BILL ANALYSIS                                                                                                                                                                                                    

                                 SENATE HEALTH
                               COMMITTEE ANALYSIS
                       Senator Ed Hernandez, O.D., Chair

          BILL NO:       SB 945                                      
          AUTHOR:        Committee on Health                         
          AMENDED:       As Introduced                               
          HEARING DATE:  May 4, 2011                                 
                          Medi-Cal: electronic records


          Directs the California Department of Health Care Services 
          (DHCS), until July 1, 2021 and only to the extent that 
          federal financial participation is available, to establish 
          and administer the Medi-Cal Electronic Health Records (EHR) 
          Program for the purposes of providing federal incentive 
          payments to Medi-Cal providers for the implementation and 
          use of EHR systems, as specified.  

                             CHANGES TO EXISTING LAW  

          Existing federal law:
          Establishes the federal Medicaid program to provide 
          comprehensive health benefits to low-income persons.  

          Authorizes, under the federal American Recovery and 
          Reinvestment Act of 2009 (ARRA), the outlay of federal 
          money for, among other things, Medicaid incentive payments 
          to qualified health care providers who adopt and use EHRs 
          in accordance with specified provisions in the Act, which 
          are referenced to as meaningful use provisions and which 
          include use of electronic prescribing, submission of 


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          information on clinical quality measures, reporting to 
          immunization and disease registries, and exchanging health 
          information to improve the quality of care.
          Existing state law:
          Establishes the Medi-Cal program, the state's Medicaid 
          program, administered by DHCS, under which basic health 
          care services are provided to qualified low-income persons. 

          Authorizes the California Health and Human Services Agency 
          (CHHSA), or one of its departments, to apply for federal 
          health information technology (HIT) grants, as specified.  
          Also requires CHHSA or a state-designated entity to 
          facilitate and expand the use of electronic health 
          information according to nationally recognized standards 
          and specifications, as specified. 

          This bill:
          Directs DHCS to establish and administer the Medi-Cal EHR 
          Incentive Program (Program) in accordance with the State 
          Medicaid HIT Plan, as developed by DHCS and approved by the 
          federal Centers for Medicare and Medicaid Services (CMS).

          Directs DHCS to accept applications from, and make 
          incentive payments to, eligible providers and facilities.  

          Requires eligible providers and facilities seeking 
          incentive payments to meet all standards for the federal 
          EHR Technology Program established in federal law and 
          regulations, as specified.

          Provides for an appeals process.

          Allows DHCS to contract with public or private entities to 
          implement this program, including utilizing existing 
          provider enrollment and payment mechanisms.

          Allows contracts entered into by DHCS to implement the 
          program to be exempt from established competitive bidding 
          requirements in state law and, instead, provides for an 
          alternative competitive bidding process, as specified.

          Allows DHCS to implement the program through provider 
          bulletins or similar instruction without regulatory action.


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          Establishes reporting requirements to the appropriate 
          fiscal and policy committees of the Legislature and to the 
          Legislative Analyst's Office, as specified.

          Specifies that this program be implemented only to the 
          extent federal financial participation is available.  
          Further specifies legislative intent that this program be 
          funded solely through federal funds and private 
          contributions identified by DHCS.

          Sunsets the program on June 30, 2021.

          Contains under an urgency clause.

          Makes various legislative findings and declarations.

                                  FISCAL IMPACT  

          This bill has not been analyzed by a fiscal committee.  

                            BACKGROUND AND DISCUSSION  

          EHRs have the potential to improve the delivery and 
          coordination of care by allowing authorized providers to 
          access critical health information needed to improve health 
          care decision-making, cut waste and eliminate unnecessary 
          medical tests, and save lives by reducing medical errors.  
          The authors cite research by the federal Agency for 
          Healthcare Research and Quality, which found that 
          physicians using computerized decision support systems 
          reported lower incidence of serious medication errors due 
          to their access to better information about 
          contraindications, complications and drug interactions. 

          The authors point out that ARRA included significant 
          funding to implement wide-scale use and sharing of EHRs and 
          patient health information.  SB 945 directs DHCS to 
          establish and administer the Medi-Cal EHR Incentive Program 
          to distribute these federal funds.  The authors state that 


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          this bill is needed to ensure DHCS may distribute federal 
          incentive payments to Medi-Cal providers in an expedited 
          manner, which will help many California health care 
          providers change their practices and utilize electronic 
          tools.  This may result in significant improvements in 
          health care quality and efficiency that should benefit all 

          Provider adoption of electronic health record systems
          A 2007 California HealthCare Foundation study that relied 
          on 2005 data found that the overall EHR adoption rate by 
          providers in California is quite low (14 percent).  The 
          rate of adoption varies based on practice characteristics, 
          such as practice type (e.g., private practice versus 
          community health centers), and practice size.  Only 25 
          percent of small- to mid-sized physician groups (2 to 9 
          physicians) had adopted EHRs into their practice, compared 
          to 57 percent of large physician groups (10 or more 
          physicians).  The rate of EHR adoption is even lower in 
          solo practice settings (13 percent) and community health 
          clinics (3 percent).

          American Recovery and Reinvestment Act of 2009
          In January 2009, the President challenged the nation with a 
          goal to computerize health records for all Americans by 
          2014 through the implementation and use EHR systems.  To 
          support the needs of providers and states, the federal 
          economic stimulus bill, ARRA, was enacted in February of 
          2009, which includes more than $36 billion for HIT over the 
          next several years.  

          The majority of these funds ($34 billion) are incentive 
          payments that will go to Medicaid and Medicare providers 
          who are able to meet prescribed "meaningful use" criteria.  
          Under these provisions, California providers could receive 
          upwards of $3.4 billion in direct incentive payments.  
          Specifically, providers are eligible for: 

             o    Up to $64,000 per Medi-Cal provider (non-hospital) 
               over 4 years.  In total, California's Medi-Cal 
               providers are estimated to draw down $1.4 billion in 
               ARRA funds.

             o    Up to $44,000 per Medicare provider (non-hospital) 
               over 4 years, beginning October 2010.  In total, 


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               California's Medicare providers are estimated to draw 
               down $2 billion in ARRA funds.

             o    Between $2 and $8 million per hospital in Medicare 
               and Medicaid incentives, depending on size, over 4 
               years.  Hospitals are expected to deploy HIT systems 
               on behalf of their providers.  As such, hospital-based 
               physicians are ineligible to apply on their own for 
               Medicare or Medi-Cal incentives.  .

          Eligible providers for federal incentive payments under 
          According to December 2009 interim regulations released by 
          CMS, eligible providers include physicians, dentists, nurse 
          practitioners, certified nurse-midwives and physician 
          assistants that practice in a federally qualified health 
          center (FQHC) or a regional health center (RHC). 

          Federal rules specify that non-hospital providers will 
          qualify for incentive payments if at least 30 percent of 
          their total encounters are with Medicaid beneficiaries.  
          There are some exceptions to this patient volume threshold 
          criterion, including: 

             o    Pediatricians are eligible for an incentive if at 
               least 20 percent of their total encounters are with 
               Medi-Cal beneficiaries.

             o    Providers practicing in FQHCs and RHCs can include 
               "needy individuals" who are not eligible for Medi-Cal 
               to reach the 30 percent threshold. 

          By 2015, Medicare providers who are not meaningful users 
          will have their Medicare reimbursement rate decreased by 
          one percent per year, up to a potential maximum penalty of 
          five percent.  Recipients of Medicaid incentives will have 
          one year to meet the meaningful use criteria after 
          receiving the first incentive payment.  There are no 
          federal penalties for failure to adopt EMRs for Medicaid 

          DHCS actions
          DHCS is responsible for establishing the state's Medicaid 
          EHR incentive program for providers.  The department has 
          completed an assessment to determine how many and which 


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          providers would be eligible for the incentive program.  The 
          recently released assessment found that 12 percent of 
          California providers meet the threshold necessary to be 
          eligible for Medi-Cal incentive payments.  It is estimated 
          that the program may issue payments to more than 10,000 
          medical providers and 435 hospitals.  DHCS anticipates that 
          if all eligible Medi-Cal providers in California take 
          advantage of this opportunity, $1.4 billion will be 
          distributed to Medi-Cal providers over the next ten years.  
          In addition, the state is eligible to receive federal funds 
          for administrative purposes during this period at a 90/10 
          state match.  

          As of September 2010, DHCS has been awarded a total of $2.4 
          million by CMS for HIT planning and implementation costs 
          and has expended $1.4 million.  These funds have been used 

                 Develop an implementation plan and outreach 
               campaign to providers.  The Lewin Group and McKinsey & 
               Company were contracted to develop strategic, campaign 
               and implementation plans for the program that provide 
               the basis for the DHCS activities in promoting HIT and 
               health information exchange (HIE); educating 
               beneficiaries about the benefits of EHR; and 
               coordinating outreach and education activities with 
               Regional Extension Centers, managed care plans, 
               independent physicians associations and other trade 

                 Develop a state health information technology plan. 
                CMS requires states to develop a State Medicaid HIT 
               Plan, a five-year HIT roadmap, and an Implementation 
               Advanced Planning Document to operationalize the 
               program. On June 23, 2010, DHCS submitted a request to 
               CMS for approval to fund the work necessary to 
               complete the required documents. The request for 
               $2,979,881, at 90 percent federal financial 
               participation, was approved by CMS on September 3, 

                 Make necessary state IT changes.  DHCS is working 
               with Affiliated Computer Services, Inc. for the 
               development of a provider portal for eligible 
               professionals and hospitals, which will be operational 


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               January 1, 2011 for enrollment in the Program and 
               April 1, 2011, for distribution of incentive payments. 

          Related bills
          AB 174 (Monning) requires the EHR systems developed based 
          on demonstration projects established and administered by 
          the California Office of Health Information Integrity 
          (CalOHII) to be implemented with the full participation of 
          health consumers and organizations concerned with 
          protecting the privacy and security of patient information 
          in the development of policies.  Requires CalOHII to ensure 
          that there are opportunities for public comment and input 
          on the development of those policies.  Hearing set for May 
          3, 2011 in Assembly Health Committee.

          Prior legislation
          SB 337 (Alquist), Chapter 180, Statutes of 2009, among 
          other things, authorizes CHHSA to apply for federal HIT and 
          HIE grant funds.  

          SB 320 (Alquist) of 2007 would have required the California 
          Office of HIPAA Implementation, in consultation with other 
          state agencies, to develop a plan for implementation of the 
          California Health Care Information Infrastructure Program 
          no later than March 1, 2009, which would seek to provide 
          the opportunity for every resident of the state to have an 
          EHR.  Vetoed by the Governor.

          SB 1338 (Alquist) of 2006 would have required CHHSA, in 
          conjunction with certain other state departments, to 
          develop a strategic plan to foster the adoption of HIT. 
          This plan would have included, among other provisions, HIT 
          standards, and identified incentives to promote the use of 
          EHRs and personal health records. Held in the Assembly 
          Appropriations Committee.
          SB 1672 (Maldonado) of 2006 would have required the 
          California Health Facilities Financing Authority to 
          establish a low-interest loan program to provide financing 
          for the purchase of HIT systems to participating health 
          care institutions, providers, and provider organizations, 
          as specified. Held in the Senate Appropriations Committee.
          AB 1672 (Nation, Richman) of 2005, in an early version, 


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          would have established deadlines for various health care 
          entities to adopt EHRs, provided enhanced Medi-Cal 
          reimbursement for EHR adoption, and provided state funding 
          to promote HIT development. These provisions were amended 
          out of the bill. 

          1.  Need for the bill.  This bill contains an urgency 
          clause to implement this federal program immediately.  DHCS 
          has already received federal approval to disburse hospital 
          incentive payments and anticipates receiving federal 
          approval to implement provider incentive payments in the 
          next few months.  Given that the federal matching rate for 
          this program increases over time, DHCS needs the authority 
          to enact this program immediately to ensure that providers 
          receive these funds as soon as they are available. 
          2.  Suggested technical amendment:

                (a)     On page 4, strike out lines 17-18 inclusive 
                  and insert:

                  "milestones and objectives."


          Support:  Healdsburg District Hospital
                    Seneca Healthcare District
          Oppose:   None on file.

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