BILL ANALYSIS Ó AB 2608 Page 1 Date of Hearing: May 2, 2012 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair AB 2608 (Bonilla) - As Amended: March 29, 2012 Policy Committee: HealthVote:18-0 Urgency: No State Mandated Local Program: No Reimbursable: No SUMMARY This bill amends provisions relating to required program improvement activities in the Local Billing Option (LBO) program through which Local Educational Agencies (LEA) can draw down federal funding for certain services provided to Medi-Cal eligible students, and removes a sunset on these provisions. Specifically, this bill: 1)Requires the Department of Health Care Services (DHCS) to amend the Medicaid state plan and regulatory requirements pertaining to the provision of medical transportation services by LEAs to be no more restrictive than federal requirements. 2)Codifies and categorizes funding that can be withheld for administrative, auditing, and contractor costs, requires DHCS to withhold funds proportionately from participating LEAs, and requires DHCS to provide an accounting of funds withheld in an annual report. 3)Requires DHCS to collaborate with the California Department of Education (CDE) to help ensure LEA compliance with state and federal Medicaid requirements. FISCAL EFFECT 1)One-time minor, absorbable costs to DHCS to modify regulations to be no more restrictive than federal requirements. Ongoing costs for additional reporting and collaboration with CDE should also be minor and absorbable. 2)New federal funding for schools, potentially in millions of dollars according to the Los Angeles Unified School District AB 2608 Page 2 (LAUSD), to the extent schools may be able to submit additional transportation services for federal reimbursement. 3)This bill codifies three administrative funding streams, leading to the following impacts: a) Contractor Costs . According to DHCS, the $1.5 million current set-aside for contractor costs has not increased since 2001 and may not be adequate to cover these costs going forward as required by current law. If the funding is inadequate, DHCS indicates, the LBO program may fail to comply with federal and state requirements. As explained below, proposed trailer bill language would eliminate this cap. b) Audit-Related Costs . This bill's provision instituting a $650,000 cap on LEA audit funding may constrain the department from funding LEA audit activities at projected levels. This provision is codifying current practice, as a $650,000 cap is currently in place pursuant to an agreement with schools. However, audit activities have been budgeted at $1.6 million total in recent years, which would require an $820,000 match level. Due to salary savings and increased federal match rates, actual expenditures have been below a $650,000 match level, but an $820,000 match level will be required in 2012-13 to fund necessary audit-related activities. c) DHCS Administrative Costs . Potential for increased GF costs associated with limiting the funding for DHCS administration and claims processing to 1% of claimed funds. Currently, pursuant to an agreement with the LEA Ad Hoc Workgroup Advisory Committee that advises DHCS on the LBO program, the department withholds 1% of the claimed federal funding amount to support DHCS administrative costs. However, DHCS indicates total administrative costs slightly exceed the funding available pursuant to the 1% limit for fiscal year 2011-12. These costs were $2.7 million (50% federal, 50% local match), but matching funding was only $1.2 million, leaving a deficit of $150,000 in matching funds that has been funded with GF dollars. The GF could similarly be at risk going forward to the extent DHCS administrative costs exceed the 1% cap. AB 2608 Page 3 COMMENTS 1)Rationale . According to the author, this bill is necessary to prevent school districts from losing federal funds for health services that school districts are required to provide. In addition, the author points out, existing state policies prevent school districts from seeking federal reimbursement for certain school transportation that is otherwise reimbursable under federal guidelines. Finally, the author states that greater transparency and accountability in the work performed by DHCS is also needed. This bill is sponsored by the LAUSD, which contends the bill is needed to continue DHCS efforts to increase the amount of Medicaid reimbursement received by California schools. 2)Background . According to DHCS, California established the LBO program in 1993 to allow school districts to claim federal reimbursement for, and match local education dollars already being spent on, health services for Medi-Cal children. SB 231 (Ortiz), Chapter 655, Statutes of 2001, required DHCS to take on additional program improvement responsibilities in response to a 2000 review of LBO programs in which California ranked in the bottom quartile. In order to fund LBO program activities, DHCS withholds certain amounts from the federal reimbursement dollars that go to schools in order to offset LBO program base administrative costs, as well as the program improvement activities undertaken pursuant to SB 231. DHCS works directly with an LEA Ad Hoc Workgroup Advisory Committee (Committee) to identify barriers for existing and potential LEA providers and to recommend new LBO program services. This committee, organized in 2001, is composed of a number of key state and local stakeholders. 3)Funding for LBO administrative functions is currently governed by both law and practice. The 1993 statute creating the LBO option does not explicitly allow DHCS to set aside federal reimbursement funds for administrative activities. This bill attempts to codify current practice, but does so imperfectly. According to DHCS, there are currently three categories of administrative activities, and only the first has ever been codified. They are as follows: a) Contractor Activities . Research, consulting, reporting, rate development and other activities associated with AB 2608 Page 4 program improvement undertaken pursuant to SB 231 are currently performed by a contractor. This contract is funded at $1.5 million. Current law specifies a set-aside for these purposes of a percentage of dollars in excess of a 2000-01 baseline, subject to a $1.5 million cap. In practice, this translates to a 2.5% set-aside above a baseline of $60 million, up to $1.5 million total. b) Audit-Related Activities . Audit-related activities are currently funded by a 1% set-aside, subject to a $650,000 cap. This is currently not codified but operationalized pursuant to an agreement between DHCS and the Committee. c) DHCS Administrative Activities . DHCS administrative activities, including claims processing and federal compliance, are currently funded by a set-aside of 1% of all funds, are not subject to a cap. This is also not codified. By attempting to codify these categories of funding consistent with current practice and by requiring DHCS to report annually, school districts are seeking increased accountability. However, as indicated above, it may result in inadequate program resources and fiscal risk to the state. 1)Potential Conflict With Trailer Bill . As part of the Governor's 2012-13 budget, DHCS has proposed budget trailer bill language (TBL) modifying the same code section as this bill. Both the TBL and this bill would remove the January 1, 2013 sunset on SB 231 program improvement activities and remove a requirement that administrative funding for the program be derived from federal funds that exceed a 2000-01 baseline amount. The term "administrative funding" in statute, according to current practice, refers only to the contractor costs described in (a) above. This bill and the TBL proposal differ in the following major ways: a) The TBL proposal allows funding for administrative (contractor) costs to increase annually by an amount agreed upon by DHCS and the LEA Ad Hoc Workgroup Advisory Committee, while this bill preserves the $1.5 million maximum limit and specifies additional limits on funding for audits and DHCS processing costs. b) This bill contains provisions that the TBL does not, AB 2608 Page 5 including a specific requirement that DHCS align state rules with federal requirements for medical transportation reimbursement, enhanced DHCS reporting requirements, and provisions codifying the other two categories of administrative funds. The Department of Finance assumes no GF impact related to the TBL proposal. On March 22, 2012, Senate Subcommittee #3 adopted the TBL provisions that remove the sunset, as well as restrictions related to 2000-01 baseline funding, but rejected DHCS's proposal to remove the maximum annual funding amount of $1.5 million for administrative costs in deference to this bill moving through the policy process. Assembly Subcommittee #1 has not yet taken action on this issue. 5)A budget change proposal related to the LBO program was also provided to the Legislature as part of the 2012-13 budget. This BCP would make 14 limited-term positions associated with LEA audit operations permanent. As explained above, given it contains a $650,000 cap for audit activities, it appears that this bill would constrain the ability of DHCS to fund these activities at their current levels. 6)Transparency . LAUSD indicates it has had difficulty receiving accurate information about DHCS's administrative costs and the level of funding withheld for these purposes. This bill would increase transparency by providing a single fund for all LEA administrative activities. It codifies administrative set-aside funding and also subjects the set-aside funding to Welfare and Institutions Code 14115.8(g)(1), which requires the funds be used only to support DHCS to meet the LBO program requirements. It would also require funds for all LEA-related purposes to be deposited into the LEA Medi-Cal Recovery Fund within the Special Deposit Fund (currently, some of the funds are instead deposited into the GF). This change should provide increased accountability for funds withheld. 7)Fiscal Concerns . Given DHCS's assertion that the limits agreed to may need to be increased in order to adequately fund the program, codifying the limits pursuant to current practice could result in GF risk or risk that the program will not be able to comply with all federal requirements. The author may wish to consider adjusting the limits, or providing DHCS with more flexibility to adjust these limits, based on actual cost experience to date. AB 2608 Page 6 Analysis Prepared by : Lisa Murawski / APPR. / (916) 319-2081