BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 945
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          Date of Hearing:  July 5, 2011

                            ASSEMBLY COMMITTEE ON HEALTH
                              William W. Monning, Chair
               SB 945 (Committee on Health) - As Amended:  May 31, 2011

           SENATE VOTE  :  39-0
          SUBJECT  :  Medi-Cal: electronic records.

           SUMMARY  :  Requires the Department of Health Care Services (DHCS) 
          to establish and administer the Medi-Cal Electronic Health 
          Records Incentive Program (Program) to provide federally funded 
          incentive payments to Medi-Cal providers to implement and use 
          electronic health records (EHR) systems.  Contains an urgency 
          clause to ensure that the provisions of this bill go into 
          immediately effect upon enactment.  Specifically,  this bill  :  

          1)Requires DHCS to establish and administer the Program in 
            accordance with the State Medicaid Health Information 
            Technology (HIT) Plan as developed by DHCS and approved by the 
            federal Centers for Medicare and Medicaid Services (CMS).

          2)Requires the HIT Plan to include:

             a)   The identification and establishment of planning 
               processes, policies, and procedures necessary for the 
               Program to become operational;

             b)   The criteria for enrollment, eligibility, and data 

             c)   Timeframes for professional and facility technology 

             d)   The process for provider outreach and DHCS coordination 
               with established regional extension centers (RECs);

             e)   The audit and appeals process; and,

             f)   Participation in the National Level Registry.

          3)Requires DHCS to accept applications from and make incentive 
            payments to eligible professionals and facilities, upon 
            receipt of all necessary federal approvals and in accordance 


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            with the HIT plan.

          4)Requires the professional and facility applicants to meet the 
            standards for the federal EHR Technology Program, including 
            requirements for the meaningful use of EHR.

          5)Authorizes DHCS to contract with public or private entities 
            and to utilize existing health care service provider 
            enrollment and payment mechanisms in implementing the Program.

          6)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.
          7)Allows DHCS to implement the Program through provider 
            bulletins or similar instruction without regulatory action.

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

          9)Specifies that the Program be implemented only to the extent 
            federal financial participation is available.  Further 
            specifies legislative intent that the Program be funded solely 
            through federal funds and private contributions identified by 
            DHCS and that General Fund moneys shall not be used.  

          10)Sunsets the Program on June 30, 2021.

          11)Makes various legislative findings and declarations.

           EXISTING LAW  :  

          1)Establishes, as part of the federal American Reinvestment and 
            Recovery Act (ARRA), the Health Information Technology for 
            Economic and Clinical Health (HITECH) Act, to provide grants 
            to states to promote the electronic movement and use of health 
            information among organizations using nationally recognized 
            interoperability standards and incentive payments to providers 
            for HIT and health information exchange (HIE) adoption. 

          2)Authorizes the Governor to designate a nonprofit state 
            designated entity (SDE), and the California Health and Human 
            Services Agency (CHHSA) to apply, for federal funds available 
            for HIE and HIT, and establishes a related state fund for that 


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          3)Requires CHHSA or the SDE to facilitate and expand the use and 
            disclosure of electronic health information according to 
            nationally recognized standards and specifications, and 
            execute tasks related to accessing ARRA funds while protecting 
            the privacy and confidentiality of medical records to the 
            greatest extent possible. 

          4)Establishes the Medi-Cal Program, administered by DHCS, which 
            provides comprehensive health benefits to low-income children, 
            their parents or caretaker relatives, pregnant women, elderly, 
            blind or disabled persons, nursing home residents, and 
            refugees who meet specified eligibility criteria.

           FISCAL EFFECT  :  According to the Senate Appropriations 

                            Fiscal Impact (in thousands)

           Major Provisions         2011-12      2012-13       2013-14     Fund

           Program payments to    up to $1,400,000 fiscal year (FY) 
          Medi-Cal providers     through FY 2020-21

          State administrative costs                        $2,200 ongoing 
          through FY 2020-21                                Federal/*
          *90% federal funds, 10% state match
           COMMENTS  :

           1)PURPOSE OF THIS BILL  .  According to the authors, ARRA included 
            significant funding to implement wide-scale use and sharing of 
            EHRs and patient health information.  This bill directs DHCS 
            to establish and administer the Medi-Cal EHR Incentive Program 
            to distribute these federal funds.  The authors state that 
            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.  The 


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            authors argue that this may result in significant improvements 
            in health care quality and efficiency that should benefit all 
            Californians.  According to DHCS, sponsor of this bill, the 
            largest single obstacle to adoption of EHRs by providers is 
            the high upfront and ongoing costs.  DHCS states that the 
            incentive payments made available by this bill offer an 
            unparalleled opportunity to build the HIT infrastructure of 
            both outpatient providers as well as acute-care inpatient 
            hospitals.  According to the sponsor, this bill is urgently 
            needed in order to meet federal deadlines.  In addition, the 
            sponsor points out that the inability to secure contractors in 
            a timely fashion has led to missed opportunities, such as 
            participation in a collaborative outreach effort that would 
            have leveraged resources and funding from other participating 

           2)BACKGROUND  .  HITECH/ARRA included more than $36 billion to 
            encourage the adoption and use of HIT and HIE and to support 
            the needs of providers and states.  SB 337 (Alquist), Chapter 
            180, Statutes of 2009, adopted the provisions related to HIE 
            including authorizing the Governor to designate a non-profit 
            entity or, alternatively, authorizing CHHSA to apply for 
            federal funds available for HIE and HIT.  This allowed 
            California to take advantage of $38 million in federal funding 
            to coordinate the development of an electronic health 
            information technology infrastructure statewide.  As part of 
            this effort, Cal eConnect was established as the governing 

            Another component in transforming the use of EHRs was to 
            provide technical assistance to change the workflow within 
            providers' offices.  The Office of the National Coordinator 
            (ONC) implemented the REC Program to assist providers in the 
            many steps necessary to adopt EHRs and to use them effectively 
            to meet meaningful use.  Three RECs were established in 
            California with HITECH/ARRA funding.

           3)MEANINGFUL USE  .  For the purposes of the Medicare and Medicaid 
            Incentive Programs, eligible professionals, eligible 
            hospitals, and critical access hospitals (CAHs) must use 
            ONC-certified EHR technology, which gives assurance to 
            purchasers and other users that an EHR system offers the 
            necessary technological capability, functionality, and 
            security to meet the meaningful use criteria.  Certification 
            also helps providers and patients be confident that the 


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            electronic HIT products and systems they use are secure, can 
            maintain data confidentially, and can work with other systems 
            to share information.  Existing federal regulations require 
            the date, time, patient identification, and user 
            identification to be recorded when electronic health 
            information is created, modified, accessed, or deleted; and an 
            indication of which actions(s) occurred and by whom.  The 
            federal regulations also include verification that electronic 
            health information has not been altered in transit.  For 
            disclosures of treatment, payment, and health care operations, 
            the date, time, patient identification, user identification, 
            and description of the disclosure must also be recorded. 

           4)INCENTIVE PAYMENTS  .  HITECH/ARRA included financial incentives 
            for Medicaid and Medicare practitioners and hospitals to 
            assist in purchasing, installing, and using EHR in their 
            practices.  The Medicaid and Medicare EHR incentive programs 
            are similar but each has its own set of rules and incentive 
            payment schedules.  The Medicare EHR incentive payments 
            Program is administered directly by CMS.  Eligible 
            practitioners include physicians, dentists, nurse 
            practitioners, midwifes, and certain clinic based physician 
            assistants.  These providers may only participate in one of 
            the programs, but may switch once during the course of their 
            participation.  Acute care hospitals that meet specified 
            criteria based on the volume of Medicaid and Medicare, 
            children's hospitals and CAHs are eligible for incentive 
            payments from both programs.  Authorization of the Program to 
            develop and administer incentive payments to Medi-Cal 
            providers who adopt and meaningfully use certified electronic 
            health records (meaningful use) was not included in SB 337.

            HITECH/ARRA requires the state Medicaid Agency to administer 
            the Medicaid EHR incentive payments Program and the Act 
            provides 90% federal financial participation (FFP) for 
            administrative activities.  Although the provider incentive 
            payments are paid by the State, they are 100% reimbursable by 
            CMS.  The State must ensure that the Program meets all 
            statutory and regulatory requirements and is implemented in a 
            manner that minimizes the potential for fraud, waste and 

            In California, it is estimated that practitioners will be 
            eligible for up to $4 million over six years and hospitals 
            will be eligible for $2-$6 million over 4 years.  By 2015, 


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            Medicare providers who are not meaningful users will have 
            their Medicare reimbursement rate decreased by 1% per year, up 
            to a potential maximum penalty of 5%.  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 electronic 
            medical records (EMRs) for Medicaid providers.

              a)   Incentive Program Planning  .  Utilizing approximately $2 
               million in federal advanced planning funds and a grant from 
               the California HealthCare Foundation (CHCF), DHCS has 
               performed a number of preparatory activities.  The Office 
               of Health Information Technology (OHIT) has been 
               established to develop goals and metrics for the Program, 
               establish policies and procedures, and to implement systems 
               to disburse, track, and report incentive payments.  These 
               efforts include the creation and appointment of an Advisory 
               Board and a Draft State Medi-Cal HIT Plan.  DHCS also 
               contracted with The Lewin Group and McKinsey & Company to 
               perform an initial Provider Landscape Assessment of 
               outpatient providers, hospitals EHR vendors and expected 
               return on investment for providers adopting EHR.  Based on 
               the recently released assessment, 12% 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.  However these 
               assumptions are, in part, based on data that are over five 
               years old and DHCS has committed to providing CMS with 
               updated data to be used as a benchmark by the end of the 

              b)   Enrollment and Participation  .  CMS established a 
               National Level Registry, beginning April 2011 for providers 
               and hospitals to begin the enrollment process.  DHCS has 
               established an online State Level Registry (SLR) portal; 
               however the launch has been delayed as a result of the 
               complexity and unique requirements for California.  DHCS is 
               working with Affiliated Computer Services, Inc. (ACS), the 
               state Medicaid Management Information System provider to 
               develop a California specific system instead of using an 
               off-the shelf product used in other states as originally 


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               planned.  When the portal is operational, the system will 
               have the functionality necessary to validate, verify, and 
               audit providers. 

              c)   Education and Outreach  .  DHCS has planned a multi-phase 
               campaign for outreach and education.

               i)     Phase I employed direct face-to-face communication 
                 from OHIT and ACS to RECs, professional and hospital 
                 organizations and associations via webinars, and in 
                 person meetings and presentations. 

               ii)    Phase II, the Build-Up Campaign, is to continue to 
                 increase interest and direct providers to the Provider 
                 Outreach Page  where they can 
                 learn more about the Program.  The objective is for 
                 providers to use the workbook on the site to prepare 
                 their information so that upon the launch of the SLR, 
                 those providers will be able to immediately register 

               iii)   Phase III, the Launch Campaign, is to announce the 
                 launch of the Program and to drive providers to register 
                 on the SLR on the Provider Outreach Page.

               iv)    Phase IV, the Maintenance Campaign, will be to 
                 continue to drive awareness of the Program, and begin to 
                 specifically focus on the late adopters.

               v)     Phase V, the Beneficiary Campaign, will be to build 
                 awareness and highlight the benefits of EHRs to 

           5)SUPPORT  .  DHCS, sponsor of this bill, writes in support that 
            this bill is needed to enable them to rapidly develop and 
            administer an EHR incentive Program for Medi-Cal providers and 
            access 100% FFP.  According to the sponsor, it is anticipated 
            that if all eligible Medi-Cal providers in California take 
            advantage of this opportunity $1.4 billion in federal funds 
            will be distributed to Medi-Cal providers over the next ten 
            years.  In support, DHCS also points out the state is eligible 
            for 90%/10% funding for administering the Program as a result 
            of funding from CHCF.  In support, DHCS states that these EHR 
            incentive payments have the potential to help many 
            Californians health care providers change their practices to 


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            now utilize electronic tools.  The sponsors conclude that this 
            should result in significant improvement in health care 
            quality and efficiency that should benefit all Californians. 
             The California Children's Hospital Association (CCHA), also in 
            support, states that the Program is of particular importance 
            to children's hospitals as they are not eligible for the 
            Medicare incentives.  According to CCHA, the funds available 
            under this Program represent the only federal funds available 
            to children's hospitals to assist with EHR implementation.  
            CCHA also states that many of the children's hospitals have 
            already spent significant resources acquiring EHR systems.  
            CCHA concludes in support that the Program is critically 
            important to helping support children's hospitals complete 
            transition to electronic health records.

            The California Primary Care Association (CPCA) also in support 
            writes that their member clinics and health centers are fully 
            supportive of the DHCS endeavor.  According to CPCA, these 
            community clinics and health centers are already working with 
            their providers to partner on securing the incentive payments 
            and once the Program is launched, CPCA anticipates hundreds of 
            clinics will help their providers register and receive 
            payments.  CPCA also writes in support that use of EHR will 
            enable clinics to better coordinate their patients care, 
            reduce duplicative tests, and lay the foundation for these 
            clinics and health centers to transform their practice into 
            patient centered health home. 


             a)   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.  AB 174 is a two year bill pending in Senate 
               Health Committee.

             b)   SB 850 (Leno) requires an EHR system or EMR system to 
               automatically record any change or deletion of any 


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               electronically stored medical information.  Establishes 
               requirements for the record of any change or deletion, as 
               specified, including that the record be made part of the 
               patient's medical information.  SB 850 is pending in 
               Assembly Appropriations Committee.


             a)   SB 337, among other things, authorized CHHSA to apply 
               for federal HIT and HIE grant funds.  

             b)   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.  SB 320 was vetoed by the 

             c)   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 would have identified incentives to promote 
               the use of EHRs and personal health records.  SB 1338 was 
               held in the Assembly Appropriations Committee.

             d)   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.  SB 1672 was held in the Senate 
               Appropriations Committee.

             e)   AB 1672 (Nation and Richman) of 2005, in an early 
               version, 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. 



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           State of California Department of Health Care Services (sponsor)
          California Children's Hospital Association
          California Primary Care Association
          Eastern Plumas Health Care
          Glenn Medical Center
          Healdsburg District Hospital
          L.A. Care Health Plan
          Mayers Memorial Hospital
          Seneca Healthcare District
          Sutter Amador Hospital

          None on file.

           Analysis Prepared by  :    Marjorie Swartz / HEALTH / (916)