BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



           ----------------------------------------------------------------- 
          |SENATE RULES COMMITTEE            |                        SB 208|
          |Office of Senate Floor Analyses   |                              |
          |1020 N Street, Suite 524          |                              |
          |(916) 651-1520         Fax: (916) |                              |
          |327-4478                          |                              |
           ----------------------------------------------------------------- 
           
                                           
                                 UNFINISHED BUSINESS


          Bill No:  SB 208
          Author:   Lara (D)
          Amended:  9/6/13
          Vote:     21

           
           SENATE HUMAN SERVICES COMMITTEE  :  6-0, 4/9/13
          AYES:  Yee, Berryhill, Emmerson, Evans, Liu, Wright

           SENATE APPROPRIATIONS COMMITTEE  :  7-0, 5/23/13
          AYES:  De León, Walters, Gaines, Hill, Lara, Padilla, Steinberg

           SENATE FLOOR  :  39-0, 5/29/13
          AYES:  Anderson, Beall, Berryhill, Block, Calderon, Cannella,  
            Corbett, Correa, De León, DeSaulnier, Emmerson, Evans, Fuller,  
            Gaines, Galgiani, Hancock, Hernandez, Hill, Hueso, Huff,  
            Jackson, Knight, Lara, Leno, Lieu, Liu, Monning, Nielsen,  
            Padilla, Pavley, Price, Roth, Steinberg, Torres, Walters,  
            Wolk, Wright, Wyland, Yee
          NO VOTE RECORDED:  Vacancy

           ASSEMBLY FLOOR  :  Not available


           SUBJECT  :    Public social services:  contracting

           SOURCE  :     California Association of Physician Groups
                      Health Net
                      L.A. Care Health Plan


           DIGEST  :    This bill deletes a prohibition on Medi-Cal prepaid  
          health plans (PHPs) entering into any subcontract in which  
                                                                CONTINUED





                                                                     SB 208
                                                                     Page  
          2

          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. This bill establishes requirements related  
          to cultural and linguistic competency for requests for proposals  
          (RFP) submitted by regional centers.  
           
          Assembly Amendments  1) delete an existing prohibition that  
          prevents  Medi-Cal PHPs from entering into a sub-contract in  
          which consideration is a percentage of the capitation rate paid  
          by DHCS to the prepaid health plan and 2) allow Medi-Cal prepaid  
          health plans to enter into sub-contracts based on a percentage  
          of the capitation rate, unless DHCS objects. 

           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;

             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  

                                                                CONTINUED





                                                                     SB 208
                                                                     Page  
          3

               contractual obligations with DHCS.

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

          2.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.  

          3.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).  

          This bill: 

          1.Makes a number of legislative findings related to the needs of  
            RC consumers, as specified, and declares that services  
            provided to RC consumers should be provided in a  
            linguistically and culturally competent manner that promotes  
            equity and diversity for all Californians.

          2.Requires an RFP prepared by an RC for consumer services and  
            supports to include a section on issues of equity and  
            diversity that requests, at least, all of the following  
            information:

             A.   A statement outlining the applicant's plan to serve  
               diverse populations, including those that are culturally  
               and linguistically diverse;

             B.   Examples of the applicant's commitment to addressing the  
               needs of those diverse populations; and

             C.   Additional information that the applicant deems relevant  
               to issues of equity and diversity.

          1.Provides, if the RFP applies to specifically identified  
            consumers, the cultural and linguistic requirements would only  

                                                                CONTINUED





                                                                     SB 208
                                                                     Page  
          4

            apply to those specific consumers.  

          2.Provides that this statute shall not alter any contracts  
            entered into prior to January 1, 2014.

           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 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  

                                                                CONTINUED





                                                                     SB 208
                                                                     Page  
          5

          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.  

          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 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. 

          California has adopted the national trend to use various models  
          of managed care in place of FFS in its public programs such as  

                                                                CONTINUED





                                                                     SB 208
                                                                     Page  
          6

          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.  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.  

           Prior Legislation
           
          AB 1693 (Keene), Chapter 1036, Statutes of 1977, establishes a  
          pilot program, revises the authorization of DHCS (then DHS) to  

                                                                CONTINUED





                                                                     SB 208
                                                                     Page  
          7

          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. 

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  No

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

           SUPPORT  :   (Verified  9/12/13)

          California Association of Physician Groups (co-source)  
          Health Net (co-source) 
          L.A. Care Health Plan (co-source) 
          California Academy of Physician Assistants
          Congress of California Seniors

           ARGUMENTS IN SUPPORT  :    According to the sponsors, 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  
          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  

                                                                CONTINUED





                                                                     SB 208
                                                                     Page  
          8

          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. 

          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 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  

                                                                CONTINUED





                                                                     SB 208
                                                                     Page  
          9

          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. 

          JL:nl  9/12/13   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

                                   ****  END  ****



























                                                                CONTINUED