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