BILL ANALYSIS                                                                                                                                                                                                    Ó

                                                                      AB 72

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          Date of Hearing:  April 7, 2015

                            ASSEMBLY COMMITTEE ON HEALTH

                                  Rob Bonta, Chair

          AB 72  
          (Bonta and Atkins) - As Introduced December 18, 2014

          SUBJECT:  Medi-Cal:  demonstration project.

          SUMMARY:  Requires the Department of Health Care Services (DHCS)  
          to submit an application to the federal Centers for Medicare and  
          Medicaid Services (CMS) for a waiver to implement a  
          demonstration project.  Specifically, this bill:  

          1)Requires that the demonstration project to do all of the  
             a)   Further the delivery of high-quality and cost-efficient  
               care for Medi-Cal beneficiaries;
             b)   Ensure the long-term viability of the delivery system  
               following the expansion of Medi-Cal eligibility under the  
               federal Patient Protection and Affordable Care Act (ACA);  
             c)   Continue California's momentum and successes in  
               innovation achieved under the 2010 "Bridge to Reform"  

          2)Requires DHCS to consult with interested stakeholders and the  
            Legislature in developing the waiver application.

          3)Allows DHCS to implement the waiver only upon submittal of an  
            implementation plan to the appropriate policy and fiscal  


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            committees of the Legislature 60 days before any appropriation  
            is made.

       1)Establishes the Medi-Cal program to provide comprehensive health  
            benefits to low-income persons.

       2)Establishes a demonstration project under the Medi-Cal program  
            until October 31, 2015, to implement specified objectives,  
            including better care coordination for Seniors and Persons  
            with Disabilities (SPDs) and maximization of opportunities to  
            reduce the number of uninsured individuals.


       1)Establishes that the federal government will provide a match for  
            the Medicaid program, termed the federal medical assistance  
            percentage, which varies by state and territory according to a  
            specified formula.  

       2)Allows states to be granted waivers of federal law to implement  
            demonstration projects in their Medicaid programs.  
          FISCAL EFFECT:  This bill has not been analyzed by a fiscal  



          1)PURPOSE OF THIS BILL.  According to the author, this bill is  
            one of two legislative vehicles to make the necessary  


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            statutory changes to implement a new Section 1115 Medicaid  
            waiver as the 2010 California Bridge to Reform Waiver expires  
            on October 31, 2015.  The Waiver renewal is critical to the  
            long-term fiscal sustainability of the Medi-Cal program and to  
            California's ability to continue to provide high quality  
            health care to Medi-Cal beneficiaries. The goals of the Waiver  
            are to continue to support ACA implementation, improve the  
            health care quality and outcomes of the over 12 million  
            individuals enrolled in Medi-Cal, and provide for the  
            long-term fiscal stability of the Medi-Cal program through  
            delivery system transformation.  Specific strategies  
            anticipated to be included in the waiver renewal include a  
            federal-state shared savings initiative; housing and  
            supportive services for vulnerable populations; various health  
            plan and provider delivery system transformation and alignment  
            incentive programs, including a new Delivery System Reform  
            Incentive Payment Program (DSRIP) at designated public  
            hospitals and non-designated public hospitals; workforce  
            development strategies to expand provider access and capacity;  
            and, safety net payment and delivery system transformation.


             a)   Federal Section 1115 Waiver and Expenditure Authority.   
               Medicaid (known as Medi-Cal in California) is a joint  
               federal-state program to provide health coverage to  
               low-income individuals.  Section 1115 of the federal Social  
               Security Act gives the Secretary of the Department of  
               Health and Human Services (HHS) authority to waive  
               provisions of major health and welfare programs. This  
               includes certain federal Medicaid requirements in any  
               experimental pilot or demonstration project which, in the  
               judgment of the Secretary, is likely to assist in promoting  
               the objectives of Medicaid.  In addition, Section 1115 also  
               allows states to use federal Medicaid funds to reimburse  
               for costs in ways that are not otherwise allowed under  
               federal Medicaid law.  This is referred to as expenditure  


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               authority for costs not otherwise matchable. 

             Section 1115 waivers are approved at the discretion of the  
               Secretary of HHS through negotiations between a state and  
               CMS.  Section 1115 waivers are generally approved for a  
               five-year period and then must be renewed.  Although not  
               required by statute or regulation, longstanding federal  
               administrative policy has required waivers to be budget  
               neutral for the federal government, meaning that federal  
               spending under a waiver must not be more than projected  
               federal spending in the state without the waiver.  

              b)   Bridge to Reform Waiver.  California's existing Section  
               1115 "California Bridge to Reform Demonstration" Waiver is  
               a five-year demonstration of health care reform initiatives  
               that was projected to provide an additional $10 billion in  
               federal funds over the lifetime of the waiver.  The waiver  
               prepared the state for successful implementation of health  
               care reform through an early expansion of Medicaid, and  
               tested innovations in health care support for safety net  
               providers.  California is currently in the fourth year of  
               this waiver, which began November 1, 2010 and expires  
               October 31, 2015.  Under the current waiver, California is  
               required to submit an extension request no later than six  
               months prior to the expiration date of the current  
               demonstration.  California also operates its Medi-Cal  
               managed care delivery system under this federal waiver.   
               The current Bridge to Reform Waiver enabled California to:
                i)     Implement an early expansion of Medicaid to  
                 low-income adults without minor children under the ACA  
                 through the Low Income Health Program (LIHP), which  
                 enrolled 650,000 individuals;

               ii)    Require the mandatory enrollment of SPDs into  
                 Medi-Cal managed care plans in specified counties;

               iii)   Provide federal funding for delivery system reform  
                 and uncompensated care in designated public hospital  


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                 systems (21 county and University of California  
                 hospitals) through DSRIP and Safety Net Care Pool  
                 Uncompensated Care (SNCP); 

               iv)    Provide federal funding for designated state health  
                 care programs and workforce development programs related  
                 to medically disadvantaged service areas; and,

               v)     Operate its Medi-Cal managed care program,  
                 Community-Based Adult Services (CBAS) program, and seven  
                 county Coordinated Care Initiative (under the CCI,  
                 individuals dually eligible for Medicare and Medi-Cal  
                 receive their Medi-Cal and Medicare benefits through one  
                 health plan).

             c)   What Provisions of federal law are "Waived" in the  
               Current Waiver?  In the current Bridge to Reform waiver,  
               the federal government waived specified federal Medicaid  
               provisions. Major provisions waived include the following:

               i)     The "Freedom of Choice" requirement to enable  
                 California to require participants to receive benefits  
                 through certain providers and to permit the state to  
                 require that Medi-Cal beneficiaries receive benefits  
                 through managed care plans, who could not otherwise be  
                 required to enroll in managed care;

               ii)    The "Statewideness" requirement to enable California  
                 to operate the demonstration and implement coverage for  
                 new Medi-Cal eligibles on a county-by-county basis, and  
                 to provide managed care plans only in certain geographic  
                 areas; and,

               iii)   The "Amount, Duration, and Scope of Services and  
                 Comparability" requirement to enable California to offer  
                 a different benefit package to Medi-Cal beneficiaries in  
                 the SPD program that includes benefits that are not  
                 available to all categorically needy individuals.


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              d)   DHCS Waiver Submission.  On March 27, 2014, following  
               several months of waiver-related stakeholder meetings, DHCS  
               submitted an application to renew the state's Section 1115  
               Waiver Demonstration entitled "Medi-Cal 2020: Key Concepts  
               for Renewal." DHCS identified five core goals in that  
               document, as follows: 

               i)     Improve health care quality and outcomes for the  
                 Medi-Cal population;
               ii)    Strengthen primary care delivery and access;
               iii)   Build a foundation for an integrated health care  
                 delivery system that incentivizes quality and efficiency;  
               iv)    Address social determinants of health and improve  
                 health care equity;
             e)   Use California's sophisticated Medicaid program as an  
               incubator to test innovative approaches to whole-person  

             DHCS indicates the focus of the Waiver Renewal will be on  
               continuing to drive the transformation of its Medi-Cal  
               program, ensuring ongoing support for the safety net in  
               California, and ensuring the long-term viability of the  
               program and the Medicaid expansion.  Existing 1115 Waiver  
               authorities and programs that would continue under the next  
               Waiver include the CCI, the CBAS waiver, managed care  
               program, Indian Health Services uncompensated care,  
               Designated State Health Programs, the pending Drug Medi-Cal  
               Organized Delivery System program, and the provision of  
               full scope benefits for pregnant women with incomes between  
               109% to 138% of the federal poverty level (FPL).

             In addition to the continuation of existing waiver programs,  
               DHCS will pursue a set of six, cross-cutting approaches  
               that together will advance delivery system transformation  
               in California as part of Medi-Cal waiver renewal: 

               i)     Managed Care Systems Transformation & Improvement  
                 Program - (Joint incentive pools for Medi-Cal plans,  


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                 behavioral health systems and providers to align  
                 incentives, improve health outcomes, and reduce overall  
               ii)    Fee-for-service (FFS) Transformation & Improvement  
                 Program - (FFS incentives in dental and maternity care to  
                 expand access to dental services through targeted  
                 incentives to increase provider participation and  
                 incenting delivery of preventative services in lieu of  
                 more invasive and costly procedures.)
               iii)   Public Safety Net System Transformation &  
                 Improvement Program - (Funding for quality improvement  
                 for public hospitals, and expanding eligibility for this  
                 funding to the 40+ non-designated public hospitals.)
               iv)    Workforce Development Program - (Waiver funding to  
                 provide financial incentives to: (1) health professionals  
                 who have not previously cared for Medi-Cal members, and  
                 to existing Medi-Cal providers who treat additional  
                 Medi-Cal beneficiaries, targeted to health professionals  
                 in geographic areas with the greatest need for Medi-Cal  
                 participating providers and to professions and  
                 specialties where recruiting is most challenging; (2)  
                 voluntary training opportunities to improve quality for  
                 non-clinical members of the care team to help those new  
                 to coverage navigate the health system through health  
                 education and other outreach efforts; and (3) incentives  
                 and programs to expand cross-training of providers in  
                 primary care, mental health, substance use disorder  
                 services, and long-term services and supports, and to  
                 support integration of multi-disciplinary teams across  
                 care settings.)
               v)     Increased Access to Housing and Supportive Services  
                 Program - (The Waiver will provide tools to better  
                 coordinate care for the most vulnerable Medi-Cal members  
                 through policies, data analysis and measurement that  
                 facilitate access to supportive services that are also  
                 proven to reduce costs, including improved access to  
                 affordable housing.)
               vi)    Whole Person Care Pilots - (An option for enhanced  
                 model of regional partnerships requiring proposals for a  


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                 geographic region, such as a county or group of counties,  
                 jointly pursued by the county and applicable Medi-Cal  
                 plans for that region whereby managed care plans,  
                 counties, and local partners would provide Whole-Person  
                 Care for target high need patients through collaborative  
                 leadership and systematic coordination with other public  
                 and private entities identified by the county.  The pilot  
                 design would encourage innovation in delivery and  
                 financing strategies to improve health outcomes of target  
               vii)   Public Safety Net System Global Payment for the  
                 Remaining Uninsured - (Moving disproportionate share  
                 hospital (DSH) and SNCP funding into a global budget  
                 structure where care for the remaining uninsured would be  
                 provided within a global budget for all uninsured  
                 services, thus giving public hospital systems the  
                 incentive to provide more coordinated upstream care for  
                 the uninsured and reduce inappropriate utilization.)

               In support of California's efforts to achieve the goals  
               outlined above, DHCS seeks to test a new investment  
               strategy in partnership with the federal government by  
               initiating a federal-state shared savings model.   
               California's shared savings initiative would involve a  
               reinvestment of Federal funding in recognition of the  
               savings that California's Section 1115 demonstration  
               initiatives generate to the benefit of both the state and  
               the federal government.  This reinvestment would provide  
               the state with a portion of the federal savings that are  
               generated through the demonstration to facilitate and  
               augment continued Medi-Cal delivery system transformation.   
               Under this initiative, California would be required to  
               demonstrate that the federal savings generated under the  
               waiver are substantial enough to permit California to  
               retain a portion or percentage of that savings.  The state  
               would need to demonstrate that, even after reinvestment in  
               the waiver strategies, the federal government will continue  
               to realize savings. If the waiver strategies implemented  
               through Medi-Cal 2020 do not result in the level of federal  


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               savings that is projected, California would be required to  
               limit the spending on waiver reinvestment initiatives to  
               ensure overall savings and budget neutrality.

          3)SUPPORT.  Supporters look forward to continue working to  
            develop and implement a new 1115 waiver.  They are hopeful  
            that the new waiver will contain the innovative idea that will  
            promote the increased use of primary and preventative care to  
            restrain costs and help improve outcomes.  Supporters also  
            note the Medi-Cal 2020 waiver renewal document reflects the  
            thorough and energetic work of DHCS, stakeholders and others  
            in the stakeholder workgroups.  They note the new "Medi-Cal  
            2020" waiver seeks approximately $17 billion in federal  
            investment to further the achievements California has made in  
            health care reform that a set of payment and delivery system  
            transformation strategies.  Supporters conclude they continue  
            to support and participate in the waiver renewal stakeholder  

          4)RELATED LEGISLATION.  SB 36 (Ed Hernandez) is identical to  
            this bill.  SB 36 is pending in the Senate Health Committee on  
            April 8, 2015.


             a)   AB 342 (John A. Pérez), Chapter 723, Statutes of 2010,  
               enacts the LIHP to provide health care benefits to  
               uninsured adults up to 200% of the FPL, at county option  
               through a Medi-Cal waiver demonstration project.

             b)   SB 208 (Steinberg), Chapter 714, Statutes of 2010,  
               implements provisions of the 2010 Section 1115 waiver  
               including establishing the Public Hospital Investment,  
               Improvement and Incentive Fund (known as DRSIP) consisting  
               of Intergovernmental Transfers from counties or other  
               specified governmental entities, to be matched with federal  
               funds and to be used for investment, improvement and  
               incentive payments for designated public hospitals (DPHs)  
               and the affiliated governmental entities (counties and UC);  


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               authorized DHCS to require the mandatory enrollment of SPDs  
               in a Medi-Cal managed care plan commencing on the later of  
               either June 1, 2011, or obtaining federal approval; and  
               requires DHCS to implement pilot projects to provide  
               coordinated care to children in the California Children's  
               Service and to persons who are eligible for Medi-Cal and  

             c)   AB 1066 (John A. Pérez), Chapter 86, Statutes of 2011,  
               enacts statutory changes to implement the Section 1115  
               Medi-Cal Demonstration Project Waiver approved on November  
               2, 2010, for funding DPHs.  AB 1066 continues under the new  
               waiver the FFS cost-based reimbursement for DPHs, with  
               those hospitals providing the required federal match using  
               their own funds through certified public expenditures.  AB  
               1066 also establishes under the waiver a new distribution  
               methodology for DSH and SNCP funds to DPHs, as specified.



          American Federation of State, County and Municipal Employees,  

          California Association of Physician Groups

          California Commission on Aging

          California PACE Association


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          California Primary Care Association

          California State Association of Counties

          Planned Parenthood Affiliates of California


          None on file

          Analysis Prepared by:Roger Dunstan / HEALTH / (916) 319-2097