BILL ANALYSIS                                                                                                                                                                                                    Ó

                          Senator Ed Hernandez, O.D., Chair

          BILL NO:                    AB 72     
          |AUTHOR:        |Bonta and Atkins                               |
          |VERSION:       |December 18, 2014                              |
          |HEARING DATE:  |July 15, 2015  |               |               |
          |CONSULTANT:    |Scott Bain                                     |
           SUBJECT  :  Medi-Cal: demonstration project.

           SUMMARY  :  Requires the Department of Health Care Services to submit an  
          application to the federal Centers for Medicare and Medicaid  
          Services for a waiver to implement a demonstration project that  
          furthers the delivery of high-quality and cost-efficient care  
          for Medi-Cal beneficiaries, ensures the long-term viability of  
          the delivery system following the expansion of Medi-Cal  
          eligibility under the federal Patient Protection and Affordable  
          Care Act, and continues California's momentum and successes in  
          innovation achieved under the 2010 "Bridge to Reform" Waiver.
          Existing law:
          1)Establishes the Medi-Cal program, which is administered by the  
            Department of Health Care Services (DHCS) and under which  
            qualified low-income persons receive health care benefits. 

          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.

          This bill:
          1)Requires DHCS to submit an application to the federal Centers  
            for Medicare and Medicaid Services (CMS) for a waiver to  
            implement a demonstration project that does all of the  

                  a)        Furthers the delivery of high-quality and  
                    cost-efficient care for Medi-Cal beneficiaries;
                  b)        Ensures the long-term viability of the  
                    delivery system following the expansion of Medi-Cal  


          AB 72 (Bonta)                                       Page 2 of ?
                    eligibility under the federal Patient Protection and  
                    Affordable Care Act (ACA); and,
                  c)        Continues 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)Contains an urgency clause that will make this bill effective  
            upon enactment.

           FISCAL EFFECT  :  According to the Assembly Appropriations  
          Committee analysis, this bill in its current form does not  
          result in additional state costs. DHCS is currently incurring  
          staff and in-kind costs for development of a "Section 1115  
          Waiver," so called for the section of federal law that provides  
          CMS broad authority to waive provisions of federal Medicaid law  
          to seek improved outcomes.  Private foundations have committed  
          about $650,000, and about $250,000 in federal matching funds are  
          likely available for these purposes.  Foundations are also  
          funding additional consulting work related to waiver  
          development. If the bill is amended to include specific waiver  
          provisions, such provisions are likely to have significant  
          fiscal effects.

          VOTES  :  
          |Assembly Floor:                     |78 - 0                      |
          |Assembly Appropriations Committee:  |16 - 0                      |
          |Assembly Health Committee:          |18 - 0                      |
          |                                    |                            |
          COMMENTS  :
          1)Author's statement. According to the author, this bill is one  
            of two legislative vehicles to make the necessary statutory  
            changes to implement a new Section 1115 Medicaid waiver as the  
            2010 California Bridge to Reform Waiver (Waiver) expires on  
            October 31, 2015. The Waiver renewal is critical to the  
            long-term fiscal sustainability of the Medi-Cal program and to  


          AB 72 (Bonta)                                       Page 3 of ?
            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 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)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  
            (Act) gives the Secretary of the Department of Health and  
            Human Services (HHS) authority to waive provisions of major  
            health and welfare programs authorized under the Act. 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 authority for  
            "costs not otherwise matchable" or CNOM. 

          Section 1115 waivers are approved at the discretion of the  
            Secretary of HHS through negotiations between a state and CMS  
            for projects that the Secretary determines promote Medicaid  
            program objectives. 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. 
           3)Bridge to Reform Waiver. California's existing Section 1115  


          AB 72 (Bonta)                                       Page 4 of ?
            "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 Bridge to Reform Waiver enabled California to:
                a.     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;
               b.     Require the mandatory enrollment of SPDs into  
                 Medi-Cal managed care plans in specified counties;
               c.     Provide federal funding for delivery system reform  
                 and uncompensated care in designated public hospital  
                 systems (21 county and University of California  
                 hospitals) through the DSRIP and Safety Net Care Pool  
                 Uncompensated Care (SNCP); 
               d.     Provided federal funding for designated state health  
                 care programs and workforce development programs related  
                 to medically disadvantaged service areas; and,
               e.     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).

          1)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:

               a)     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  


          AB 72 (Bonta)                                       Page 5 of ?
                 through managed care plans, who could not otherwise be  
                 required to enroll in managed care;
               b)     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,
               c)     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.
           1)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" (Medi-Cal 2020). DHCS identified five core goals in  
            that document, as follows: 

               a)     Improve health care quality and outcomes for the  
                 Medi-Cal population;
               b)     Strengthen primary care delivery and access;
               c)     Build a foundation for an integrated health care  
                 delivery system that incentivizes quality and efficiency;
               d)     Address social determinants of health and improve  
                 health care equity; and,
               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 (IHS) uncompensated care, Designated  
            State Health Programs (DSHPs), the pending Drug Medi-Cal  
            Organized Delivery System program, and the provision of full  
            scope benefits for pregnant women with incomes between 109  
            percent to 138 percent of the federal poverty level.

            In addition to the continuation of existing waiver programs,  


          AB 72 (Bonta)                                       Page 6 of ?
            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: 

               a)     Managed Care Systems Transformation & Improvement  
                 Program - Joint incentive pools for Medi-Cal plans,  
                 behavioral health systems and providers to align  
                 incentives, improve health outcomes and reduce overall  
               b)     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;
               c)     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;
               d)     Workforce Development Program - Waiver funding to  
                 provide financial incentives to (a) 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; (b)  
                 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 (c) 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;
               e)     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;
               f)     Whole Person Care Pilots - An option for enhanced  
                 model of regional partnerships requiring proposals for a  


          AB 72 (Bonta)                                       Page 7 of ?
                 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; and,
               g)     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 savings  
            that is projected, California would be required to limit the  
            spending on waiver reinvestment initiatives to ensure overall  
            savings and budget neutrality.

            The state's waiver request in Medi-Cal 2020 is for $17.1  
            billion in federal funds over the five years of the waiver.


          AB 72 (Bonta)                                       Page 8 of ?
          1)Related legislation. SB 36 (Hernandez and De Leon), is  
            identical to this bill. SB 36 is scheduled to be heard in the  
            Assembly Health Committee on July 14, 2015.

          2)Prior legislation. AB 342 (John A. Pérez, Chapter 723,  
            Statutes of 2010), enacted the Low-Income Health Program to  
            provide health care benefits to uninsured adults up to 200  
            percent of the federal poverty level, at county option through  
            a Medi-Cal waiver demonstration project.

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

            AB 1066 (John A. Pérez, Chapter 86, Statutes of 2011), enacted  
            statutory changes to implement the Section 1115 Medi-Cal  
            Demonstration Project Waiver approved on November 2, 2010, for  
            funding designated public hospitals (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  

          3)Support. The California Association of Physician Groups (CAPG)  
            writes that it supports policy measures that encourage the  
            implementation of the Triple Aim which include decreased cost,  
            improved patient experience and development of population  
            health management. CAPG writes 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. CAPH states it continues to support  


          AB 72 (Bonta)                                       Page 9 of ?
            and participate in the waiver renewal stakeholder process.

          The California State Association of Counties (CSAC) writes in  
            support that DHCS' Medi-Cal 2020 waiver renewal addresses the  
            counties' priorities, and introduces a new concept  
            transforming California's public safety net for the remaining  
            uninsured by creating a global payment system. CSAC states the  
            global payments offer a unique opportunity for California to  
            serve as an incubator in testing new payment methods for  
            delivering care to the uninsured and in transforming care away  
            from high-cost settings (such as emergency rooms) towards  
            primary care. CSAC argues these individual payments would  
            allow each hospital system more certainty about its budget and  
            how much in federal funds will be available.

          Support:  American Federation of State, County and Municipal  
                    Association of California Health Care Districts
                    California Association of Physician Groups
                    California Association of Public Hospitals and Health  
                    California State Association of Counties
                    California State Council of the Service Employees  
                    International Union
                    Community Clinic Association of Los Angeles County
                    District Hospital Leadership Forum
                    Planned Parenthood Affiliates of California
                    University of California
          Oppose:   None received

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