may
require seniors and persons with disabilities who do not have other
health coverage to be assigned as mandatory enrollees into new or
existing managed care health plans. To the extent that enrollment is
required by the department, an enrollee's access to fee-for-service
Medi-Cal shall not be terminated until the enrollee has been assigned
to a managed care health plan.
   (2) For purposes of this section:
   (A) "Other health coverage" means health coverage providing the
same full or partial benefits as the Medi-Cal program, health
coverage under another state or federal medical care program, or
health coverage under contractual or legal entitlement, including,
but not limited to, a private group or indemnification insurance
program.
   (B) "Managed care health plan" means an individual, organization,
or entity that enters into a contract with the department pursuant to
Article 2.7 (commencing with Section 14087.3), Article 2.81
(commencing with Section 14087.96), Article 2.91 (commencing with
Section 14089), or Chapter 8 (commencing with Section 14200).
   (b) In exercising its authority pursuant to subdivision (a), the
department shall do all of the following:
   (1) Assess and ensure the readiness of the managed care health
plans to address the unique needs of seniors or persons with
disabilities pursuant to the applicable readiness evaluation criteria
and requirements set forth in paragraphs (1) to (8), inclusive, of
subdivision (b) of Section 14087.48.
   (2) Ensure the managed care health plans provide access to
providers that comply with applicable state and federal laws,
including, but not limited to, physical accessibility and the
provision of health plan information in alternative formats.
   (3) Develop and implement an outreach and education program for
seniors and persons with disabilities, not currently enrolled in
Medi-Cal managed care, to inform them of their enrollment options and
rights under the demonstration project. Contingent upon available
private or public dollars other than moneys from the General Fund,
the department or its designated agent for enrollment and outreach
may partner or contract with community-based, nonprofit consumer or
health insurance assistance organizations with expertise and
experience in assisting seniors and persons with disabilities in
understanding their health care coverage options. Contracts entered
into or amended pursuant to this paragraph shall be exempt from
Chapter 2 (commencing with Section 10290) of Part 2 of Division 2 of
the Public Contract Code and any implementing regulations or policy
directives.
   (4) At least three months prior to enrollment, inform
beneficiaries who are seniors or persons with disabilities, through a
notice written at no more than a sixth grade reading level, about
the forthcoming changes to their delivery of care, including, at a
minimum, how their system of care will change, when the changes will
occur, and who they can contact for assistance with choosing a
delivery system or with problems they encounter. In developing this
notice, the department shall consult with consumer representatives
and other stakeholders.
   (5) Implement an appropriate cultural awareness and sensitivity
training program regarding serving seniors and persons with
disabilities for managed care health plans and plan providers and
staff in the Medi-Cal Managed Care Division of the department.
   (6) Establish a process for assigning enrollees into an organized
delivery system for beneficiaries who do not make an affirmative
selection of a managed care health plan. The department shall develop
this process in consultation with stakeholders and in a manner
consistent with the waiver or demonstration project developed
pursuant to Section 14180. The department shall base plan assignment
on an enrollee's existing or recent utilization of providers, to the
extent possible. If the department is unable to make an assignment
based on the enrollee's affirmative selection or utilization history,
the department shall base plan assignment on factors, including, but
not limited to, plan quality and the inclusion of local health care
safety net system providers in the plan's provider network.
   (7) Review and approve the mechanism or algorithm that has been
developed by the managed care health plan, in consultation with their
stakeholders and consumers, to identify, within the earliest
possible timeframe, persons with higher risk and more complex health
care needs pursuant to paragraph (11) of subdivision (c).
   (8) Provide managed care health plans with historical utilization
data for beneficiaries upon enrollment in a managed care health plan
so that the plans participating in the demonstration project are
better able to assist beneficiaries and prioritize assessment and
care planning.
   (9) Develop and provide managed care health plans participating in
the demonstration project with a facility site review tool for use
in assessing the physical accessibility of providers, including
specialists and ancillary service providers that provide care to a
high volume of seniors and persons with disabilities, at a clinic or
provider site, to ensure that there are sufficient physically
accessible providers. Every managed care health plan participating in
the demonstration project shall make the results of the facility
site review tool publicly available on their Internet Web site and
shall regularly update the results to the department's satisfaction.
   (10) Develop a process to enforce legal sanctions, including, but
not limited to, financial penalties, withholding of Medi-Cal
payments, enrollment termination, and contract termination, in order
to sanction any managed care health plan in the demonstration project
that consistently or repeatedly fails to meet performance standards
provided in statute or contract.
   (11) Ensure that managed care health plans provide a mechanism for
enrollees to request a specialist or clinic as a primary care
provider. A specialist or clinic may serve as a primary care provider
if the specialist or clinic agrees to serve in a primary care
provider role and is qualified to treat the required range of
conditions of the enrollee.
   (12) Ensure that managed care health plans participating in the
demonstration project are able to provide communication access to
seniors and persons with disabilities in alternative formats or
through other methods that ensure communication, including assistive
listening systems, sign language interpreters, captioning, written
communication, plain language or written translations and oral
interpreters, including for those who are limited English-proficient,
or non-English speaking, and that all managed care health plans are
in compliance with applicable cultural and linguistic requirements.
   (13) Ensure that managed care health plans participating in the
demonstration project provide access to out-of-network providers for
new individual members enrolled under this section who have an
ongoing relationship with a provider if the provider will accept the
health plan's rate for the service offered, or the applicable
Medi-Cal fee-for-service rate, whichever is higher, and the health
plan determines that the provider meets applicable professional
standards and has no disqualifying quality of care issues.
   (14) Ensure that managed care health plans participating in the
demonstration project comply with continuity of care requirements in
Section 1373.96 of the Health and Safety Code.
   (15) Ensure that the medical exemption criteria applied in
counties operating under Chapter 4.1 (commencing with Section 53800)
or Chapter 4.5 (commencing with Section 53900) of Subdivision 1 of
Division 3 of Title 22 of the California Code of Regulations are
applied to seniors and persons with disabilities served under this
section.
   (16) Ensure that managed care health plans participating in the
demonstration project take into account the behavioral health needs
of enrollees and include behavioral health services as part of the
enrollee's care management plan when appropriate.
   (17) Develop performance measures that are required as part of the
contract to provide quality indicators for the Medi-Cal population
enrolled in a managed care health plan and for the subset of
enrollees who are seniors and persons with disabilities. These
performance measures may include measures from the Healthcare
Effectiveness Data and Information Set (HEDIS) or measures indicative
of performance in serving special needs populations, such as the
National Committee for Quality Assurance (NCQA) Structure and Process
measures, or both.
   (18) Conduct medical audit reviews of participating managed care
health plans that include elements specifically related to the care
of seniors and persons with disabilities. These medical audits shall
include, but not be limited to, evaluation of the delivery model's
policies and procedures, performance in utilization management,
continuity of care, availability and accessibility, member rights,
and quality management.
   (19) Conduct financial audit reviews to ensure that a financial
statement audit is performed on managed care health plans annually
pursuant to the Generally Accepted Auditing Standards, and conduct
other risk-based audits for the purpose of detecting fraud and
irregular transactions.
   (c) Prior to exercising its authority under this section and
Section 14180, the department shall ensure that each managed care
health plan participating in the demonstration project is able to do
all of the following:
   (1) Comply with the applicable readiness evaluation criteria and
requirements set forth in paragraphs (1) to (8), inclusive, of
subdivision (b) of Section 14087.48.
   (2) Ensure and monitor an appropriate provider network, including
primary care physicians, specialists, professional, allied, and
medical supportive personnel, and an adequate number of accessible
facilities within each service area. Managed care health plans shall
maintain an updated, accurate, and accessible listing of a provider's
ability to accept new patients and shall make it available to
enrollees, at a minimum, by phone, written material, and Internet Web
site.
   (3) Assess the health care needs of beneficiaries who are seniors
or persons with disabilities and coordinate their care across all
settings, including coordination of necessary services within and,
where necessary, outside of the plan's provider network.
   (4) Ensure that the provider network and informational materials
meet the linguistic and other special needs of seniors and persons
with disabilities, including providing information in an
understandable manner in plain language, maintaining toll-free
telephone lines, and offering member or ombudsperson services.
   (5) Provide clear, timely, and fair processes for accepting and
acting upon complaints, grievances, and disenrollment requests,
including procedures for appealing decisions regarding coverage or
benefits. Each managed care health plan participating in the
demonstration project shall have a grievance process that complies
with Section 14450, and Sections 1368 and 1368.01 of the Health and
Safety Code.
   (6) Solicit stakeholder and member participation in advisory
groups for the planning and development activities related to the
provision of services for seniors and persons with disabilities.
   (7) Contract with safety net and traditional providers as defined
in subdivisions (hh) and (jj) of Section 53810, of Title 22 of the
California Code of Regulations, to ensure access to care and
services. The managed care health plan shall establish participation
standards to ensure participation and broad representation of
traditional and safety net providers within a service area.
   (8) Inform seniors and persons with disabilities of procedures for
obtaining transportation services to service sites that are offered
by the plan or are available through the Medi-Cal program.
   (9) Monitor the quality and appropriateness of care for children
with special health care needs, including children eligible for, or
enrolled in, the California Children Services Program, and seniors
and persons with disabilities.
   (10) Maintain a dedicated liaison to coordinate with each regional
center operating within the plan's service area to assist members
with developmental disabilities in understanding and accessing
services and act as a central point of contact for questions, access
and care concerns, and problem resolution.
   (11) At the time of enrollment apply the risk stratification
mechanism or algorithm described in paragraph (7) of subdivision (b)
approved by the department to determine the health risk level of
beneficiaries.
   (12) (A) Managed care health plans shall assess an enrollee's
current health risk by administering a risk assessment survey tool
approved by the department. This risk assessment survey shall be
performed within the following timeframes:
   (i) Within 45 days of plan enrollment for individuals determined
to be at higher risk pursuant to paragraph (11).
   (ii) Within 105 days of plan enrollment for individuals determined
to be at lower risk pursuant to paragraph (11).
   (B) Based on the results of the current health risk assessment,
managed care health plans shall develop individual care plans for
higher risk beneficiaries that shall include the following minimum
components:
   (i) Identification of medical care needs, including primary care,
specialty care, durable medical equipment, medications, and other
needs with a plan for care coordination as needed.
   (ii) Identification of needs and referral to appropriate community
resources and other agencies as needed for services outside the
scope of responsibility of the managed care health plan.
   (iii) Appropriate involvement of caregivers.
   (iv) Determination of timeframes for reassessment and, if
necessary, circumstances or conditions that require redetermination
of risk level.
   (13) (A) Establish medical homes to which enrollees are assigned
that include, at a minimum, all of the following elements, which
shall be considered in the provider contracting process:
   (i) A primary care physician who is the primary clinician for the
beneficiary and who provides core clinical management functions.
   (ii) Care management and care coordination for the beneficiary
across the health care system including transitions among levels of
care.
   (iii) Provision of referrals to qualified professionals, community
resources, or other agencies for services or items outside the scope
of responsibility of the managed care health plan.
   (iv) Use of clinical data to identify beneficiaries at the care
site with chronic illness or other significant health issues.
   (v) Timely preventive, acute, and chronic illness treatment in the
appropriate setting.
   (vi) Use of clinical guidelines or other evidence-based medicine
when applicable for treatment of beneficiaries' health care issues or
timing of clinical preventive services.
   (B) In implementing this section, and the Special Terms and
Conditions of the demonstration project, the department may alter the
medical home elements described in this paragraph as necessary to
secure the increased federal financial participation associated with
the provision of medical assistance in conjunction with a health
home, as made available under the federal Patient Protection and
Affordable Care Act (Public Law 111-148), as amended by the federal
Health Care and Education Reconciliation Act of 2010 (Public Law
111-152), and codified in Section 1945 of Title XIX of the federal
Social Security Act. The department shall notify the appropriate
policy and fiscal committees of the Legislature of its intent to
alter medical home elements under this section at least five days in
advance of taking this action.
   (14) Perform, at a minimum, the following care management and care
coordination functions and activities for enrollees who are seniors
or persons with disabilities:
   (A) Assessment of each new enrollee's risk level and health needs
shall be conducted through a standardized risk assessment survey by
means such as telephonic, Web-based, or in-person communication or by
other means as determined by the department.
   (B) Facilitation of timely access to primary care, specialty care,
durable medical equipment, medications, and other health services
needed by the enrollee, including referrals to address any physical
or cognitive barriers to access.
   (C) Active referral to community resources or other agencies for
needed services or items outside the managed care health plans
responsibilities.
   (D) Facilitating communication among the beneficiaries' health
care providers, including mental health and substance abuse providers
when appropriate.
   (E) Other activities or services needed to assist beneficiaries in
optimizing their health status, including assisting with
self-management skills or techniques, health education, and other
modalities to improve health status.
   (d) Except in a county where Medi-Cal services are provided by a
county organized health system, and notwithstanding any other
provision of law, in any county in which fewer than two existing
managed care health plans contract with the department to provide
Medi-Cal services under this chapter, the department may contract
with additional managed care health plans to provide Medi-Cal
services for seniors and persons with disabilities and other Medi-Cal
beneficiaries.
   (e) Beneficiaries enrolled in managed care health plans pursuant
to this section shall have the choice to continue an established
patient-provider relationship in a managed care health plan
participating in the demonstration project if his or her treating
provider is a primary care provider or clinic contracting with the
managed care health plan and agrees to continue to treat that
beneficiary.
   (f) The department may contract with existing managed care health
plans to operate under the demonstration project to provide or
arrange for services under this section. Notwithstanding any other
provision of law, the department may enter into the contract without
the need for a competitive bid process or other contract proposal
process, provided the managed care health plan provides written
documentation that it meets all qualifications and requirements of
this section.
   (g) This section shall be implemented only to the extent that
federal financial participation is available.
   (h) (1) The development of capitation rates for managed care
health plan contracts shall include the analysis of data specific to
the seniors and persons with disabilities population. For the
purposes of developing capitation rates for payments to managed care
health plans, the director may require managed care health plans,
including existing managed care health plans, to submit financial and
utilization data in a form, time, and substance as deemed necessary
by the department.
   (2) (A) Notwithstanding Section 14301, the department may
incorporate, on a one-time basis for a three-year period, a
risk-sharing mechanism in a contract with the local initiative health
plan in the county with the highest normalized fee-for-service risk
score over the normalized managed care risk score listed in Table 1.0
of the Medi-Cal Acuity Study Seniors and Persons with Disabilities
(SPD) report written by Mercer Government Human Services Consulting
and dated September 28, 2010, if the local initiative health plan
meets the requirements of subparagraph (B). The Legislature finds and
declares that this risk-sharing mechanism will limit the risk of
beneficial or adverse effects associated with a contract to furnish
services pursuant to this section on an at-risk basis.
   (B) The local initiative health plan shall pay the nonfederal
share of all costs associated with the development, implementation,
and monitoring of the risk-sharing mechanism established pursuant to
subparagraph (A) by means of intergovernmental transfers. The
nonfederal share includes the state costs of staffing, state
contractors, or administrative costs directly attributable to
implementing subparagraph (A).
   (C) This subdivision shall be implemented only to the extent
federal financial participation is not jeopardized.
   (i) Persons meeting participation requirements for the Program of
All-Inclusive Care for the Elderly (PACE) pursuant to Chapter 8.75
(commencing with Section 14590), may select a PACE plan if one is
available in that county.
   (j) Persons meeting the participation requirements in effect on
January 1, 2010, for a Medi-Cal primary care case management (PCCM)
plan in operation on that date, may select that PCCM plan or a
successor health care plan that is licensed pursuant to the
Knox-Keene Health Care Service Plan Act of 1975 (Chapter 2.2
(commencing with Section 1340) of Division 2 of the Health and Safety
Code) to provide services within the same geographic area that the
PCCM plan served on January 1, 2010.
   (k) Notwithstanding Chapter 3.5 (commencing with Section 11340) of
Part 1 of Division 3 of Title 2 of the Government Code, the
department may implement, interpret, or make specific this section
and any applicable federal waivers and state plan amendments by means
of all-county letters, plan letters, plan or provider bulletins, or
similar instructions, without taking regulatory action. Prior to
issuing any letter or similar instrument authorized pursuant to this
section, the department shall notify and consult with stakeholders,
including advocates, providers, and beneficiaries. The department
shall notify the appropriate policy and fiscal committees of the
Legislature of its intent to issue instructions under this section at
least five days in advance
of the issuance.
   (l) Consistent with state law that exempts Medi-Cal managed care
contracts from Chapter 2 (commencing with Section 10290) of Part 2 of
Division 2 of the Public Contract Code, and in order to achieve
maximum cost savings, the Legislature hereby determines that an
expedited contract process is necessary for contracts entered into or
amended pursuant to this section. The contracts and amendments
entered into or amended pursuant to this section shall be exempt from
Chapter 2 (commencing with Section 10290) of Part 2 of Division 2 of
the Public Contract Code and the requirements of State
Administrative Management Manual Memo 03-10. The department shall
make the terms of a contract available to the public within 30 days
of the contract's effective date.
   (m) In the event of a conflict between the Special Terms and
Conditions of the approved demonstration project, including any
attachment thereto, and any provision of this part, the Special Terms
and Conditions shall control. If the department identifies a
specific provision of this article that conflicts with a term or
condition of the approved waiver or demonstration project, or an
attachment thereto, the term or condition shall control, and the
department shall so notify the appropriate fiscal and policy
committees of the Legislature within 15 business days.
   (n) In the event of a conflict between the provisions of this
article and any other provision of this part, the provisions of this
article shall control.
   (o) Any otherwise applicable provisions of this chapter, Chapter 8
(commencing with Section 14200), or Chapter 8.75 (commencing with
Section 14500) not in conflict with this article or with the terms
and conditions of the demonstration project shall apply to this
section.
   (p) To the extent that the director utilizes state plan amendments
or waivers to accomplish the purposes of this article in addition to
waivers granted under the demonstration project, the terms of the
state plan amendments or waivers shall control in the event of a
conflict with any provision of this part.
   (q) (1) Enrollment of seniors and persons with disabilities into a
managed care health plan under this section shall be accomplished
using a phased-in process to be determined by the department and
shall not commence until necessary federal approvals have been
acquired or until June 1, 2011, whichever is later.
   (2) Notwithstanding paragraph (1), and at the director's
discretion, enrollment in Los Angeles County of seniors and persons
with disabilities may be phased-in over a 12-month period using a
geographic region method that is proposed by Los Angeles County
subject to approval by the department.
   (r) A managed care health plan established pursuant to this
section, or under the Special Terms and Conditions of the
demonstration project pursuant to Section 14180, shall be subject to,
and comply with, the requirement for submission of encounter data
specified in Section 14182.1.
   (s) (1) Commencing January 1, 2011, and until January 1, 2014, the
department shall provide the fiscal and policy committees of the
Legislature with semiannual updates regarding core activities for the
enrollment of seniors and persons with disabilities into managed
care health plans pursuant to the pilot program. The semiannual
updates shall include key milestones, progress toward the objectives
of the pilot program, relevant or necessary changes to the program,
submittal of state plan amendments to the federal Centers for
Medicare and Medicaid Services, submittal of any federal waiver
documents, and other key activities related to the mandatory
enrollment of seniors and persons with disabilities into managed care
health plans. The department shall also include updates on the
transition of individuals into managed care health plans, the health
outcomes of enrollees, the care management and coordination process,
and other information concerning the success or overall status of the
pilot program.
   (2) (A) The requirement for submitting a report imposed under
paragraph (1) is inoperative on January 1, 2015, pursuant to Section
10231.5 of the Government Code.
   (B) A report to be submitted pursuant to paragraph (1) shall be
submitted in compliance with Section 9795 of the Government Code.
   (t) The department, in collaboration with the State Department of
Social Services and county welfare departments, shall monitor the
utilization and caseload of the In-Home Supportive Services (IHSS)
program before and during the implementation of the pilot program.
This information shall be monitored in order to identify the impact
of the pilot program on the IHSS program for the affected population.

   (u) Services under Section 14132.95 or 14132.952, or Article 7
(commencing with Section 12300) of Chapter 3 that are provided to
individuals assigned to managed care health plans under this section
shall be provided through direct hiring of personnel, contract, or
establishment of a public authority or nonprofit consortium, in
accordance with and subject to the requirements of Section 12302 or
12301.6, as applicable.
   (v) The department shall, at a minimum, monitor on a quarterly
basis the adequacy of provider networks of the managed care health
plans.
   (w) The department shall suspend new enrollment of seniors and
persons with disabilities into a managed care health plan if it
determines that the managed care health plan does not have sufficient
primary or specialty providers to meet the needs of their enrollees.

  SEC. 20.  Section 14182.3 of the Welfare and Institutions Code is
amended to read:
   14182.3.  (a) To the extent the provisions of Article 5.2
(commencing with Section 14166) do not conflict with the provisions
of this article or the Special Terms and Conditions of the new
demonstration project created under this article, the provisions of
Article 5.2 (commencing with Section 14166) shall continue to apply
to the new demonstration project.
   (b) In the event of a conflict between any provision of this
article and the Special Terms and Conditions required by the federal
Centers for Medicare and Medicaid Services for the approval of the
demonstration project described in Section 14180, the Special Terms
and Conditions shall control.
   (c) (1) Under the demonstration project described in Section
14180, the state shall have priority to claim against and retain the
first five hundred million dollars ($500,000,000) in federal funds
using expenditures incurred under state-only programs or other
programs for which the state is authorized to claim under the Special
Terms and Conditions of the demonstration project or federal
Medicaid law, including state-only programs that serve special
populations, such as those for which state savings were recognized in
the Budget Act for the 2010-11 fiscal year.
   (2) Notwithstanding paragraph (1), if the director determines that
the amount of base funding available under the demonstration project
described in Section 14180 is less than the six hundred eighty-one
million six hundred forty thousand dollars ($681,640,000) available
to public hospitals under the original demonstration project, the
state may reallocate an amount from the five hundred million dollars
($500,000,000) described in paragraph (1) to increase the amount of
base funding under the new demonstration project to six hundred
eighty one million six hundred forty thousand dollars ($681,640,000).

   (3) For purposes of this section, the term "base funding" includes
funding for the safety net care pool or a similar pool or fund for
health coverage expansion, and for an investment, incentive, or
similar pool, but shall not include funds made available to hospitals
or counties for inpatient or outpatient Medi-Cal reimbursements,
expansion of managed care for seniors and persons with disabilities,
or other expansions of systems of care for individuals who are
eligible under the Medi-Cal state plan.
   (4) If the state is unable to claim the full amount of the five
hundred million dollars ($500,000,000) described in paragraph (1),
any portion of the amount that remains unclaimed may be reallocated
to be claimed based on the certified public expenditures of the
designated public hospitals.
   (d) The director shall have authority to maximize available
federal financial participation under the demonstration project
described in Section 14180, including, but not limited to,
authorizing the use of intergovernmental transfers by district
hospitals that are not reimbursed under a contract negotiated
pursuant to the Selective Provider Contracting Program, to fund the
nonfederal share of expenditures to the extent permitted by the
Special Terms and Conditions of the demonstration project.
   (e) Participation in intergovernmental transfers under this
section is voluntary on the part of the transferring entity for
purposes of all applicable federal laws. As part of its voluntary
participation in the nonfederal share of payments under this
subdivision by means of intergovernmental transfers, the transferring
entity agrees to reimburse the state for the nonfederal share of
state staffing or administrative costs directly attributable to the
state's implementation of these voluntary intergovernmental
transfers. This subdivision shall be implemented only to the extent
federal financial participation is not jeopardized.
   (f) Notwithstanding the rulemaking provisions of Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title 2 of
the Government Code, the department may clarify, interpret, or
implement the provisions of this section by means of provider
bulletins or similar instructions. The department shall notify the
fiscal and appropriate policy committees of the Legislature of its
intent to issue instructions under this section at least five days in
advance of the issuance.
  SEC. 21.  Section 14182.4 of the Welfare and Institutions Code is
amended to read:
   14182.4.  (a) To the extent authorized under a federal waiver or
demonstration project described in Section 14180 that is approved by
the federal Centers for Medicare and Medicaid Services, the
department shall establish a program of investment, improvement, and
incentive payments for designated public hospitals to encourage and
incentivize delivery system transformation and innovation in
preparation for the implementation of federal health care reform.
   (b) The Public Hospital Investment, Improvement, and Incentive
Fund is hereby established in the State Treasury. Notwithstanding
Section 13340 of the Government Code, moneys in the fund shall be
continuously appropriated, without regard to fiscal years, to the
department for the purposes specified in this section.
   (c) The fund shall consist of any moneys that a county, other
political subdivision of the state, or other governmental entity in
the state that may elect to transfer to the department for deposit
into the fund, as permitted under Section 433.51 of Title 42 of the
Code of Federal Regulations or any other applicable federal Medicaid
laws.
   (d) Moneys in the fund shall be used as the source for the
nonfederal share of investment, improvement, and incentive payments
as authorized under a federal waiver or demonstration project to
participating designated public hospitals defined in subdivision (d)
of Section 14166.1, and the governmental entities with which they are
affiliated, that provide the intergovernmental transfers for deposit
into the fund, and to nondesignated public hospitals and private
disproportionate share hospitals as authorized under Section
14182.45, as long as the payments are made to support and reward the
pursuit of delivery system improvements.
   (e) The department shall obtain federal financial participation
for moneys in the fund to the full extent permitted by law. Moneys
shall be allocated from the fund by the department and matched by
federal funds in accordance with the Special Terms and Conditions of
the waiver or demonstration project and Section 14167.77, and in
accordance with Section 14182.45, as applicable. The moneys disbursed
from the fund, and all associated federal financial participation,
shall be distributed solely to the designated public hospitals and
the governmental entities with which they are affiliated, and to
other eligible hospitals as may be provided for under Section
14182.45.
   (f) Participation under this section is voluntary on the part of
the county or other political subdivision for purposes of all
applicable federal laws. As part of its voluntary participation in
the nonfederal share of payments under this section, the county or
other political subdivision agrees to reimburse the state for the
nonfederal share of state staffing or administrative costs directly
attributable to implementation of this section. This section shall be
implemented only to the extent federal financial participation is
not jeopardized.
   (g) Notwithstanding the rulemaking provisions of Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title 2 of
the Government Code, the department may clarify, interpret, or
implement the provisions of this section by means of provider
bulletins or similar instructions. The department shall notify the
fiscal and appropriate policy committees of the Legislature of its
intent to issue instructions under this section at least five days in
advance of the issuance.
  SEC. 22.  Section 14182.45 is added to the Welfare and Institutions
Code, to read:
   14182.45.  In consultation with the designated public hospitals,
as defined in subdivision (d) of Section 14166.1, and to the extent
it does not impede the ability of the designated public hospitals to
meet the requirements and conditions for delivery system reform
incentive payments authorized under Sections 14166.77 and 14182.4,
the state may provide for milestone incentive payments to private
disproportionate share hospitals and nondesignated public
disproportionate share hospitals to create incentives for improvement
activities towards, and achievement of, delivery system
transformation. The milestone incentive payments to private
disproportionate share hospitals and nondesignated public
disproportionate share hospitals shall be structured in accordance
with the requirements and conditions for delivery system reform
incentive payments set forth in the Special Terms and Conditions and
as approved by the federal Centers for Medicare and Medicaid
Services. Incentive payments may be funded by voluntary
intergovernmental transfers made by the designated public hospitals
and nondesignated public hospitals. All incentive pool funding,
including any potential private and nondesignated public hospital
subpools, shall be limited to the total amount of incentive pool
funding allowed for delivery system reform incentive payments as set
forth in the Special Terms and Conditions.
  SEC. 23.  Section 15908 of the Welfare and Institutions Code is
amended to read:
   15908.  (a) This part shall become inoperative on the date that
the director executes a declaration, which shall be retained by the
director and provided to the fiscal and appropriate policy committees
of the Legislature, stating that the Low Income Health Program
authorized under Part 3.6 (commencing with Section 15909) and under
the Special Terms and Conditions of the demonstration project, as
defined in Section 15909.1, has been implemented, and that each
Health Care Coverage Initiative program approved under this part that
has sought approval under Part 3.6 (commencing with Section 15909)
has been transitioned to a Low Income Health Program, if authorized
under the demonstration project and Part 3.6 (commencing with Section
15909), and shall, six months after the date the declaration is
executed, be repealed.
   (b) In addition to the requirements specified in subdivision (a),
the director shall post the declaration on the department's Internet
Web site and the director shall send the declaration to the Secretary
of State and the Legislative Counsel.
   (c) Until the effective date of the repeal of this part pursuant
to subdivision (a), the director may continue and administer any
extensions, modifications, or continuation of the projects under this
part approved by the federal Centers for Medicare and Medicaid
Services.
  SEC. 24.  The heading of Part 3.6 (commencing with Section 15909)
of Division 9 of the Welfare and Institutions Code is amended to
read:

      PART 3.6.  Low Income Health Program


  SEC. 25.  Section 15909.1 of the Welfare and Institutions Code is
amended to read:
   15909.1.  For purposes of this part, the following definitions
shall apply:
   (a) "Demonstration project" means a federal waiver or
demonstration project described in Section 14180 approved by the
federal Centers for Medicare and Medicaid Services that authorizes
the implementation of a successor to the Health Care Coverage
Initiative under Part 3.5 (commencing with Section 15900).
   (b) "Eligible entity" means a county, city and county, consortium
of counties serving a region consisting of more than one county, or
health authority. For purposes of this section and to the extent
allowed under the Special Terms and Conditions of the demonstration
project, a County Medical Services Program shall be considered a
consortium of counties serving a region consisting of more than one
county.
   (c) "LIHP" means a local Low Income Health Program authorized
pursuant to this part that is comprised of the following populations:

   (1) The Medicaid Coverage Expansion (MCE) population, which means
low-income individuals 19 to 64 years of age, inclusive, who are not
pregnant, with family incomes at or below 133 percent of the federal
poverty level, are not eligible for the Medi-Cal program or the
Children's Health Insurance Program, are United States citizens,
nationals, or have satisfactory immigration status, and meet the
county of residence requirements.
   (2) The Health Care Coverage Initiative (HCCI) population, which
means low-income individuals 19 to 64 years of age, inclusive, who
are not pregnant, with family incomes above 133 percent through 200
percent of the federal poverty level, are not eligible for the
Medicare Program, the Medi-Cal program, the Children's Health
Insurance Program, or other third-party coverage, are United States
citizens, nationals, or have satisfactory immigration status, and
meet the county of residence requirements.
   (d) "Participating entity" means an eligible entity that operates
an approved LIHP.
  SEC. 26.  Section 15910 of the Welfare and Institutions Code is
amended to read:
   15910.  (a)  Subject to federal approval of a demonstration
project effective on or after November 1, 2010, the department shall,
by no later than July 1, 2011, authorize local LIHPs to provide
scheduled health care services, consistent with the Special Terms and
Conditions of the demonstration project, to eligible low-income
individuals 19 to 64 years of age, inclusive, who are not otherwise
eligible for the Medi-Cal program or the Children's Health Insurance
Program, with family incomes at or below 133 percent of the federal
poverty level. To the extent federal financial participation is made
available under the Special Terms and Conditions of the demonstration
project pursuant to Section 15910.1, LIHP health care services may
be made available to eligible individuals with family incomes above
133 percent through 200 percent of the federal poverty level.
   (b) Eligible entities, consistent with the Special Terms and
Conditions of the demonstration project, may perform outreach and
enrollment activities to target populations, including, but not
limited to, the people who are homeless, individuals who frequently
use hospital inpatient or emergency department services for avoidable
reasons, or people with mental health or substance abuse treatment
needs.
   (c) The LIHP shall be designed and implemented with the systems
and program elements necessary to facilitate the transition of those
eligible individuals to Medi-Cal coverage, or alternatively, to
coverage through the California Health Benefit Exchange, by 2014,
pursuant to state and federal law, and the Special Terms and
Conditions of the demonstration project.
   (d) The department shall authorize a LIHP that meets the
requirements set forth in this part and the Special Terms and
Conditions of the demonstration project.
   (e) (1) By January 1, 2011, or alternatively, 60 days after
federal approval of the demonstration project, whichever occurs
later, the department shall notify all eligible entities of the
opportunity to elect to implement a LIHP, the applicable
requirements, and the process for submitting an application for
department approval of a LIHP application.
   (2) The director shall approve or deny an eligible entity's LIHP
application within 60 days of receipt of the application. If the
director denies an application, the denial shall be in writing and
shall specify the reasons therefor.
   (3) Within 10 days of a denial by the director under this
subdivision, a participating entity may submit a written request for
reconsideration. The director shall respond in writing to a request
for reconsideration within 20 days, confirming or reversing the
denial, and specifying the reasons for the reconsidered decision.
   (f) If the eligible entity had in operation a Health Care Coverage
Initiative program under Part 3.5 (commencing with Section 15900) as
of November 1, 2010, and the eligible entity elects to continue
funding the program, then the existing Health Care Coverage
Initiative program shall, to the extent permitted by the Special
Terms and Conditions of the demonstration project, remain in effect
and receive federal reimbursement in accordance with the Special
Terms and Conditions of the demonstration project until the LIHP is
effective, but no later than July 1, 2011.
   (g) Health care services provided pursuant to this part shall be
available to those eligible, low-income individuals enrolled in the
applicable LIHP, subject to the limitations of this part and the
Special Terms and Conditions of the demonstration project. However,
nothing in this part is intended to create an entitlement program of
any kind.
   (h) Each LIHP may establish an upper income limit for eligible MCE
individuals to enroll in the LIHP, which shall be expressed as a
percentage between 0 percent and up to, and including, 133 percent of
the federal poverty level. If the LIHP elects to enroll
HCCI-eligible individuals with family incomes above 133 percent
through 200 percent of the federal poverty level, it may also
establish an upper income limit between this range. Notwithstanding
any established upper income limit, the LIHP may impose a limit on
enrollment in the LIHP, which shall be subject to all of the
following provisions:
   (1) The Special Terms and Conditions required by the federal
Centers for Medicare and Medicaid Services for the approval of the
demonstration project described in Section 14180 permit a limitation
on enrollment in a LIHP.
   (2) Any enrollment limitation by a LIHP shall be administered in
accordance with the Special Terms and Conditions required by the
federal Centers for Medicare and Medicaid Services.
   (3) Any enrollment limitation by a LIHP is subject to approval by
the director, and notification to the federal Centers for Medicare
and Medicaid Services. A LIHP shall establish an income limit at a
level that minimizes the need for imposing a limit on enrollment for
the MCE population.
   (4) Prior to applying for approval from the director, the LIHP
shall submit to the director a resolution from its governing board
approving the proposed limitation on enrollment by the LIHP.
   (i) LIHPs shall be established and implemented only to the extent
that federal financial participation is available and only to the
extent that available federal financial participation is not
jeopardized.
   (j) For the purposes of operating a LIHP approved under this part,
and notwithstanding Section 14181, participating entities shall be
exempt from the provisions of Chapter 2.2 (commencing with Section
1340) of Division 2 of the Health and Safety Code, shall not be
considered Medi-Cal managed care health plans subject to the
requirements applicable to the two-plan model and geographic managed
care plans, as contained in Article 2.7 (commencing with Section
14087.3), Article 2.81 (commencing with Section 14087.96) and Article
2.91 (commencing with Section 14089) of Chapter 7 of Part 1 and the
corresponding regulations, and shall not be considered prepaid health
plans as defined in Section 14251.
  SEC. 27.  Section 15910.1 of the Welfare and Institutions Code is
amended to read:
   15910.1.  (a)  For LIHPs serving HCCI-eligible individuals ,
subject to federal funding limits or requirements that differ from
the requirements for individuals described in subdivision (a) of
Section 15910, the department shall, in consultation with
participating entities, develop a process for allocating the
available federal funding to those approved LIHPs that elect to serve
the additional group of individuals identified in this subdivision,
if the participating entity voluntarily agrees to provide the
nonfederal share of the LIHP expenditures for the additional group.
   (b) To the extent permitted by the Special Terms and Conditions of
the demonstration project, the allocation of funding under this
section shall ensure that a Health Care Coverage Initiative program
under Part 3.5 (commencing with Section 15900) as of November 1,
2010, that elects to continue as a participating entity under this
part receives, at a minimum, an allocation in an amount adequate to
ensure that their existing eligible enrollees can continue to receive
services under their LIHP.
   (c) If a LIHP elects to serve eligible persons with incomes above
133 percent through 200 percent of the federal poverty level, the
LIHP shall also serve eligible persons with incomes up to 133 percent
of the federal poverty level.
   (d) Section 15910 and Section 15910.2 shall apply with respect to
LIHPs funded under this section, as appropriate.
   (e) Reimbursements to LIHPs approved under this section shall be
made in accordance with Section 15910.3 or through another mechanism
authorized under the Special Terms and Conditions for the
demonstration project.
   (f) The nonfederal share of funding for LIHP expenditures
authorized under this section shall be provided in accordance with
Section 15911 or through another mechanism authorized by the Special
Terms and Conditions of the demonstration project.
   (g) Any unused federal funds shall be distributed in accordance
with the Special Terms and Conditions of the demonstration project.
        SEC. 28.  Section 15910.2 of the Welfare and Institutions
Code is amended to read:
   15910.2.  (a) The eligible entity shall meet both of the following
requirements and any additional requirements imposed by the Special
Terms and Conditions of the demonstration project in order for the
department to authorize the LIHP proposed by the eligible entity:
   (1) The eligible entity shall voluntarily agree to commit, on an
annual basis, to provide the nonfederal share of LIHP expenditures
for health care services to eligible individuals for the LIHP.
   (2) The LIHP proposed by the eligible entity shall include the
LIHP elements set forth in subdivision (b).
   (b) The LIHP elements shall include all of the following, subject
to the Special Terms and Conditions of the demonstration project:
   (1) Development of standardized eligibility and enrollment
procedures that interface with Medi-Cal processes by December 31,
2013, according to the milestones developed in consultation with the
counties, county health departments, public hospitals, and county
human service departments. LIHPs shall migrate to the standardized
procedures in accordance with the Special Terms and Conditions of the
demonstration project and subdivision (c) of Section 15910.
   (2) Eligibility for LIHP benefits may be provided retroactively
for any of the three months prior to the enrollment date in which the
individual would have been found eligible had he or she applied
during that month. If an individual is determined to be retroactively
eligible, LIHP coverage for the retroactive period shall be limited
to those services provided within the approved LIHP network or
out-of-network emergency services as authorized under the Special
Terms and Conditions of the demonstration project.
   (3) The LIHP shall perform annual eligibility redeterminations for
persons participating in the LIHP to assess if they remain eligible
for the LIHP or are eligible for Medi-Cal or the Healthy Families
Program.
   (4) (A) Assignment of eligible individuals to a medical home. For
purposes of this paragraph and subject to the Special Terms and
Conditions of the demonstration project, "medical home" means a
single provider, facility, or health care team that maintains an
individual's medical information, and coordinates health care
services for enrolled individuals. The medical home shall provide, at
a minimum, all of the following elements, which shall be considered
in the contracting process:
   (i) A primary health care contact who facilitates the enrollee's
access to preventive, primary, specialty, mental health, or chronic
illness treatment, as appropriate.
   (ii) An intake assessment of each new enrollee's general health
status.
   (iii) Referrals to qualified professionals, community resources,
or other agencies as needed.
   (iv) Care coordination for the enrollees across the service
delivery system, as agreed to between the medical home and the LIHP.
This may include facilitating communication among enrollee's health
care providers, including appropriate outreach to mental health
providers.
   (v) Care management, case management, and transitions among levels
of care, if needed and as agreed to between the medical home and the
LIHP.
   (vi) Use of clinical guidelines and other evidence-based medicine
when applicable for treatment of the enrollee's health care issues
and timing of clinical preventive services.
   (vii) Focus on continuous improvement in quality of care.
   (viii) Timely access to qualified health care interpretation as
needed and as appropriate for enrollees with limited English
proficiency, as determined by applicable federal guidelines.
   (ix) Health information, education, and support to beneficiaries
and, where appropriate, their families, if and when needed, in a
culturally competent manner.
   (B) In implementing this section, and the Special Terms and
Conditions of the demonstration project, the department may alter the
medical home elements described in this paragraph as necessary to
secure the increased federal financial participation associated with
the provision of medical assistance in conjunction with a health
home, as made available under the federal Patient Protection and
Affordable Care Act (Public Law 111-148), as amended by the federal
Health Care and Education Reconciliation Act of 2010 (Public Law
111-152), and codified in Section 1945 of Title XIX of the federal
Social Security Act.
   (5) A minimum set of core benefits or services required under the
Special Terms and Conditions of the demonstration project that shall
be limited to those services provided within an approved LIHP
provider network and service delivery system as required under the
Special Terms and Conditions of the demonstration project.
   (6) A provider network and service delivery system that seeks to
promote the viability of the existing safety net health care system
that serves the population to be covered by the LIHP. The provider
network and service delivery system shall meet the standards
established in the Special Terms and Conditions of the demonstration
project.
   (7) Development of an outreach and enrollment plan that reaches
potential project enrollees and begins to prepare to transition
eligible individuals to Medi-Cal coverage in 2014, or alternatively,
to coverage through the California Health Benefit Exchange.
   (8) A quality measurement and quality monitoring system.
   (9) Data tracking systems to provide the department with required
data for quality monitoring, quality improvement, and evaluation.
   (10) Demonstration of how the LIHP will provide consumer
assistance to individuals applying for, participating in, or
accessing, services in the LIHP, including the availability of
materials that provide information on all of the following:
   (A) The scope of covered services.
   (B) The exceptions, reductions, and limitations that apply to
covered services.
   (C) Any premium, copayment, or deductible requirements that may be
incurred by the enrollee.
   (D) The participating providers in the LIHP network.
   (E) The medical homes within the LIHP network from which the
enrollee may select.
   (F) The LIHP telephone number or numbers that may be used by an
enrollee to receive additional information about the covered services
or participating providers.
   (11) Ability to meet program requirements, standards, and
performance measurements developed by the department, in consultation
with participating entities for the LIHP.
  SEC. 29.  Section 15910.3 of the Welfare and Institutions Code is
amended to read:
   15910.3.  (a) In consultation with participating entities, the
department shall determine actuarially sound per enrollee capitation
rates for LIHPs that are adequate and sufficient to ensure access to
services for enrollees and to at least cover the projected cost of
care. As part of the rate development process, each LIHP shall submit
a detailed proposal to the department outlining proposed
methodologies and rates that have been certified by county-employed
or county-retained actuaries using state and federal Medicaid
principles and the standards provided in this section.
   (b) Rates determined under this section shall be based on
utilization and cost data specific to the enrolled population or
comparable data, including where available, project- and county-
specific data. In setting actuarially sound rates, the department
shall apply appropriate factors to ensure sufficient access to
primary and specialty care, and shall take into account the cost of
the services specified under the approved LIHP, administrative costs,
graduate medical education costs, the utilization and intensity of
services expected for LIHP enrollees, and an appropriate case
management fee.
   (c) The department may include risk corridors to allow for
adjustments to rates if the actual cost or utilization of a LIHP
exceeds the projected cost.
   (d) The department may develop additional payment mechanisms that
provide for incentive payments to LIHPs that meet designated
performance criteria for quality of and access to care.
   (e) The rate shall be determined annually, and shall be effective
either the first day of each LIHP year, or another date agreed upon
by the participating entity and the department. Rates may be adjusted
outside the annual determination process if there is a change in
federal or state law or regulation that increases the cost of
fulfilling the obligations of a LIHP.
   (f) Notwithstanding any other provision of law, payments to LIHPs
shall not be limited by an estimate of the reimbursement that would
be available for program services if those services were provided to
Medi-Cal beneficiaries under the Medi-Cal fee-for-service program.
   (g) LIHPs shall be paid actuarially sound rates as determined
under this section at the beginning of each quarter based on
enrollment. If payments are based on estimated enrollment data, the
payments shall be reconciled to actual enrollment on an annual basis.

  SEC. 30.  Section 15911 of the Welfare and Institutions Code is
amended to read:
   15911.  (a) Funding for each LIHP shall be based on all of the
following:
   (1) The amount of funding that the participating entity
voluntarily provides for the nonfederal share of LIHP expenditures.
   (2) For a LIHP that had in operation a Health Care Coverage
Initiative program under Part 3.5 (commencing with Section 15900) as
of November 1, 2010, and elects to continue funding the program, the
amount of funds requested to ensure that eligible enrollees continue
to receive health care services for persons enrolled in the Health
Care Coverage Initiative program as of November 1, 2010.
   (3) Any limitations imposed by the Special Terms and Conditions of
the demonstration project.
   (4) The total allocations requested by participating entities for
Health Care Coverage Initiative eligible individuals.
   (5) Whether funding under this part would result in the reduction
of other payments under the demonstration project.
   (b) Nothing in this part shall be construed to require a political
subdivision of the state to participate in a LIHP as set forth in
this part, and those local funds expended or transferred for the
nonfederal share of LIHP expenditures under this part shall be
considered voluntary contributions for purposes of the federal
Patient Protection and Affordable Care Act (Public Law 111-148), as
amended by the federal Health Care and Education Reconciliation Act
of 2010 (Public Law 111-152), and the federal American Recovery and
Reinvestment Act of 2009 (Public Law 111-5), as amended by the
federal Patient Protection and Affordable Care Act.
   (c) No state General Fund moneys shall be used to fund LIHP
services, nor to fund any related administrative costs incurred by
counties or any other political subdivision of the state.
   (d) Subject to the Special Terms and Conditions of the
demonstration project, if a participating entity elects to fund the
nonfederal share of a LIHP, the nonfederal funding and payments to
the LIHP shall be provided through one of the following mechanisms,
at the options of the participating entity:
   (1) On a quarterly basis, the participating entity shall transfer
to the department for deposit in the LIHP Fund established for the
participating counties and pursuant to subparagraph (A), the amount
necessary to meet the nonfederal share of estimated payments to the
LIHP for the next quarter under subdivision (g) Section 15910.3.
   (A) The LIHP Fund is hereby created in the State Treasury.
Notwithstanding Section 13340 of the Government Code, all moneys in
the fund shall be continuously appropriated to the department for the
purposes specified in this part. The fund shall contain all moneys
deposited into the fund in accordance with this paragraph.
   (B) The department shall obtain the related federal financial
participation and pay the rates established under Section 15910.3,
provided that the intergovernmental transfer is transferred in
accordance with the deadlines imposed under the Medi-Cal Checkwrite
Schedule, no later than the next available warrant release date. This
payment shall be a nondiscretionary obligation of the department,
enforceable under a writ of mandate pursuant to Section 1085 of the
Code of Civil Procedure. Participating entities may request expedited
processing within seven business days of the transfer as made
available by the State Controllers office, provided that the
participating entity prepay the department for the additional
administrative costs associated with the expedited processing.
   (C) Total quarterly payment amounts shall be determined in
accordance with estimates of the number of enrollees in each rate
category, subject to annual reconciliation to final enrollment data.
   (2) If a participating entity operates its LIHP through a contract
with another entity, the participating entity may pay the operating
entity based on the per enrollee rates established under Section
15910.3 on a quarterly basis in accordance with estimates of the
number of enrollees in each rate category, subject to annual
reconciliation to final enrollment data.
   (A) (i) On a quarterly basis, the participating entity shall
certify the expenditures made under this paragraph and submit the
report of certified public expenditures to the department.
   (ii) The department shall report the certified public expenditures
of a participating entity under this paragraph on the next available
quarterly report as necessary to obtain federal financial
participation for the expenditures. The total amount of federal
financial participation associated with the participating entity's
expenditures under this paragraph shall be reimbursed to the
participating entity.
   (B) At the option of the participating entity, the LIHP may be
reimbursed on a cost basis in accordance with the methodology applied
to Health Care Coverage Initiative programs established under Part
3.5 (commencing with Section 15900) including interim quarterly
payments.
   (e) Notwithstanding Section 15910.3 and subdivision (d) of this
section, if the participating entity cannot reach an agreement with
the department as to the appropriate rate to be paid under Section
15910.3, at the option of the participating entity, the LIHP shall be
reimbursed on a cost basis in accordance with the methodology
applied to Health Care Coverage Initiative programs established under
Part 3.5 (commencing with Section 15900), including interim
quarterly payments. If the participating entity and the department
reach an agreement as to the appropriate rate, the rate shall be
applied no earlier than the first day of the LIHP year in which the
parties agree to the rate.
   (f) If authorized under the Special Terms and Conditions of the
demonstration project, pending the department's development of rates
in accordance with Section 15910.3, the department shall make interim
quarterly payments to approved LIHPs for expenditures based on
estimated costs submitted for rate setting.
   (g) Participating entities that operate a LIHP directly or through
contract with another entity shall be entitled to any federal
financial participation available for administrative expenditures
incurred in the operation of the Medi-Cal program or the
demonstration project, including, but not limited to, outreach,
screening and enrollment, program development, data collection,
reporting and quality monitoring, and contract administration, but
only to the extent that the expenditures are allowable under federal
law and only to the extent the expenditures are not taken into
account in the determination of the per enrollee rates under Section
15910.3.
   (h) On and after January 1, 2014, the state shall implement
comprehensive health care reform for the populations targeted by the
LIHP in compliance with federal health care reform law, regulation,
and policy, including the federal Patient Protection and Affordable
Care Act (Public Law 111-148), as amended by the federal Health Care
and Education Reconciliation Act of 2010 (Public Law 111-152), and
subsequent amendments.
   (i) Subject to the Special Terms and Conditions of the
demonstration project, a participating entity may elect to include,
in collaboration with the department, as the nonfederal share of LIHP
expenditures, voluntary intergovernmental transfers or certified
public expenditures of another governmental entity, as long as the
intergovernmental transfer or certified public expenditure is
consistent with federal law.
   (j) Participation in the LIHP under this part is voluntary on the
part of the eligible entity for purposes of all applicable federal
laws. As part of its voluntary participation under this article, the
participating entity shall agree to reimburse the state for the
nonfederal share of state staffing and administrative costs directly
attributable to the cost of administering that LIHP, including, but
not limited to, the state administrative costs related to certified
public expenditures and intergovernmental transfers. This section
shall be implemented only to the extent federal financial
participation is not jeopardized.
  SEC. 31.  Section 15912 of the Welfare and Institutions Code is
amended to read:
   15912.  (a) Subject to the Special Terms and Conditions of the
demonstration project, the department shall ensure that the LIHPs
established under this part are evaluated to determine to what extent
the projects have met the standards and performance measures
described in paragraph (9) of subdivision (b) of Section 15910.2, and
the extent to which the LIHPs have complied with the department's
program to implement the transition of eligible LIHP enrollees to
Medi-Cal coverage, or alternatively, to coverage through the
California Health Benefit Exchange, in 2014.
   (b) The department may seek federal or private funds or enter into
partnership with an independent, nonprofit group or foundation, an
academic institution, or a governmental entity providing grants for
health-related activities, to evaluate the programs funded under this
part.
  SEC. 32.  Section 15914 of the Welfare and Institutions Code is
amended to read:
   15914.  The application process used by the department to
authorize entities to operate LIHPs and any agreements entered into
by, or modified by, the department for purposes of this part shall
not be subject to Part 2 (commencing with Section 10100) of Division
2 of the Public Contract Code.
  SEC. 33.  This act is an urgency statute necessary for the
immediate preservation of the public peace, health, or safety within
the meaning of Article IV of the Constitution and shall go into
immediate effect. The facts constituting the necessity are:
   In order to make changes to publicly funded health care programs
at the earliest possible time, it is necessary that this act take
effect immediately.