BILL ANALYSIS �
AB 578
Page 1
Date of Hearing: April 2, 2013
ASSEMBLY COMMITTEE ON HEALTH
Richard Pan, Chair
AB 578 (Dickinson) - As Introduced: February 20, 2013
SUBJECT : Health care.
SUMMARY : Establishes a public disclosure and hearing process
for an entity applying for licensure as a health care service
plan or a specialized health care service plan at the Department
of Managed Health Care (DMHC). Specifically, this bill :
1)Requires the DMHC Director (Director) to publish a notice,
upon receiving an application, in one or more newspapers of
general circulation in the proposed plan's service area,
describing the name of the applicant, the nature of the
application, and the date of receipt of the application.
2)Requires the notice to indicate that the Director will be
soliciting public comments and will hold a public hearing on
the application. Requires the Director to require the plan to
publish a written notice concerning the application pursuant
to conditions imposed by rule or order.
3)Requires prior to approving the application, the Director to
solicit public comments in written form and to hold at least
one public hearing concerning the application.
EXISTING LAW :
1)Establishes DMHC to regulate health plans under the Knox-Keene
Health Care Service Plan Act of 1975 (Knox-Keene Act) in the
Health and Safety Code and the California Department of
Insurance (CDI) to regulate health insurers under the
Insurance Code.
2)Requires the Director to issue a license to any person filing
an application under the Knox-Keene Act, if the Director, upon
due consideration of the application and of the information
obtained in any investigation, including, if necessary, an
onsite inspection, determines that the applicant has satisfied
the requirements of the Knox-Keene Act, and that, in the
judgment of the Director, a disciplinary action, as specified,
would not be warranted against the applicant. Otherwise,
AB 578
Page 2
requires the Director to deny the application.
3)Requires, as part of the application for licensure as a health
care service plan or specialized health care service plan,
submission of additional items such as: organizational
documents, bylaws, names addresses of specified individuals
such as members of the Board of Directors, copies of contracts
with providers and administrators, the plan for providing
health care services, subscriber forms and contracts,
financial statements, power of attorney, statement of service
areas, grievance procedures, internal quality review plan, and
insurance documents. Also requires inclusion of relevant
information concerning any history of noncompliance with
applicable State or federal laws, regulations, or requirements
related to providing, or arranging to provide for, health care
services or benefits in this state or any other state, or
through the Medicare or Medicaid program (Medi-Cal in
California), or as a licensed health professional or an
individual or entity contracting with a health care service
plan or insurer in this State or any other state.
4)Requires, on and after January 1, 2007, DMHC, in considering
an application for an initial license to consider any
information provided concerning whether the plan, its
management company, any other affiliate of the plan, or any
controlling person, officer, Director, or other person
occupying a principal management or supervisory position in
the plan, management company, or affiliate has any history of
noncompliance, as described, and any other relevant
information concerning misconduct.
5)Permits the Director to, after appropriate notice and
opportunity for a hearing, by order, suspend or revoke any
license issued under the Knox-Keene Act to a health care
service plan or assess administrative penalties if the
Director determines that the licensee has committed any of the
acts or omissions constituting grounds for disciplinary
action.
6)Establishes criteria for entities that are exempt from the
Knox-Keene Act, such as a self-insured reimbursement plan that
pays for or reimburses any part of the cost of health care
services, operated by any city, county, city and county,
public entity, political subdivision, or public joint labor
management trust.
AB 578
Page 3
7)Requires the Director upon receiving an application to
restructure or convert a non profit health plan to a for
profit health plan, to publish a notice in one or more
newspapers of general circulation in the plan's service area
describing the name of the applicant, the nature of the
application, and the date of receipt of the application.
Requires the notice to indicate that the Director will be
soliciting public comments and will hold a public hearing on
the application. Requires the Director to require the plan to
publish a written notice concerning the application pursuant
to conditions imposed by rule or order. Makes applications,
reports, plans, or other documents public records subject to
the California Public Records Act, and requires the Director
to provide the public with prompt and reasonable access to
public records relating to the restructuring and conversion of
health care service plans. Requires prior to approving any
conversion or restructuring, the Director to solicit public
comments in written form and to hold at least one public
hearing concerning the plan's proposal to comply with the
set-aside and other conditions required under law.
8)Requires, pursuant to regulations, the Director to withhold
from public inspection, pursuant to the applicable State
and/or federal law, information received in connection with an
application if in the opinion of the Director, the public
inspection of such information is not necessary for the
purposes of the law under which the information was filed, and
the information is reasonably shown to meet either of the
following:
a) The information is proprietary or of a confidential
business nature, including but not limited to trade
secrets, and has been confidentially maintained by the
business entity and the release of which would be damaging
or prejudicial to the business concern; or,
b) The information is such that the private and/or public
interest is served by withholding the information.
9)Requires, pursuant to regulation, a request for confidential
treatment of any information received in connection with an
application or report submitted to DMHC to be filed with the
information submitted. Requires the information intended to
remain confidential must be filed separately from the
remaining parts of the application or report and marked
AB 578
Page 4
"Confidential Treatment Requested" along with a statement
about the adverse consequences associated with disclosure.
10)Requires for general acute care hospitals, acute psychiatric
hospitals, skilled nursing facilities, intermediate care
facilities, and special hospitals licensed by the California
Department of Public Health (DPH) information required for
licensure, other than individuals' social security numbers, to
be made available to the public upon request, and to be
included in DPH's public file regarding the facility.
11)Requires, for general acute care hospitals, acute psychiatric
hospitals, or special hospitals, DPH to consider whether the
applicant is of reputable and responsible character, using any
available information that the applicant has demonstrated a
pattern and practice of violations of State or federal laws
and regulations. Requires DPH to give particular
consideration to those violations that affect the applicant's
ability to deliver safe patient care. Also, requires DPH to
determine whether the applicant has the ability to comply with
licensing laws, rules and regulations, considering evidence,
as specified such as any prior history of operating in any
other state any facility authorized to receive Medicare
program reimbursement or Medicaid program reimbursement, and
the applicant's history of substantial compliance with that
state's requirements, and applicable federal laws,
regulations, and requirements; or any prior history of
providing health services as a licensed health professional or
an individual or entity contracting with a health care service
plan or insurer, and the applicant's history of substantial
compliance with State requirements, and applicable federal
law, regulations, and requirements.
12)Establishes the Medi-Cal program administered by the
Department of Health Care Services (DHCS).
FISCAL EFFECT : This bill has not been analyzed yet by a fiscal
committee.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, existing law
makes no provision for the Director to conduct any process
allowing the public or any stakeholder group to provide input
for the Director's consideration when reviewing an application
AB 578
Page 5
for licensure. The author asserts that it is essential that
State law be clear that the public and others have
opportunities to comment on any license application. The
author states that upon full implementation of the federal
Affordable Care Act (ACA), millions more Californians will
obtain health care coverage. Many of these Californians will
obtain publicly-funded coverage through Medi-Cal, or in the
private market through Covered California where tax credits
and public subsidies will make coverage affordable. With the
impending Medi-Cal expansion and operation of Covered
California (formerly the California Health Benefit Exchange),
as well as, the ongoing shift of Medi-Cal enrollees away from
fee-for-service and into managed care, the marketplace for
managed care plans is significantly growing making it an
opportune time for entities to apply for Knox-Keene Act
licensure and compete for new managed care business.
The author believes that since the public will subsidize
coverage for so many in the growing managed care market, the
pubic has a vested interest in plans who aim to become
Knox-Keene Act licensed plans. Despite this vested interest,
the licensure process is nearly closed to the public, raising
serious concerns regarding a lack of transparency. Current
law does not provide for any public notice upon the submission
of a Knox-Keene Act license application to DMHC, nor are there
any provisions that require DMHC to publicly hear or solicit
public input during the licensure review process. The author
also raises concerns that the DMHC is authorized to grant
confidentiality to Knox-Keene Act license applicants, denying
the public any opportunity to truly evaluate the methods by
which an applicant will provide health care benefits to its
enrollees. Further, the author states that considering that
managed care plans stand to gain millions of new enrollees who
will be able to afford coverage through public subsidy, the
public should be afforded a process by which it can rightfully
express concerns or commentary to DMHC regarding the
Knox-Keene Act licensure applicants it evaluates.
2)ACA . On March 23, 2010, the ACA (Public Law 111-148), as
amended by the Health Care and Education Reconciliation Act of
2010 (Public Law 111-152) became law. The ACA is the largest
piece of health policy legislation in over 45 years. One of
its main objectives is to dramatically increase the number of
individuals with health insurance coverage in this country.
By mandating health insurance coverage for all with subsidies
AB 578
Page 6
to offset the costs for low-income people; expanding Medicaid
eligibility; establishing virtual market places, known as
health insurance exchanges, to assist individuals and small
employers in purchasing health insurance; allowing young
adults to remain covered under their parents' health
insurance; and, requiring significant nationwide reforms of
state health insurance markets such as requiring health
insurers to take all comers despite preexisting conditions,
the ACA should lead to the largest expansion of healthcare
coverage since the creation of Medicare and Medicaid in the
1960s. By 2014 either a state will establish separate
exchanges to offer individual and small-group coverage or the
federal government will establish one. Exchanges will not be
insurers but will provide eligible individuals and small
businesses with access to private plans in a comparable way.
In 2014 some individuals with income below 400% of the federal
poverty level (FPL) will qualify for credits toward their
premium costs and subsidies toward their cost-sharing for
insurance purchased through an exchange. California has
established Covered California, as a state-based exchange that
is operating as an independent government entity with a
five-member Board of Directors.
3)MEDI-CAL MANAGED CARE . Currently as part of Medi-Cal managed
care there are about 5.2 million enrollees in 30 counties, or
about 69% of the total Medi-Cal population. There are three
models of MCPs. The oldest model is the County Operated
Health System (COHS). COHS plans serve about one million
enrollees through six health plans in 14 counties: Marin,
Mendocino, Merced, Monterey, Napa, Orange, San Mateo, San Luis
Obispo, Santa Barbara, Santa Cruz, Solano, Sonoma, Ventura,
and Yolo. In the COHS model, DHCS contracts with a health
plan created by the County Board of Supervisors and all
Medi-Cal enrollees are in the same health plan. The second
model is the two-Plan model in which there is a "Local
Initiative" (LI) and a "commercial plan" (CP). DHCS contracts
with both plans. The Two-Plan model serves about 3.6 million
beneficiaries in Alameda, Contra Costa, Fresno, Kern, Kings,
Los Angeles, Madera, Riverside, San Bernardino, San Francisco,
San Joaquin, Santa Clara, Stanislaus, and Tulare. Thirdly,
two-counties employ the Geographic Managed Care (GMC) model:
Sacramento and San Diego. DHCS contracts with several
commercial plans in those counties and there are about 600,000
enrollees.
AB 578
Page 7
DHCS has embarked on an ambitious array of initiatives that
could result in over two million new enrollees into managed
care plans in 2012 and 2013. These program changes include
all age groups and all geographic regions. DHCS is also
participating in a demonstration project authorized by the ACA
to improve coordination of services for persons who are dually
eligible for state Medicaid programs (Medi-Cal in California)
and Medicare. AB 1467 (Committee on Budget), Chapter 23,
Statutes of 2012, authorized the expansion of Medi-Cal managed
care to 28 mostly rural counties. The stated purpose is to
provide a comprehensive program of managed care services to
Medi-Cal recipients residing in these counties that currently
receive Medi-Cal services on a fee-for-service basis: Alpine,
Amador, Butte, Calaveras, Colusa, Del Norte, El Dorado, Glenn,
Humboldt, Imperial, Inyo, Lake, Lassen, Mariposa, Modoc,
Nevada, Mono, Placer, Plumas, San Benito, Shasta, Sierra,
Siskiyou, Sutter, Tehama, Trinity, Tuolumne, and Yuba.
Currently, approximately 365,000 enrollees would qualify for
Medi-Cal managed care. In February 2013, DHCS announce that
Anthem Blue Cross and California Health and Wellness Plan,
received Notices of Intent to Award for the expansion of
Medi-Cal managed care to the counties of Alpine, Amador,
Butte, Calaveras, Colusa, El Dorado, Glenn, Inyo, Mariposa,
Mono, Nevada, Placer, Plumas, Sierra, Sutter, Tehama,
Tuolumne, and Yuba. DHCS is also planning an exclusive
Medi-Cal managed care contract with Partnership HealthPlan of
California (PHC) for expansion in Del Norte, Humboldt, Lassen,
Modoc, Shasta, Siskiyou, and Trinity counties. In addition,
Lake and San Benito counties would become COHS managed care
counties served by PHC and Central California Alliance for
Health, respectively. DHCS is currently working with Imperial
County on its managed care plan selection process.
4)DMHC APPLICATIONS . Since 2009 there have been 19 new
applicants for licensure at DMHC. According to the DMHC,
there were a total of four applications received in 2009,
three applications in 2010, one application in 2011, eight
applications in 2012, and three applications so far for 2013.
However, seven of the 19 were applications for Medicare
Advantage or Medicare Part D, of which DMHC has limited
authority. In addition, some applicants apply as specialized
plans for limited services, such as dental or vision, as
opposed to a full health care service plan. At least four of
the 19 applications were for Medi-Cal.
AB 578
Page 8
5)SUPPORT . Consumer Watchdog indicates with the impending
federal requirement that all Californians purchase health
coverage, it is more important than ever that the licensing
process ensures a high level of scrutiny of any entity seeking
to sell policies in California. Consumer Watchdog believes
this bill is a straightforward step in the direction of
transparency that will allow Californians to work with the
DMHC to ensure that companies entering the California market
are prepared to meet the requirements of the Knox-Keene Act.
California Watchdog states that it is much better for
California patients and consumers, in general, that the
companies providing health coverage face the light of day
before receiving their license than potentially having to
contend with problems stemming from insufficiently reviewed
licensees after damage has been done. The Center for Public
Interest supports this bill because it will create
transparency in the process by which DMHC evaluates and
approves applicants for Knox-Keene licensure.
6)POLICY QUESTIONS .
a) Are there other examples of health related entities
being subject to public hearing requirements prior to
licensure? Staff could not find examples in California law
of health care providers, health facilities, or insurers
being subject to public hearing requirements prior to
licensure. The closest requirement is for the DPH to make
a determination of reputable and responsible character of
hospital applicants prior to issuing a license. However,
this determination does not require a public hearing in
advance of the determination. DPH was unable to identify
any hospital applicants which have been denied a license
based on this determination.
The sponsor indicates that the requirements in this bill
related to the public hearing are modeled after a
requirement in the Knox-Keene Act requiring a public
hearing prior to approval of a restructuring or conversion
of a non profit health plan to for profit status. However
the purpose of the public hearing in those provisions of
law is to vet the plan's proposal to comply with the
set-aside and other community benefit conditions required
under law. The set-aside is the fair market value of the
plan which will be dedicated or transferred to one or more
nonprofit organizations for charitable purposes.
AB 578
Page 9
b) Why DMHC and not CDI? It's not clear why DMHC
applicants for licensure are being singled out. California
has two regulators who oversee health insurance companies
and their products under different but increasing similar
legal frameworks. Most, but not all, Medi-Cal managed care
plans are products regulated by the DMHC. Some COHS, which
are Medi-Cal managed care plans, have no license at all.
One could argue that this public hearing requirement is
limited to DMHC because of the connection to public
financing through the Medi-Cal program. However, as
indicated above, some Medi-Cal managed care plans may not
be subject to DMHC licensure. With regard to subsidized
coverage through Covered California, both CDI and DMHC
licensees are permitted to bid to participate. Should
Covered California select CDI licensed products, subsidies
may be directed to those insurance policies on behalf of
qualified individuals.
c) Should all applications for licensure at DMHC be subject
to the requirements of this bill? As indicated some
entities apply to be licensed as a specialized plan which
offers limited services, while others apply as a full
service health plan offering the full range of basic health
services. It is not clear if the same level of scrutiny
should apply in all cases.
d) What are the tradeoffs? According to the DMHC, it can
take six months or longer for an application to be
processed at the DMHC. The DMHC indicates that some
applications such as Medicare Advantage or Medicare
prescription drug plans can take less than six months but a
full service health care service plan application can take
much longer. It is unclear how much additional time this
public hearing component may add to the process and for
what benefit.
7)PREVIOUS LEGISLATION .
a) AB 330 (Gordon), Chapter 507, Statutes of 2005 requires
then Department of Health Services (now DPH) to consider
whether an applicant to operate or manage a general acute
care hospital, acute psychiatric hospital, or special
hospital is of reputable and responsible character and has
demonstrated an ability to comply with licensing laws and
AB 578
Page 10
regulations, as specified.
b) SB 445 (Rosenthal), Chapter 792, Statutes of 1995,
requires non-profit health plans that want to convert to
for-profit status to provide information to then Department
of Corporations (DOC) (now DMHC) summarizing the charitable
activities undertaken by the plan, as directed by the DOC.
Requires set-asides for charitable purposes of the fair
value of the entire corpus of a converting public benefit
corporation plan or that portion of the assets disposed of
by restructuring. Requires set-asides of the fair value of
the assets of a non-profit mutual benefit corporation to
the extent the assets of the corporation have been held
subject to a charitable obligation. Requires the
set-asides to be dedicated to an existing or new charitable
organization formed pursuant to Sections 501(c)(3) or
501(c)(4) of the federal Internal Revenue Code governing
non-profit entities. Requires the charity to be
health-related and prohibits conflicts of interest that may
benefit the plan that spun off assets to the charity.
8)Technical Amendment .
a) On page 2, line 18 "plan" should be deleted and replaced
with "applicant."
REGISTERED SUPPORT / OPPOSITION :
Support
California Nurses Association (sponsor)
Center for Public Interest Law
Consumer Watchdog
Opposition
California Association of Health Plans
Analysis Prepared by : Teri Boughton / HEALTH / (916) 319-2097