BILL ANALYSIS                                                                                                                                                                                                    






                             SENATE COMMITTEE ON HEALTH
                          Senator Ed Hernandez, O.D., Chair

          BILL NO:       SB 640
          AUTHOR:        Lara
          AMENDED:       April 15, 2013
          HEARING DATE:  April 24, 2013
          CONSULTANT:    Bain

           SUBJECT :  Medi-Cal: reimbursement: provider payments. (URGENCY)
           
          SUMMARY  :  Requires Medi-Cal payments for fee-for-service  
          benefits, including pharmacy, to be determined without  
          application of the 10 percent payment reduction in existing law  
          for dates of service on or after June 1, 2011, and requires  
          Medi-Cal payments to managed care health plans to be determined  
          without application of the 10 percent payment reduction required  
          in existing law for dates of service on and after the effective  
          date of this bill. Requires Medi-Cal payments for nursing  
          facilities that are a distinct part of a general acute care  
          hospital (DP-SNFs) and subacute care units that are parts of  
          general acute care hospitals for dates of service on or after  
          June 1, 2011, to be determined without application of the  
          Medi-Cal reductions and roll back in existing law. Takes effect  
          immediately as an urgency statute.
          
          Existing law:
          1.Existing law establishes the Medi-Cal program, administered by  
            the Department of Health Care Services (DHCS), under which  
            qualified low-income individuals receive health care services.  
            Establishes a schedule of benefits for Medi-Cal beneficiaries,  
            which includes hospital services and nursing facility  
            services. Defines, in the Medi-Cal state plan, a DP-SNF as any  
            nursing facility which is licensed together with an acute care  
            hospital.

          2.Requires Medi-Cal fee-for-service (FFS) provider payments to  
            DP-SNFs to be reduced by 5 percent for dates of service on and  
            after March 1, 2009. Requires payments to Medi-Cal managed  
            care plans to be reduced by the actuarially equivalent amount  
            of the 5 percent payment reduction.

          3.Requires Medi-Cal FFS provider payments to DP-SNFs to not  
            exceed the reimbursement rates to DP-SNFs in the 2008-09 rate  
            year, reduced by 10 percent for dates of service on and after  
            June 1, 2011. Requires payments to be reduced by 10 percent  
                                                         Continued---



          SB 640 | Page 2




            for Medi-Cal FFS benefits for dates of service on and after  
            June 1, 2011. Requires payments to Medi-Cal managed care plans  
            to be reduced by the actuarial equivalent amount of the 10  
            percent payment reduction.

          4.Requires the payment reductions in 2) above to cease to be  
            implemented for the same services provided by the same class  
            of providers when federal approval is obtained for the payment  
            reductions in 3) above. Requires the payment reductions in 3)  
            to be implemented retroactively to June 1, 2011, or on any  
            other date or dates as may be applicable when federal approval  
            is obtained.





          This bill:
          
             1.   Requires Medi-Cal payments for fee-for-service benefits  
               to be determined without application of the 10 percent  
               payment reduction in existing law for dates of service on  
               or after June 1, 2011.

             2.   Requires Medi-Cal payments for DP-SNFs and subacute care  
               units that are parts of general acute care hospitals and  
               fee-for-service payments to pharmacies for dates of service  
               on or after June 1, 2011, to be determined without  
               application of the Medi-Cal reductions and roll back in  
               existing law. 

             3.   Prohibits, for dates of service prior to the effective  
               date of this bill, Medi-Cal payments from exceeding the  
               reimbursement rate at which payment has been made by DHCS  
               prior to the effective date of this bill. 

             4.   Requires Medi-Cal payments to managed care health plans  
               to be determined without application of the 10 percent  
               payment reduction required in existing law for dates of  
               service on and after the effective date of this bill.   
           
             5.   Requires the director to implement this bill to the  
               maximum extent permitted by law and for the maximum time  
               period for which the director obtains federal approval for  
               federal financial participation for the increase provided  
               for in this bill. 




                                                             SB 640 | Page  
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              6.   Requires the DHCS director to promptly seek all  
               necessary federal approvals to implement this bill.

             7.   Permits DHCS to implement this bill by means of provider  
               bulletins or notices, policy letters, or other similar  
               instructions, without taking regulatory action under the  
               Administrative Procedure Act.

             8.   Takes effect immediately as an urgency statute.

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


           COMMENTS  :  
           1.Author's statement. SB 640 (Lara) is a measure to provide  
            critical stability to health care provider networks within the  
            Medi-Cal program on the eve of full federal health reform  
            implementation and Medi-Cal expansion. The bill stops the  
            implementation of the rate cuts contained in AB 97, the health  
            services trailer bill to the 2011-12 state budget.  

          It makes no sense to further slash Medi-Cal provider rates.  
            California already pays its Medi-Cal providers some of the  
            lowest in the entire country (47th of the 50 states for  
            physician rates). Expanding Medi-Cal with reduced rates is  
            making an empty promise to California's poor, who will find it  
            nearly impossible to find providers to treat them when they  
            are sick or injured. Doing so will force them into crowded  
            emergency rooms as a last resort.  

          SB 640 would do two things. First, it would eliminate the  
            state's ability to implement the 10 percent Medi-Cal provider  
            rate cuts that were enacted through AB 97 for all Medi-Cal  
            providers. Second, the bill would eliminate the state's  
            ability to 'claw back' rate cuts from various Medi-Cal  
            providers who have not yet been cut, for the period of time  
            from June 1, 2011 to the present day.  

          In order to meet the full promise of the federal Patient  
            Protection and Affordable Care Act (ACA), California is  
            looking to expand its Medi-Cal program to hundreds of  
            thousands-potentially millions-of individuals who aren't  
            currently eligible. California cannot continue to cut provider  




          SB 640 | Page 4




            rates to the bone and also anticipate those same providers to  
            take on more Medi-Cal patients than they do today.  
            California's health care providers are ready to embrace health  
            reform, but our state needs to repair its broken safety net.

          2.Federal Medicaid law, the Medi-Cal budget and Medi-Cal rate  
            litigation. To achieve budget savings in Medi-Cal during the  
            state's recent fiscal crisis, the state has three principle  
            policy and fiscal choices: (a) to reduce or restrict who is  
            eligible for Medi-Cal benefits; (b) to reduce the scope of  
            benefits provided in the program; (c) to reduce the payments  
            to health care providers and managed care plans for Medi-Cal  
            services. Federal law has prevented or limited the state's  
            ability to reduce eligibility, but the state has eliminated  
            benefits in Medi-Cal, most notably adult dental services. In  
            addition, the state has attempted several times to reduce  
            Medi-Cal payments to health plans, health facilities and  
            health care providers.

          However, some of these rate reductions did not, and have not  
            taken effect because of court injunctions, while other  
            reductions have expired by their own terms and been replaced  
            by different rate reductions. For example, DP-SNFs were  
            subject to some of these reductions for certain periods of  
            time before court injunctions were issued. The multiple cases  
            challenging the Medi-Cal 5 percent and 10 percent rate  
            reductions enacted by the state in 2008 and 2009 were heard by  
            the United States Supreme Court, and in February 2012, the  
            Supreme Court vacated the prior Ninth Circuit decisions  
            preventing the reductions from being implemented and sent the  
            case back to the Ninth Circuit Court of Appeals to reassess in  
            light of the federal government's approval of DHCS' State Plan  
            Amendment. 

          In December 2012, the Ninth Circuit issued a decision that  
            reversed the injunction concerning the 10 percent Medi-Cal  
            rate reductions enacted in 2011 in AB 97 (Committee on  
            Budget), Chapter 3, Statutes of 2011. In January 2012, the  
            plaintiffs in those cases asked the entire Ninth Circuit to  
            re-hear the three judge Ninth Circuit court decision in the  
            case. That petition is currently before the Ninth Circuit.  
            DHCS has not imposed the AB 97 rate reduction until the  
            petition for re-hearing has been resolved by the Ninth  
            Circuit. DHCS has indicated that, once it has authority to  
            implement the payment reductions, it will do so retroactive to  
            June 1, 2011.




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          3.Legislative Analyst's Office (LAO) fiscal. At the request of  
            committee staff, the LAO obtained data from DHCS as to the  
            fiscal effect of a prospective bill and a bill that would  
            reverse the retroactive rate reduction and the prospective  
            rate reduction. 
            




            
            
          
                ---------------------------------------------------- 
               |              AB 97 Payment Reductions              |
               |----------------------------------------------------|
               |                   (General Fund)                   |
                ---------------------------------------------------- 
                ----------------------------------------------------- 
               |              |            |            |            |
                ----------------------------------------------------- 
                ---------------------------------------------------- 
               |     November 2012 Estimated Savings from AB 97     |
               |                     Reduction                      |
                ---------------------------------------------------- 
                ----------------------------------------------------- 
               |        FY 2012-13         |       FY 2013-14        |
                ----------------------------------------------------- 
                ----------------------------------------------------- 
               | Prospective  |Retroactive |Prospective |Retroactive |
               |     Only     |     &      |    Only    |     &      |
               |              |Prospective |            |Prospective |
                ----------------------------------------------------- 
               | $93,346,121  |$142,561,563|$427,699,546|$573,100,129|
               |              |            |            |            |
               |--------------+------------+------------+------------|
               |              |            |            |            |
                ----------------------------------------------------- 
                ----------------------------------------------------- 
               |        FY 2014-15         |       FY 2015-16        |
                ----------------------------------------------------- 
                ----------------------------------------------------- 
               | Prospective  |Retroactive |Prospective |Retroactive |
               |     Only     |     &      |    Only    |     &      |




          SB 640 | Page 6




               |              |Prospective |            |Prospective |
               |--------------+------------+------------+------------|
               |$427,719,464  |$689,116,956|$427,719,464|$471,016,384|
               |              |            |            |            |
                ----------------------------------------------------- 


          4.Related legislation. SB 646 (Neilsen) requires Medi-Cal  
            reimbursement for nursing facilities that are a distinct part  
            of a general acute care hospital (DP-SNFs) to be determined  
            without the Medi-Cal rate reductions and rate roll-back  
            required under existing law. Limits the provisions of this  
            bill to rural or sole community provider DP-SNFs that meet  
            specified criteria. Takes effect immediately as an urgency  
            statute. SB 646 is scheduled to be heard in the Senate Health  
            Committee on April 24, 2013.
            
            AB 900 (Alejo), an urgency bill, would exempt all DP-SNFs from  
            the Medi-Cal rate reduction. AB 800 is scheduled to be heard  
            in the Assembly Health Committee on April 30, 2013.
            
          5.Prior legislation.
               a.     AB X3 5 (Committee on Budget), Chapter 3, Statutes  
                 of 2008 reduced Medi-Cal provider payments by 10 percent  
                 for fee-for-service benefits for dates of service on and  
                 after July 1, 2008 and for specified non-Medi-Cal  
                 programs. AB X3 5 reduced payments to Medi-Cal managed  
                 care plans by the actuarial equivalent amount of 10  
                 percent, effective July 1, 2008. Exempts specified  
                 providers from the payment reductions. Reduced  
                 non-contract hospital payments in Medi-Cal, as specified.

               b.     AB 1183 (Committee on Budget), Chapter 758, Statutes  
                 of 2008 sunset the AB X3 5 rate reduction February 28,  
                 2009 and applied the payment reductions to small and  
                 rural hospitals only from July 1, 2008 through October  
                 31, 2008. Instead, AB 1183 reduced Medi-Cal provider  
                 payments for most classes of services by 1 percent for  
                 Medi-Cal FFS benefits for dates of service on and after  
                 March 1, 2009, and reduced Medi-Cal provider payments by  
                 5 percent for dates of service on and after March 1, 2009  
                 for the following types of providers: DP-SNFs,  
                 intermediate care facilities (except for ICF-DD), rural  
                 swing-bed facilities and subacute care units that are a  
                 distinct part of a general acute care hospital, pediatric  
                 subacute care units that are a distinct part of a general  




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                 acute care hospital, adult day health care centers, and  
                 pharmacies. AB 1183 reduced payments to Medi-Cal managed  
                 care plans and PACE plans by the actuarial equivalent  
                 amount of 5 percent, effective July 1, 2008 or  
                 thereafter.

               c.     AB X4 5 (Evans), Chapter 5, Statutes of 2009 froze  
                 Medi-Cal rates for services beginning in the 2009-10 rate  
                 year and each rate year thereafter, by prohibiting the  
                 reimbursement rates from exceeding the rates that were  
                 applicable in the 2008-09 rate year for the following  
                 providers after the 5 percent reduction made by AB 1183:  
                 DP-SNFs, ICF-DD or facilities providing continuous SNF  
                 care to DD individuals under a pilot program (previously  
                 exempt from the AB 1183 reduction), freestanding  
                 pediatric subacute care units. 

               d.     AB 97 (Committee on Budget), Chapter 3, Statutes of  
                 2011 makes the rate reductions enacted by AB 1183 and AB  
                 X4 5 inoperative for dates of service on and after June  
                 1, 2011, with specified exceptions. Reduces Medi-Cal  
                 provider payments by 10 percent for fee-for-service  
                 benefits for dates of service and after June 1, 2011.  
                 Requires, for DP-SNFs and certain other providers, the 10  
                 percent rate reduction to apply to the rates in effect  
                 for those providers during the 2008-09 Medi-Cal rate  
                 year. Requires Medi-Cal managed care plan rates by the  
                 actuarial equivalent amount, effective July 1, 2011.  
                 Reduces payments for non-Medi-Cal programs for services  
                 on and after June 1, 2011, with exceptions. Implement the  
                 payment reductions only if the reductions comply with  
                 federal Medicaid requirements, and prohibits  
                 implementation until federal approval is obtained.  
                 Applies the payment reduction retroactively to June 1,  
                 2011 or on such other date as may be applicable when  
                 federal approval is obtained. Federal approval of the AB  
                 97 rate reductions were obtained in October 2011 and  
                 thereby made the Medi-Cal reductions called for in AB  
                 1183 and AB X4 5 inoperative.

               e.     AB 102 (Committee on Budget), Chapter 29, Statutes  
                 of 2011 continues the 1 percent and 5 percent Medi-Cal  
                 reductions that were due to expire for dates of service  
                 on and after June 1, 2011 until a Medi-Cal rate reduction  
                 of up to 10 percent and the AB 97 reduction and  




          SB 640 | Page 8




                 adjustment receive federal approval. Requires, when  
                 federal approval is obtained, the payments to be  
                 implemented retroactively to June 1, 2011 or on any other  
                 date or dates as may be applicable. Exempts pharmacy drug  
                 product payments from the rate reduction when DHCS  
                 determines the average acquisition cost methodology has  
                 been fully implemented and DHCS budget reduction targets  
                 have been met.
            
          6.Support. This bill is jointly sponsored by the California  
            Medical Association (CMA) the California Academy of Family  
            Practice Physicians, the California Chapter of the American  
            College of Emergency Physicians, the California Hospital  
            Association and SEIU-UHW. The sponsors and supporters argue  
            this measure will help stabilize the state's safety net by  
            stopping the 10 percent Medi-Cal rate reduction. Supporters  
            explain that AB 97, the health services trailer bill to the  
            2011-12 state budget included an across-the-board 10 percent  
            reduction in Medi-Cal provider payments, and this rate cut  
            impacts many provider types, including physicians, dentists,  
            ambulance providers, pharmacists, nursing homes and others.   
            Medi-Cal is the largest Medicaid program of any state in the  
            country, with total enrollment of over 10 million in 2009, and  
            yet the program pays some of the lowest reimbursement rates of  
            any Medicaid program in the nation.  Supporters argue that if  
            the AB 97 rate cuts are implemented, California will likely  
            hold the dubious distinction of ranking first in total  
            Medicaid program enrollment and 50th in provider payments.  
            California's patient, provider and payor communities want to  
            be a partner with the state in the effort to fully implement  
            federal health reform.  Expanding Medi-Cal to meet the  
            Affordable Care Act's (ACA) requirements could mean millions  
            of new Medi-Cal enrollees will be added to the state's already  
            tattered safety net.  Further reducing provider payments at  
            the precise time the system is proposed to be expanded to  
            those currently uninsured is the wrong solution for  
            California, and makes the Medi-Cal program an empty promise to  
            California's poor and needy.  

          7.Support with amendments. Developmental Services Network (DSN),  
            a private nonprofit association of intermediate care facility  
            service providers to the developmentally disabled, seeks  
            amendments to reverse the Medi-Cal cuts to intermediate care  
            providers. DSN states there are more than 1,100 such  
            facilities in the state that care f8.or people with  
            developmental disabilities in health licensed small home like  




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          9


          

            facilities, and MediCal rate freezes and cuts are forcing  
            facilities to close which results in placement of people into  
            higher cost institutional care and takes away the homes many  
            of them have lived in for as long as 20 years. 

          9.Should Medi-Cal rate reductions be prevented from taking  
            effect?  
          This bill addresses an important issue in that provider payment  
            rates in Medi-Cal are a key factor in beneficiaries' ability  
            to access program services and the ability of providers to  
            continue to provide services. However, has the state's fiscal  
            condition improved enough to prevent previously enacted  
            Medi-Cal rate reductions from taking effect?
          

           SUPPORT AND OPPOSITION  :
          Support:  California Medical Association (cosponsor)
                    California Academy of Family Physicians (cosponsor)
                    California Chapter of the American College of  
                    Emergency Physicians (cosponsor)
                    California Hospital Association (cosponsor)
                    SEIU - UHW (cosponsor)
                    Access Dental Plan
                    California Association of Health Facilities
                    California Association of Medical Product Suppliers
                    California Coverage and Health Initiatives
                    California Medical Transportation Association
                    California Pharmacists Association
                    California Pharmacists Association
                    California Primary Care Association
                    California Radiological Society
                    California Retailers Association
                    California Society of Anesthesiologists
                    California Society of Pathologists
                    California Society of Pediatric Dentistry
                    Children Now
                    Children's Defense Fund
                    Conifer Health Solutions
                    DaVita
                    District Hospital Leadership Forum
                    MedPoint Management
                    National Association of Chain Drug Stores
                    PICO California
                    Planned Parenthood Affiliates of California
                    Rural County Representatives of California




          SB 640 | Page 10




                    Rural County Representatives of California
                    SynerMed
                    The Children's Partnership
                    United Ways of California
                    100% Campaign

          Oppose:   None received


                                       --END--