BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 208
                                                                  Page  1

          Date of Hearing:  September 6, 2013

                            ASSEMBLY COMMITTEE ON HEALTH
                                 Richard Pan, Chair
                     SB 208 (Lara) - As Amended:  August 30, 2013

           SENATE VOTE :  Not relevant.
           
          SUBJECT  : Public social services: contracting. 

           SUMMARY  :  Deletes a prohibition on Medi-Cal prepaid health plans  
          (PHPs) entering into any subcontract in which consideration is  
          determined by a percentage of the primary contractor's payment  
          from the Department of Health Care Services (DHCS), subject to  
          objection from DHCS and instead authorizes these arrangements. 

          Establishes requirements related to cultural and linguistic  
          competency for requests for proposals submitted by regional  
          centers. (This provision is the jurisdiction of the Assembly  
          Human Services Committee and therefore not covered in this  
          analysis). 

           EXISTING LAW  : 

          1)Establishes the Medi-Cal program, to provide various health  
            and long-term services to low-income women, parent and  
            caretaker adults, children, elderly, and people with  
            disabilities.  Effective January 1, 2014, provides services to  
            childless adults, who are not pregnant, between the ages of 19  
            and 65. 

          2)Authorizes DHCS to enter into contracts with managed care plan  
            (MCP) organizations to provide services to Medi-Cal enrollees.  


          3)Requires most persons eligible for Medi-Cal to enroll in a  
            Medi-Cal MCP.

          4)Defines subcontract in the Medi-Cal program as an agreement  
            entered into by the PHP with any of the following:

             a)   A provider of health care services who agrees to furnish  
               such services to Medi-Cal beneficiaries enrolled in the  
               PHP;









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             b)   A marketing organization; and, 

             c)   Any other person or organization who agrees to perform  
               any administrative function or service for the operation of  
               the PHP specifically related to securing or fulfilling its  
               contractual obligations with DHCS.

          5)Establishes Medicare as a federal health insurance program to  
            provide coverage to eligible individuals who are disabled or  
            over age 65.  

          6)Establishes the Coordinated Care Initiative (CCI) that  
            requires DHCS to seek federal approval to establish  
            demonstration sites in up to eight counties to provide  
            coordinated Medi-Cal and Medicare benefits to persons who are  
            dually eligible and authorizes DHCS to require seniors and  
            persons with disabilities (SPDs) who are eligible for Medi-Cal  
            only (not Medicare) to mandatorily enroll in Medi-Cal managed  
            care (MCMC) MCPs.  

          7)Provides for regulation of health plans by the Department of  
            Managed Health Care (DMHC) under the Knox-Keene Health Care  
            Service Plan Act of 1975 (Knox-Keene).  

           FISCAL EFFECT  :  This bill, as amended, has not been analyzed by  
          a fiscal committee. 

           COMMENTS  :

           1)PURPOSE OF THIS BILL  .  According to the sponsors of this  
            amendment, these provisions are necessary to allow health  
            plans to contract in a consistent fashion for both Medi-Cal  
            and Medicare services.  The sponsors, California Association  
            of Physician Groups, Health Net, and L.A. Care Health Plan (LA  
            Care) acknowledge that this prohibition stems from a scandal  
            in the mid-1970s, involving California PHPs which received  
            national attention.  These programs had been launched by the  
            Governor Reagan Administration in an attempt to control costs  
            of Medi-Cal, several years before the advent of Knox-Keene.   
            According to background supplied by these sponsors, in  
            November 1976, the U.S. General Accounting Office (now  
            Government Accountability Office) determined that five  
            supposed nonprofit PHPs were, in fact, "fronts for  
            profit-making companies" that "obtained most of the state  
            health funds through subcontracts and then spent the money in  








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            questionable ways."  The sponsors point out however, that  
            since then, not only are these plans and contracts governed by  
            Knox-Keene, but additionally in 1999, DMHC implemented a  
            comprehensive financial solvency program for Risk Bearing  
            Organizations (RBOs), pursuant to enacted legislation at the  
            time.  The sponsors argue that improved oversight by DMHC  
            eliminated the need for artificial constraints on payment  
            mechanisms that were imposed back in 1977, before the Medi-Cal  
            PHPs developed into the modern Medi-Cal MCP system of today.   
            The sponsors also argue that health plans have paid capitated  
            providers in the Medicare Advantage (MA) program using a  
            percent of premium, with significant success.  In addition,  
            the sponsors state that the need for a consistent payment  
            methodology between Medicare and MCMC will ensure a  
            streamlined payment process in the Duals Demonstration  
            program, known as the CCI, scheduled to begin no earlier than  
            April 2014.  

          According to LA Care, currently it pays capitated provider  
            groups in Medi-Cal a negotiated rate.  For SPDs,  
            subcontractors are paid a rate that is developed based on a  
            number of factors including expected utilization for the  
            overall population within the aid category, what services are  
            delegated to the capitated provider and the amount paid by  
            DHCS.  For the family aid category, LA Care further defines  
            the capitation by age and gender within the aid category to  
            better align payment with risk.  LA Care stated that DHCS  
            often gives preliminary rates and does not finalize them until  
            well into the rate year.  Additionally, mid-year benefit  
            changes have occurred and the impact on rates is not known  
            until many months or possibly years after the services have  
            been provided and paid for by the plan.  As a result, it is  
            inefficient and administratively burdensome and time consuming  
            to have to do a contract amendment each time there is a rate  
            change or adjustment.  If percent of premium were allowed, it  
            would be transparent to the subcontractor and they would  
            receive their rate adjustment much quicker than having to go  
            through a contract amendment execution process. 

          2)BACKGROUND  .  DHCS will shortly have almost its entire  
            population in MCMC.  Currently MCMC in California serves about  
            5.2 million enrollees in 30 counties, or about 69% of the  
            total Medi-Cal population.  There are three models.  The  
            oldest model is the County Operated Health System (COHS).   
            COHS plans serve about one million enrollees through six  








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            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.  Eight  
            more counties are in the process of transitioning  
            approximately 80,000 children and fee-for-service (FFS)  
            enrollees into a COHS (Del Norte, Humboldt, Lake, Lassen,  
            Modoc, Shasta, Siskiyou, and Trinity).  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" and a "commercial plan."  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.  In November 2013, 18 more counties will transition  
            approximately 200,000 children, families, seniors and people  
            with disabilities into a regional Two-Plan model.  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.

          DHCS is also participating in a demonstration project authorized  
            by the 2010 federal Patient Protection and Affordable Care Act  
            to improve coordination of services for persons who are dually  
            eligible for state Medicaid programs and Medicare.  The CCI,  
            now entitled Cal MediConnect was authorized by the Legislature  
            as a three-year, eight county demonstration project.  The  
            eight counties are Alameda, Los Angeles, Orange, Riverside,  
            San Bernardino, San Diego, San Mateo, and Santa Clara covering  
            456,000 dual eligible enrollees.  Cal MediConnect will combine  
            the continuum of health care, acute care, behavioral health,  
            and Long Term Supports and Services through Medi-Cal MCPs  
            using a capitated payment model to provide Medicare and  
            Medi-Cal benefits through existing plans.  The phase in of  
            enrollment is scheduled to begin no sooner than April 1, 2014.  
             

           3)Knox-Keene.   Knox-Keene is the regulatory framework that most  
            MCPs operate under in California.  It is a comprehensive set  
            of rules that cover mandatory basic services, financial  
            stability, availability and accessibility of providers, review  
            of provider contracts, the administrative organization,  
            consumer disclosure, and the grievance requirements.  It is  








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            administered and enforced by DMHC.  Among the factors that led  
            to its passage, including the selection at the time of the  
            Department of Corporations (DOC) as the regulatory entity,  
            were a number the scandals associated with Medi-Cal PHPs and  
            lax oversight by the Department of Health Services (DHS) (now  
            DHCS) in the early 70's when Governor Reagan expanded use of  
            PHPs in the Medi-Cal program as a means of reducing costs.  In  
            1999, comprehensive health plan reform legislation, moved  
            regulation from the DOC and led to the creation of DMHC.   
            Responsibility for Knox-Keene regulation was transferred to  
            the new department in July 2000.  However, it continued to be  
            under the Business, Transportation and Housing Agency, rather  
            than the Health and Human Services Agency until it was  
            transferred in 2012 by AB 922 (Monning), Chapter 552, Statutes  
            of 2011.

          As a result of the increase in sub-contracting to independent  
            practice associations (IPAs) and medical groups, DMHC has also  
            been tasked with assessing the adequacy of financial reserves  
            and the administrative capacity of all RBOs to fulfill  
            delegated responsibilities and to timely process and pay all  
            medical claims for the medical services that are delegated by  
            a health plan to the RBO.  The DMHC's assessment activities  
            include review of all financial information submitted by the  
            RBOs, including certified public accountant-audited and  
            company-prepared financial statements.  If an RBO becomes  
            noncompliant with Knox-Keene financial solvency requirements,  
            the RBO is required to develop a corrective action plan which  
            the DMHC reviews to ensure the RBO's proposed corrective  
            action plan and financial assumptions are viable and will  
            correct the RBO's financial problems. 

           4)Regulation of State Funded Managed Care Programs  .  California  
            has adopted the national trend to use various models of  
            managed care in place of FFS in its public programs such as  
            Medi-Cal.  Similar to commercial HMOs, the enrollee receives a  
            subset of the Medi-Cal benefits through an MCP.  The plan is  
            paid a per member capitated rate for each enrollee which is  
            set by an actuarial methodology.  The plan in turn  
            sub-contracts with providers, medical groups, or in some cases  
            another plan, to provide Medi-Cal covered services to  
            enrollees.  As in commercial managed care, the enrollee's  
            choice of providers may be limited to those in the plan's  
            network, but the plan is required to ensure timely access to  
            care.  MCMC developed along two separate paths in California.   








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            In 1985 federal law specifically authorized the Health Plan of  
            San Mateo and the Santa Barbara Regional Health Authority as  
            Health Insuring Organizations (known under state law as COHS).  
             There is no choice in these counties as all enrollees are in  
            the same plan, although some services may be provided outside  
            the plan or are "carved-out."  Because of the specific federal  
            authority, these entities are not required to be licensed by  
            the state.  Even prior to mandatory enrollment of SPDs in the  
            two-plan and GMC counties, in a COHS county everyone,  
            regardless of disability category is in the same health plan.   
            Although COHS are not required to obtain a Knox-Keene license  
            for Medi-Cal, DHCS requires them to meet Knox-Keene standards  
            by contract.  

          When expanded use of PHPs was again proposed as a means of  
            reducing costs in Medi-Cal in 1993, a basic tenet was that the  
            plans in the two-plan and GMC counties would be required to  
            obtain Knox-Keene licensure.  COHS continued to be exempted  
            from this requirement.  However many of the COHS obtained a  
            Knox-Keene license in order to participate in the Healthy  
            Families program.  In the most recent contracts, DHCS required  
            each COHS to meet Knox-Keene requirements.  Currently DHCS  
            audits the plans regularly for contract compliance and audits  
            the Knox-Keene plans jointly with DMHC.  The general practice  
            of DHCS is to require the plan to submit a corrective action  
            plan if there are deficiencies.  Financial and fraud  
            investigation reviews are performed by the Controller's  
            office.  DHCS is also in the process of entering into an  
            inter-agency agreement to train the Controller's staff to be  
            able to perform medical audits.  

           5)SUPPORT  .  According to the supporters, currently, Medicare and  
            Medi-Cal capitated reimbursement rates are treated  
            differently.  For over a decade, health plans have paid  
            capitated providers in the MA program using a percent of  
            premium, with significant success. The MA program serves over  
            a million seniors in California, including several hundred  
            thousand voluntarily-enrolled dual-eligible beneficiaries.   
            The supporters further argue that it has an excellent track  
            record of patient satisfaction and provider financial  
            solvency. According to this support, Medi-Cal is prevented  
            from following the same payment method as Medicare; which is a  
            problem given the forthcoming convergence of the two programs  
            in the Cal MediConnect program (Duals Demonstration Pilot).   
            They support this bill because it creates transparency for  








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            providers and health plans; while incentivizing health care  
            organizations to work together in order to meet performance  
            standards.  Furthermore, they argue, allowing consideration to  
            be based off the premium contract ensures that the patient  
            receives quality coverage because the reimbursement and/or  
            payment are based on the beneficiary getting the appropriate  
            level of care for his/her diagnoses.  The need for a  
            consistent payment methodology for Medicare and Medi-Cal  
            services is genuine, and this bill is the best means to ensure  
            a streamlined payment process in the Cal MediConnect Program;  
            which is crucial for beneficiaries requiring adequate  
            continuity of care during the transition  According to the  
            sponsors, the prohibition of paying a percent of premium is  
            inconsistent with how health plans currently pay capitated  
            providers such as IPAs, medical groups, and hospitals in the  
            MA program.  This contracting method accommodates the risk  
            adjustment of Medicare capitation payment methodology which is  
            enrollee-specific. 

           6)PREVIOUS LEGISLATION  .  AB 1693 (Keene), Chapter 1036, Statutes  
            of 1977, establishes a pilot program, revises the  
            authorization of DHCS (then DHS) to contract with PHPs to  
            provide services to Medi-Cal enrollees, at the enrollees  
            option.  Provides for regulation of the PHPs, including  
            sub-contracts and enacted consumer protections. 

           REGISTERED SUPPORT / OPPOSITION  :

           Support 

           California Association of Physician Groups (cosponsor) 
          Health Net (cosponsor)
          L.A. Care Health Plan (cosponsor)

           Opposition 
           
          None on file.

           Analysis Prepared by  :    Marjorie Swartz / HEALTH / (916)  
          319-2097