BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 1339
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          Date of Hearing:  June 24, 2014

                            ASSEMBLY COMMITTEE ON HEALTH
                                 Richard Pan, Chair
                    SB 1339 (Cannella) - As Amended:  May 27, 2014

           SENATE VOTE  :  36-0
           
          SUBJECT  :  Medi-Cal: Drug Medi-Cal Treatment Program providers.

           SUMMARY  :  Requires the Department of Health Care Services (DHCS)  
          or a county to obtain a criminal background check for the owner  
          and medical director of a Drug Medi-Cal (DMC) provider prior to  
          entering into a contract. Specifically,  this bill  :
             
          1)Requires a county or DHCS, before contracting with a certified  
            DMC provider, to require a certified DMC provider's owner and  
            medical director to undergo a criminal background check  
            administered by the Department of Justice (DOJ).

          2)Requires DOJ to forward the fingerprint images and related  
            information received, as defined, to the Federal Bureau of  
            Investigation (FBI) and request a federal summary of criminal  
            information.  

          3)Requires DOJ to review the information returned from the FBI  
            and compile and disseminate a response to the county or DHCS,  
            as specified.

          4)Requires either the county or DHCS which is contracting with a  
            DMC provider to request subsequent arrest notification service  
            from DOJ, as specified. 

          5)Requires DOJ to charge a fee sufficient to cover the cost of  
            processing the requests described, and requires payment of the  
            fee to be the responsibility to the DMC provider's owner or  
            medical director, as applicable. 

          6)Prohibits, except as provided by federal law, a DMC provider  
            from being excluded from contracting with a county or DHCS  
            based solely on the existence of a past criminal record of the  
            DMC provider's owner or medical director.
           
            EXISTING LAW  









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          1)Establishes the Medi-Cal program, administered by DHCS, under  
            which qualified low-income persons receive health care  
            benefits.  Medi-Cal is California's version of the federal  
            Medicaid program and is jointly funded by the state and  
            federal government.

          2)Establishes the DMC program, which provides substance use  
            disorder services to Medi-Cal recipients.

          3)Allows DHCS to enter into contracts with counties for the  
            provision of DMC services.  If a county declines to contract  
            with DHCS, existing law requires DHCS to contract for services  
            in the county to ensure beneficiary access.

          4)Requires each county to fund the nonfederal share for DMC  
            services through realignment funds, as specified.

          5)Requires providers of DMC services to obtain certification  
            from DHCS to provide those services.

          6)Authorizes DHCS to complete a background check on Medi-Cal  
            provider applicants to verify application information and to  
            prevent fraud and abuse.  Allows the background check to  
            include onsite inspections, reviews of business records, and  
            data searches. 

          7)In conformity with federal law, requires DHCS to designate  
            Medi-Cal provider types as limited, moderate, or high  
            categorical risk based on lists and guidelines in federal  
            regulations.  Requires DHCS to conduct a fingerprint-based  
            criminal background check for any high categorical risk  
            provider and any person with a 5% ownership interest in the  
            provider, in conformity with federal regulations. 

          8)Requires DHCS to adopt emergency regulations governing the DMC  
            program by July 1, 2014.  

           FISCAL EFFECT  :  According to the Senate Appropriations  
          Committee:

          1)One-time costs up to $140,000 for initial background checks by  
            DOJ (private funds) and minor costs ongoing.  There are about  
            1,000 active DMC providers and the cost for a background check  
            is $65.  After the initial round of background checks, ongoing  
            costs to perform background checks should be minor for new  








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            providers or new medical directors.

          2)Likely administrative costs up to $75,000 in the first year to  
            coordinate background checks with DMC providers and DOJ by  
            DHCS (General Fund and federal funds).

           COMMENTS  : 

           1)PURPOSE OF THIS BILL  .  According to the author, weak,  
            ineffective oversight has facilitated a rehabilitation racket.  
             Individuals on the federal list of excluded providers work  
            for clinics, collecting money and committing fraud.  This list  
            includes individuals convicted of a felony or misdemeanor  
            involving fraud or abuse in government programs or convicted  
            of neglect or abuse of a patient while providing health care  
            item or service.  They are prohibited from operating programs  
            like DMC and participating in state funded reimbursement  
            programs.  This bill strengthens the authority of agencies  
            responsible for the contracted DMC outpatient facilities.  A  
            criminal background check will identify who is managing these  
            clinics and if they have been convicted of felonies that  
            exclude them from participation.

          The author further states that this bill supplements any fraud  
            prevention measures taken by the Administration by providing  
            more information on contracted individuals who bill the  
            agency.  Providing DHCS and county agencies that oversee these  
            programs criminal background information contributes to  
            transparency and accountability in DMC.

           2)BACKGROUND  .  DMC services are reimbursed on a fee-for-service  
            basis at rates set by the state, and are not provided through  
            Medi-Cal managed care plans.  These services are carved out  
            from the regular Medi-Cal program:  they are delivered by a  
            specialized system of providers certified by the state rather  
            than through participating physicians or health plans.  DMC  
            services include outpatient drug free services, which consist  
            mostly of group counseling and some limited individual  
            counseling for persons in crisis; narcotic treatment programs,  
            which provide methadone replacement therapy; intensive  
            outpatient services; and, residential services.  There are  
            about 800 active DMC providers in the state.

          Current regulations create requirements for oversight of DMC  
            providers at both the state and county levels.  DHCS is tasked  








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            with administrative and fiscal oversight, monitoring,  
            auditing, utilization review, and recovery of improper  
            payments.  Counties that elect to contract with DHCS to  
            provide DMC services are required to maintain a system of  
            fiscal disbursement and controls, monitor to ensure that  
            billing is within established rates, and process claims for  
            reimbursement.  Most counties choose to contract with DHCS,  
            however, 13 counties (Alpine, Amador, Calaveras, Colusa, Del  
            Norte, Inyo, Modoc, Mono, Plumas, Sierra, Siskiyou, Trinity,  
            and Tuolumne) do not participate in DMC.  In addition, 15  
            providers statewide currently operate without a county  
            contract, instead contracting directly with DHCS.

             a)   Federal Regulations. In accordance with Federal  
               Regulations published by the Centers for Medicare and  
               Medicaid Services in the Federal Register (42 CFR Parts  
               405, 424, 447 et al. 72 Federal Register 5862 - 5971 [Feb.  
               2, 2011]), DHCS has implemented Medi-Cal screening level  
               requirements as established in California Welfare &  
               Institutions Code Section 14043.38.

             Beginning January 1, 2013, DHCS screens all applications  
               based on a categorical risk level of "limited," "moderate,"  
               or "high". Provider types are designated within these risk  
               categories and DHCS shall, at a minimum, utilize the  
               federal regulations in determining an  
               applicant's/provider's categorical risk. Provider types not  
               designated to a specific risk category are screened at a  
               categorical risk level subject to DHCS' discretion.  
               Providers that fit within more than one risk level must be  
               screened at the highest applicable level.

             Provider types designated as "limited" categorical risk are  
               subject to license verification in accordance and database  
               checks. Provider types designated as "moderate" categorical  
               risk are subject to on-site inspections in addition to all  
               screening measures applicable to "limited" risk provider  
               types. Provider types designated as "high" categorical risk  
               are subject to criminal background checks and  
               fingerprinting in addition to all screening measures  
               applicable to "limited" and "moderate" risk provider types.

             Provider types are designated as "high" categorical risk if  
               any of the following conditions apply:









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               i)     Payment suspension that is based on a credible  
                 allegation or fraud, waste or abuse;
               ii)    Existing Medicaid overpayment based on fraud, waste  
                 or abuse;
               iii)   Exclusion by the Office of Inspector General (OIG)  
                 or another state's Medicaid program within the previous  
                 10 years; and,
               iv)    A Moratorium was lifted within the previous six  
                 months prior to applying and the applicant/provider would  
                 have been prevented from enrolling due to the Moratorium.

             b)   DMC Fraud.  Beginning in July 2013, the Center for  
               Investigative Reporting (CIR) published a series of reports  
               on fraud in the DMC program in conjunction with a  
               three-part series on CNN entitled 'Rehab Racket.'  The  
               reports alleged that DMC paid $94 million over the prior  
               two fiscal years to 56 Southern California providers with  
               histories of questionable billing practices.  The reports  
               alleged that a number of clinics in Southern California  
               engaged in practices that included:

               i)     Busing of teenagers without drug problems from group  
                 homes; 
               ii)    Fabricating patient treatment documents;
               iii)   Paying clients for showing up to counseling  
                 sessions; 
               iv)    Billing for patients who were incarcerated or dead; 
               v)     Billing for group counseling for dozens of clients  
                 on a day when clinic staff told reporters that no group  
                 counseling was offered; and,
               vi)    Billing for counseling sessions that did not occur.

            The reports suggested that the state's oversight and  
            enforcement bodies were not working well in tandem: county  
            audits of providers identified a number of serious  
            deficiencies, but failed to terminate contracts or prevent the  
            problems from continuing.

             c)   DHCS Review.  In July 2013, DHCS began reviewing DMC  
               providers and ordering temporary suspensions due to  
               credible allegations of fraud.  As of January of 2014, DHCS  
               had suspended 68 providers operating 177 facilities and  
               referred the providers to the DOJ for criminal prosecution.  
                After an extensive internal review, DHCS announced a  
               number of steps it was taking to improve integrity in DMC: 








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               i)     Requiring all 816 active DMC providers to submit  
                 applications for recertification and decertifying  
                 providers that have not billed DMC in the last 12 months;
               ii)    Requiring counties, through the state-county  
                 contract, to increase monitoring of DMC providers;
               iii)   Continuing targeted investigations of DMC providers  
                 by DHCS auditors, nurse evaluators and peace officers;
               iv)    Mining and analyzing of data to identify suspicious  
                 DMC providers for additional review, including onsite  
                 visits, fingerprinting, and background checks; and,
               v)     Developing emergency regulations to clarify the  
                 requirements and responsibilities of providers, medical  
                 directors, and other provider personnel.

             d)   Oversight hearing.  In September 2013, the Assembly  
               Health Committee and Assembly Accountability and  
               Administrative Review Committee held a joint oversight  
               hearing on fraud in the DMC program.  Among the issues  
               raised at the hearing was a need to update the standards  
               for certification of DMC providers.  Among the amendments  
               to the standards recommended for consideration was the  
               creation of standards for criminal background checks of DMC  
               providers conducted through Live Scan and cross-checking  
               the exclusions list maintained by the OIG.

             e)   OIG exclusions program.  The OIG is the U.S. Department  
               of Health & Human Services' office charged with fighting  
               waste, fraud, and abuse in Medicare, Medicaid, and other  
               federally-funded programs.  OIG has the authority to  
               exclude individuals and entities from federally-funded  
               health care programs and maintains a list of all currently  
               excluded individuals and entities.  OIG is required by law  
               to exclude individuals convicted of:  i) Medicare or  
               Medicaid fraud and certain other offenses related to public  
               health care programs; ii) patient abuse or neglect; iii)  
               felony convictions for other health care-related fraud or  
               other financial misconduct; and' iv) felony convictions for  
               manufacture, distribution, prescription, or dispensing of  
               controlled substances.  OIG also has discretion to exclude  
               individuals for a number of offenses, including misdemeanor  
               health care fraud, non-health-care government fraud,  
               engaging in illegal kickback arrangements, and various  
               other crimes and misdeeds.  The OIG exclusion list is  
               publicly available on the OIG's Website.








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             f)   Background Checks.  In California, DOJ provides an  
               automated service for criminal history background checks  
               that may be required as a condition of employment,  
               licensing, certification, foreign adoptions, or immigration  
               clearances.  According to DOJ, approximately 35,000  
               entities perform background checks through DOJ's Bureau of  
               Criminal Information and Analysis.  Individuals who are  
               required to be fingerprinted must fill out a one-page form  
               and have their fingerprints rolled by a certified Live Scan  
               operator (which includes public providers, such as police  
               departments, and private providers).  Fees for state and  
               federal background checks for general certification  
               purposes are $32 and $17, respectively.  In addition, Live  
               Scan operators charge fingerprint rolling fees to cover  
               their costs; these fees are typically in the $20 to $25  
               range, but some locations list rolling fees as high as $80.

           3)SUPPORT  .  According to the California Welfare Fraud  
            Investigators Association, there is a vital need for this  
            criminal background process to be instituted, which would aide  
            and assist counties and departments with the current needs and  
            issues they are encountering.
             
             The County of Los Angeles states that SB 1339 would help  
            fortify the DMC Program and its understanding of prospective  
            contractors and would help to strengthen and/or improve the  
            accountability of the wonders and key staff of DMC provider  
            organizations.

            The Alameda County Sheriff's Office and the Howard Jarvis  
            Taxpayers Association write that the requirements of SB 1339  
            are necessary to implement in order to protect against fraud  
            and misuse of funds in California's drug and alcohol programs.

           4)RELATED LEGISLATION  .

             a)   AB 1644 (Medina) requires DMC providers to be designated  
               as a 'high' categorical risk and be subject to criminal  
               background checks as a condition of DMC certification.  AB  
               1644 is pending in the Assembly Appropriations Committee.

             b)   AB 1967 (Pan) requires DHCS, when it commences or  
               concludes an investigation of a DMC provider, to notify  
               counties that contract with the provider.  AB 1967 is in  








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               the Senate Health Committee.

           5)PREVIOUS LEGISLATION  .
            
             a)   SB 1529 (Alquist), Chapter 797, Statutes of 2012,  
               revises screening, enrollment, disenrollment, suspensions,  
               and other sanctions for fee-for service Medi-Cal providers  
               and suppliers to conform to the federal Patient Protection  
               and Affordable Care Act.

             b)   SB 857 (Speier), Chapter 601, Statutes of 2003, makes  
               numerous changes to the Medi-Cal program intended to  
               address provider fraud, including establishing new Medi-Cal  
               application requirements for new providers, existing  
               providers at new locations, and providers applying for  
               continued enrollment.  

           6)POLICY COMMENT  .  As discussed above, current law already  
            requires, in accordance with federal regulations, for  
            designating provider types as "high," "moderate," or  
            "limited."  The Committee may wish to amend this bill to fit  
            within these already established requirements. 

           7)RECOMMENDED AMENDMENT  .  On page 2, strike lines 3 through 13,  
            inclusive, and insert "(a) Drug Medi-Cal Treatment Program  
            provider shall be categorized as "high" categorical risk  
            pursuant to Section 14043.38 and shall be subject to  
            background checks pursuant to the provisions of that section.

            (b) On and after January 1, 2018, the department may designate  
            a Drug Medi-Cal Treatment Program provider as "limited" or  
            "moderate" categorical risk pursuant to Section 14043.38 and  
            federal regulations.  To designate a DMC Treatment Program  
            provider as "limited" or "moderate" the department shall  
            execute a declaration, to be retained by the director and  
            posted on the department's Internet Web site, that states the  
            reason that a "high" categorical risk designation is no longer  
            warranted.  The department shall transmit a copy of this  
            declaration to the Legislature."
              
           
          REGISTERED SUPPORT / OPPOSITION  :

           Support 
           








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          Alameda County Sheriff's Office
          California Welfare Fraud Investigators Association
          County of Los Angeles
          Howard Jarvis Taxpayers Association
           
            Opposition 
           
          None on file.

           Analysis Prepared by  :    Paula Villescaz / HEALTH / (916)  
          319-2097