BILL ANALYSIS Ó AB 72 Page 1 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 following: 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); and, c) Continue California's momentum and successes in innovation achieved under the 2010 "Bridge to Reform" Waiver. 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 AB 72 Page 2 committees of the Legislature 60 days before any appropriation is made. EXISTING STATE LAW: 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. EXISTING FEDERAL LAW: 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 committee. COMMENTS: 1)PURPOSE OF THIS BILL. According to the author, this bill is one of two legislative vehicles to make the necessary AB 72 Page 3 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. 2)BACKGROUND. 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 AB 72 Page 4 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 AB 72 Page 5 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. AB 72 Page 6 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; and, 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 care. 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, AB 72 Page 7 behavioral health systems and providers to align incentives, improve health outcomes, and reduce overall costs.) 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 AB 72 Page 8 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 populations.) 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 AB 72 Page 9 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 process. 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. 5)PRIOR LEGISLATION. 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); AB 72 Page 10 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 Medicare. 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. REGISTERED SUPPORT / OPPOSITION: Support American Federation of State, County and Municipal Employees, AFL-CIO California Association of Physician Groups California Commission on Aging California PACE Association AB 72 Page 11 California Primary Care Association California State Association of Counties Planned Parenthood Affiliates of California Opposition None on file Analysis Prepared by:Roger Dunstan / HEALTH / (916) 319-2097