BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair SB 1161 (Beall) - Drug Medi-Cal. Amended: April 29, 2014 Policy Vote: Health 7-0 Urgency: No Mandate: No Hearing Date: May 12, 2014 Consultant: Brendan McCarthy This bill meets the criteria for referral to the Suspense File. Bill Summary: SB 1161 would require the Department of Health Care Services to seek a waiver of federal Medicaid law to authorize federal matching funds for short term residential (drug and alcohol) treatment and short-term inpatient medical detoxification provided within institutes of mental disease. Fiscal Impact: One-time costs up to $150,000 to develop a waiver application by the Department of Health Care Services (General Funds and federal funds). Unknown increased federal funding for services provided in the Drug Medi-Cal program by local governments (federal funds). Under current law, counties provide and pay for residential drug treatment services for pregnant and post-partum women. Under current federal law, federal matching funds are not available for services provided in an institute of mental disease (IMD) with more than 16 beds. In effect, this "IMD exclusion" means that counties are providing some services through Drug Medi-Cal without receiving federal matching funds. To the extent that the bill results in the federal government waiving the IMD exclusion, counties would receive additional federal funding. Annual costs of about $50 million per year to the state (and about $70 million in additional federal matching funds) to provide additional services in the Drug Medi-Cal program that were newly authorized as of January 1, 2014 (General Fund and federal funds). Under the terms of the state's 2011 realignment, the state is responsible for any new services authorized in law for SB 1161 (Beall) Page 1 realigned programs, including Drug Medi-Cal. As part of the state's expansion of Medi-Cal, the state expanded both the population eligible for Medi-Cal and the benefit package available in Medi-Cal. As of January 1, 2014, all Medi-Cal beneficiaries are eligible for residential treatment and inpatient detoxification services (previously those benefits were only authorized for pregnant or post-partum women). However, because those services cannot be provided in an IMD under federal law and there are very few non-IMD providers of those services, the federal government did not accept the state plan amendment proposal to add those services to the Medi-Cal benefit package. Thus, the state will not provide those services any Medi-Cal beneficiaries other than the previously eligible pregnant and post-partum population, despite the authority in current law. If the federal government were to waive the IMD exclusion under this bill, it is likely that the federal government would also allow the state to add those benefits to the Medi-Cal benefit package. In that case, the state would be responsible for paying for the non-federal share of the cost to provide those benefits to Medi-Cal beneficiaries. Increased federal funding of about $20 million per year for benefits provided to the newly eligible Medi-Cal population (i.e. childless adults). Over time, the state will assume a share of this cost, rising to 10 percent of total costs by 2020. Background: Under state and federal law, the Department of Health Care Services operates the Medi-Cal program, which provides health care coverage to pregnant women, children and their parents with low incomes, as well as blind, disabled, and certain other populations. Generally, the federal government provides a 50 percent federal match for state expenditures. Pursuant to the federal Affordable Care Act, California has opted to expand eligibility for Medi-Cal up to 138 percent of the federal poverty level and to include childless adults. The Affordable Care Act provides a significantly enhanced federal match for the Medicaid expansion. Under the law, the federal government will pay for 100 percent of the cost of the Medicaid expansion in 2013-14 declining to a 90 percent federal match in the 2020 federal fiscal year and thereafter. SB 1161 (Beall) Page 2 With the exception of certain populations (for example, individuals eligible for limited scope Medi-Cal benefits or individuals dually eligible for Medi-Cal and Medicare in most counties), managed care is the primary system for providing Medi-Cal benefits. The Department estimates that in 2014-15, 7.5 million Medi-Cal beneficiaries (73 percent of total enrollment) will receive care through the managed care system. Drug Medi-Cal, which is the package of benefits related to substance use disorders has been "carved out" of managed care and is provided by the counties using realignment funds. According to the 2011 realignment, counties are only responsible for the costs to provide benefits that were authorized prior to September 30, 2012. Pursuant to Government Code Section 30026.5, legislation enacted after September 30, 2012, that has an overall effect of increasing the costs already borne by a local agency for programs or levels of service under the 2011 Realignment shall apply to local agencies only to the extent that the state provides annual funding for the cost increase. Local agencies shall not be obligated to provide programs or levels of service required by legislation above the level for which funding has been provided. Under federal law, federal financial participation is not available for any services provided to Medicaid (Medi-Cal) beneficiaries under age 65 in an institute of mental disease (which by definition is an inpatient facility with more than 16 bends providing primarily psychiatric services). Under this federal law, when Drug Medi-Cal beneficiaries receive services within an institute of mental disease (for example, residential substance use treatment), no federal matching funds are available and the state or counties are responsible for all costs. As noted above, because of the federal IMD exclusion and its impact on the availability of providers, the federal government has not authorized the state to include additional residential inpatient treatment and detoxification services in the Medi-Cal program. Proposed Law: SB 1161 would require the Department of Health Care Services to seek a waiver of federal Medicaid law to authorize federal matching funds for certain Drug Medi-Cal SB 1161 (Beall) Page 3 benefits provided within institutes of mental disease. The bill would require the Department to seek a federal waiver to allow federal financial participation for short term residential treatment in facilities with more than 16 beds and short-term inpatient medical detoxification in a hospital setting. The bill would only be implemented to the extent that federal financial participation is available. Related Legislation: SB 973 (Hernandez) would make several changes to the statutes governing narcotic treatment programs. That bill will be heard in this committee. Staff Comments: Current federal law allows states to apply for "waivers" of requirements of the federal Social Security Act. This process allows states, on a case by case basis, to make changes to their Medicaid program with the approval of the federal Centers for Medicare and Medicaid Services. In general, for the federal government to approve a waiver, the state must demonstrate that total federal costs will not exceed fee-for-service equivalent costs to the federal government over the period of the waiver. In order for the federal government to approve a waiver under this bill, the Department will need to demonstrate that overall federal costs will not increase, even though the waiver would explicitly seek to increase federal funding for specified services. The Department would likely need to demonstrate that additional federal funding for select inpatient services would reduce the need for other Medi-Cal services over the period of the waiver. It is important to note, however, that the Department is currently developing a waiver application to administer the Drug Medi-Cal program as an organized delivery system (in other words, to shift Drug Medi-Cal from a fee-for-service model to a managed care model, separate from the overall Medi-Cal managed care program).