Amended in Assembly April 7, 2015

California Legislature—2015–16 Regular Session

Assembly BillNo. 366


Introduced by Assembly Member Bonta

(Principal coauthor: Senator Hernandez)

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(Coauthors: Assembly Members Achadjian, Campos, Cooper, Dababneh, Levine, Lopez, Low, Maienschein, Nazarian, Rendon, Santiago, Steinorth, Thurmond, Ting, and Waldron)

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(Coauthors: Senators Galgiani, Hertzberg, Pan, Pavley, Roth, Stone, Wieckowski, and Wolk)

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February 17, 2015


An act to amend Section 14105.28 of, and to add Sectionsbegin delete 14105.194, 14105.196, and 14301.6end deletebegin insert 14105.194 and 14105.196end insert to, the Welfare and Institutions Code, relating to Medi-Cal and declaring the urgency thereof, to take effect immediately.

LEGISLATIVE COUNSEL’S DIGEST

AB 366, as amended, Bonta. Medi-Cal: reimbursement: provider rates.

(1) Existing law establishes the Medi-Cal program, administered by the State Department of Health Care Services, under which health care services are provided to qualified, low-income persons. The Medi-Cal program is, in part, governed and funded by federal Medicaid provisions. Existing law requires the department to develop and implement a Medi-Cal inpatient hospital reimbursement payment methodology based on diagnosis-related groups, subject to federal approval, that reflects the costs and staffing levels associated with quality of care for patients in all general acute care hospitals, as specified. Existing law generally requires the diagnosis-related group-based payments to apply to all claims.

This bill would require claims for payments pursuant to the inpatient hospital reimbursement methodology described above to be increased bybegin delete ___end deletebegin insert 16end insert percent for the 2015-16 fiscal year, and would require, commencing July 1, 2016, and annually thereafter, the department to increase each diagnosis-related group payment claim amount basedbegin insert, at a minimum,end insert on increases in the medical component of the California Consumer Price Index.begin insert Commencing with the 2015-end insertbegin insert16 fiscal year, and annually thereafter, the bill would require managed care rates for Medi-Cal managed care health plans to be increased by a proportionately equal amount for increased payments for hospital services.end insert

(2) Existing law requires, except as otherwise provided, Medi-Cal provider payments to be reduced by 1% or 5%, and provider payments for specified non-Medi-Cal programs to be reduced by 1%, for dates of service on and after March 1, 2009, and until June 1, 2011. Existing law requires, except as otherwise provided, Medi-Cal provider payments and payments for specified non-Medi-Cal programs to be reduced by 10% for dates of service on and after June 1, 2011.

This bill would, instead, prohibit the application of those reductions for payments to providers for dates of service on or after June 1, 2011. The bill would also require payments for managed care health plans for dates of service following the effective date of the bill to be determined without application of some of those reductions. The bill would require the Director of Health Care Services to implement this provision to the maximum extent permitted by federal law and for the maximum time period for which the director obtains federal approval for federal financial participation for those payments.

(3) Prior law required, beginning January 1, 2013, through and including December 31, 2014, that payments for primary care services provided by specified physicians be no less than 100% of the payment rate that applies to those services and physicians as established by the Medicarebegin delete Program,end deletebegin insert program,end insert for both fee-for-service and managed care plans.

This bill, commencing January 1, 2016, would require, only to the extent permitted by federal law and that federal financial participation is available, payments for specified medical care services to not be less than 100% of the payment rate that applies to those services as established by the Medicarebegin delete Program, for both fee-for-service and managed care plans.end deletebegin insert program for services rendered by fee-for-service providers, and would require rates paid to Medi-Cal managed care plans to be actuarially equivalent to payment rates established by the Medicare program.end insert The bill would authorize the department to implement those provisions through provider bulletins without taking regulatory action until regulations are adopted, and would require the department to adopt those regulations by July 1, 2018. The bill would require, commencing July 1, 2016, the department to provide a status report to the Legislature on a semiannual basis until regulations have been adopted.

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(4) Under existing law, one of the methods by which Medi-Cal services are provided is pursuant to contracts with various types of managed care plans.

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This bill would require, to the extent federal financial participation is not jeopardized, the department to pay Medi-Cal managed care plans rate range increases at a minimum level of 100% of the rate range available with respect to all enrollees who are not subject to the rate range payment requirements that are applicable to all enrollees who are newly eligible beneficiaries assigned to county public hospital health systems.

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(5)

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begin insert(end insertbegin insert4)end insert This bill would declare that it is to take effect immediately as an urgency statute.

Vote: 23. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

P3    1

SECTION 1.  

Section 14105.28 of the Welfare and Institutions
2Code
is amended to read:

3

14105.28.  

(a) It is the intent of the Legislature to design a new
4Medi-Cal inpatient hospital reimbursement methodology based
5on diagnosis-related groups that more effectively ensures all of
6the following:

7(1) Encouragement of access by setting higher payments for
8patients with more serious conditions.

9(2) Rewards for efficiency by allowing hospitals to retain
10savings from decreased length of stays and decreased costs per
11day.

P4    1(3) Improvement of transparency and understanding by defining
2the “product” of a hospital in a way that is understandable to both
3clinical and financial managers.

4(4) Improvement of fairness so that different hospitals receive
5similar payment for similar care and payments to hospitals are
6adjusted for significant cost factors that are outside the hospital’s
7control.

8(5) Encouragement of administrative efficiency and minimizing
9administrative burdens on hospitals and the Medi-Cal program.

10(6) That payments depend on data that has high consistency and
11credibility.

12(7) Simplification of the process for determining and making
13payments to the hospitals.

14(8) Facilitation of improvement of quality and outcomes.

15(9) Facilitation of implementation of state and federal provisions
16related to hospital acquired conditions.

17(10) Support of provider compliance with all applicable state
18and federal requirements.

19(b) (1) (A) (i) The department shall develop and implement
20a payment methodology based on diagnosis-related groups, subject
21to federal approval, that reflects the costs and staffing levels
22associated with quality of care for patients in all general acute care
23hospitals in state and out of state, including Medicare critical access
24hospitals, but excluding public hospitals, psychiatric hospitals,
25and rehabilitation hospitals, which include alcohol and drug
26rehabilitation hospitals.

27(ii) The payment methodology developed pursuant to this section
28shall be implemented on July 1, 2012, or on the date upon which
29the director executes a declaration certifying that all necessary
30federal approvals have been obtained and the methodology is
31sufficient for formal implementation, whichever is later.

32(iii) Claims for payments pursuant to the payment methodology
33based on diagnosis-related groups established under this section
34shall be increased bybegin delete ___end deletebegin insert 16end insert percent for the 2015-16 fiscal year.
35begin insert Managed care rates to Medi-Cal managed care health plans shall
36be increased by a proportionately equal amount for increased
37payments for hospital services for the 2015-end insert
begin insert16 fiscal year.end insert

38(iv) Commencing July 1, 2016, and annually thereafter, the
39department shall increase each diagnosis-related group payment
40claim amount basedbegin insert, at a minimum,end insert on increases in the medical
P5    1component of the California Consumer Price Index.begin insert Commencing
2 July 1, 2016, and annually thereafter, managed care rates to
3Medi-Cal managed care health plans shall be increased by a
4proportionately equal amount for increased payments for hospital
5services.end insert

6(B) The diagnosis-related group-based payments shall apply to
7all claims, except claims for psychiatric inpatient days,
8rehabilitation inpatient days, managed care inpatient days, and
9swing bed stays for long-term care services, provided, however,
10that psychiatric and rehabilitation inpatient days shall be excluded
11regardless of whether the stay was in a distinct-part unit. The
12department may exclude or include other claims and services as
13may be determined during the development of the payment
14methodology.

15(C) Implementation of the new payment methodology shall be
16coordinated with the development and implementation of the
17replacement Medicaid Management Information System pursuant
18to the contract entered into pursuant to Section 14104.3, effective
19on May 3, 2010.

20(2) The department shall evaluate alternative diagnosis-related
21group algorithms for the new Medi-Cal reimbursement system for
22the hospitals to which paragraph (1) applies. The evaluation shall
23include, but not be limited to, consideration of all of the following
24factors:

25(A) The basis for determining diagnosis-related group base
26price, and whether different base prices should be used taking into
27account factors such as geographic location, hospital size, teaching
28status, the local hospital wage area index, and any other variables
29that may be relevant.

30(B) Classification of patients based on appropriate acuity
31classification systems.

32(C) Hospital case mix factors.

33(D) Geographic or regional differences in the cost of operating
34facilities and providing care.

35(E) Payment models based on diagnosis-related groups used in
36other states.

37(F) Frequency of grouper updates for the diagnosis-related
38groups.

39(G) The extent to which the particular grouping algorithm for
40the diagnosis-related groups accommodates ICD-10 diagnosis and
P6    1procedure codes, and applicable requirements of the federal Health
2Insurance Portability and Accountability Act of 1996.

3(H) The basis for calculating relative weights for the various
4diagnosis-related groups.

5(I) Whether policy adjusters should be used, for which care
6categories they should be used, and the frequency of updates to
7the policy adjusters.

8(J) The extent to which the payment system is budget neutral
9and can be expected to result in state budget savings in future
10years.

11(K) Other factors that may be relevant to determining payments,
12including, but not limited to, add-on payments, outlier payments,
13capital payments, payments for medical education, payments in
14the case of early transfers of patients, and payments based on
15performance and quality of care.

16(c) The department shall submit to the Legislature a status report
17on the implementation of this section on April 1, 2011, April 1,
182012, April 1, 2013, and April 1, 2014.

19(d) The alternatives for a new system described in paragraph
20(2) of subdivision (b) shall be developed in consultation with
21recognized experts with experience in hospital reimbursement,
22economists, the federal Centers for Medicare and Medicaid
23Services, and other interested parties.

24(e) In implementing this section, the department may contract,
25as necessary, on a bid or nonbid basis, for professional consulting
26services from nationally recognized higher education and research
27institutions, or other qualified individuals and entities not
28associated with a particular hospital or hospital group, with
29demonstrated expertise in hospital reimbursement systems. The
30rate setting system described in subdivision (b) shall be developed
31with all possible expediency. This subdivision establishes an
32accelerated process for issuing contracts pursuant to this section
33and contracts entered into pursuant to this subdivision shall be
34exempt from the requirements of Chapter 1 (commencing with
35Section 10100) and Chapter 2 (commencing with Section 10290)
36of Part 2 of Division 2 of the Public Contract Code.

37(f) (1) The department may adopt emergency regulations to
38implement the provisions of this section in accordance with
39rulemaking provisions of the Administrative Procedure Act
40(Chapter 3.5 (commencing with Section 11340) of Part 1 of
P7    1Division 3 of Title 2 of the Government Code). The initial adoption
2of emergency regulations and one readoption of the initial
3regulations shall be deemed to be an emergency and necessary for
4the immediate preservation of the public peace, health and safety,
5or general welfare. Initial emergency regulations and the one
6readoption of those regulations shall be exempt from review by
7the Office of Administrative Law. The initial emergency
8regulations and the one readoption of those regulations authorized
9by this section shall be submitted to the Office of Administrative
10Law for filing with the Secretary of State and publication in the
11California Code of Regulations.

12(2) As an alternative to paragraph (1), and notwithstanding the
13rulemaking provisions of Chapter 3.5 (commencing with Section
1411340) of Part 1 of Division 3 of Title 2 of the Government Code,
15or any other law, the department may implement and administer
16this section by means of provider bulletins, all-county letters,
17manuals, or other similar instructions, without taking regulatory
18 action. The department shall notify the fiscal and appropriate policy
19committees of the Legislature of its intent to issue a provider
20bulletin, all-county letter, manual, or other similar instruction, at
21least five days prior to issuance. In addition, the department shall
22provide a copy of any provider bulletin, all-county letter, manual,
23or other similar instruction issued under this paragraph to the fiscal
24and appropriate policy committees of the Legislature.

25

SEC. 2.  

Section 14105.194 is added to the Welfare and
26Institutions Code
, to read:

27

14105.194.  

(a) Notwithstanding Sections 14105.07, 14105.191,
2814105.192, and 14105.193, payments to providers for dates of
29service on or after June 1, 2011, shall be determined without
30application of the reductions in Sections 14105.07, 14105.191,
3114105.192, and 14105.193, except as otherwise provided in this
32section.

33(b) Notwithstanding Sections 14105.07 and 14105.192, and
34except as otherwise provided in this section, for managed care
35health plans that contract with the department pursuant to this
36chapter or Chapter 8 (commencing with Section 14200), payments
37for dates of service following the effective date of the act adding
38this section shall be determined without application of the
39reductions, limitations, and adjustments in Sections 14105.07 and
40 14105.192.

P8    1(c) The director shall implement this section to the maximum
2extent permitted by federal law and for the maximum time period
3for which the director obtains federal approval for federal financial
4participation for the payments provided for in this section.

5(d) The director shall promptly seek all necessary federal
6approvals to implement this section.

7

SEC. 3.  

Section 14105.196 is added to the Welfare and
8Institutions Code
, to read:

9

14105.196.  

(a) It is the intent of the Legislature to:

10(1) Maintain the increased reimbursement rates for primary care
11providers in the Medi-Cal program upon expiration of the
12temporary increase provided for under Chapter 23 of the Statutes
13of 2012, as amended by Chapter 438 of the Statutes of 2012, in
14order to ensure adequate access to these providers.

15(2) begin deleteTo increase end deletebegin insertIncrease end insertreimbursement rates for other Medi-Cal
16providers to the amounts reimbursed by the federal Medicare
17program in order to ensure access to medically necessary health
18care services, and to comply with federal Medicaid requirements
19that care and services are available to Medi-Cal enrollees at least
20to the extent that care and services are available to the general
21population in the geographic area.

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22(3) Increase reimbursement rates for Denti-Cal providers to
23the equivalent rate of the percentage increase for other Medi-Cal
24providers to the amounts reimbursed by the federal Medicare
25program in order to ensure access to medically necessary dental
26services, and to comply with federal Medicaid requirements that
27care and services are available to Medi-Cal enrollees at least to
28the extent that care and services are available to the general
29population in the geographic area.

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30(b) begin deleteBeginning January 1, 2016, to the extent permitted by federal
31law and regulations, payments end delete
begin insert(1)end insertbegin insertend insertbegin insert(A)end insertbegin insertend insertbegin insertCommencing January 1,
322016, payments end insert
for medical care servicesbegin insert rendered by
33fee-for-service Medi-Cal providers, including dental providers,end insert

34 shall not be less than 100 percent of the payment rate that applies
35to those services as established by the Medicarebegin delete program, for both
36fee-for-service and managed care plans.end delete
begin insert program for services
37rendered by fee-for-service providers.end insert

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38(B) Commencing January 1, 2016, rates paid to Medi-Cal
39managed care plans shall be actuarially equivalent to the payment
40rate established under the Medicare program.

end insert
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P9    1(2) This subdivision shall be implemented only to the extent
2permitted by federal law and regulations.

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3(c) Notwithstanding any other law, to the extent permitted by
4federal law and regulations, the payments for medical care services
5made pursuant to this section shall be exempt from the payment
6reductions under Sections 14105.191 and 14105.192.

7(d) Payment increases made pursuant to this section shall not
8apply to provider rates of payment described in Section 14105.18
9for services provided to individuals not eligible for Medi-Cal or
10the Family Planning, Access, Care and Treatment (Family PACT)
11Program.

12(e) For purposes of this section, “medical care services” means
13the services identified in subdivisions (a), (h), (i),begin insert (j),end insert (n),begin delete andend delete (q)begin insert,
14and (w)end insert
of Sectionbegin delete 14132.end deletebegin insert 14132, and adult dental benefits
15provided pursuant to Section 14131.10.end insert

16(f) Notwithstanding any other law, thebegin insert department shall
17implement theend insert
payment increasebegin delete implemented pursuant toend deletebegin insert required
18byend insert
this sectionbegin delete shall applyend delete to managed care health plans that
19contractbegin delete with the departmentend delete pursuant to Chapter 8.75
20(commencing with Section 14591) and to contracts with the Senior
21Care Action Network and the AIDS Healthcarebegin delete Foundation, andend delete
22begin insert Foundation in the following manner,end insert to the extent that the services
23are provided through any of these contracts, paymentsbegin insert by the
24department to managed care health plansend insert
shall be increased by
25thebegin delete actuarialend deletebegin insert actuariallyend insert equivalent amount of the payment
26increases pursuant to contract amendments or change orders
27effective on or after January 1, 2016.

28(g) Notwithstanding Chapter 3.5 (commencing with Section
29 11340) of Part 1 of Division 3 of Title 2 of the Government Code,
30the department shall implement, clarify, make specific, and define
31the provisions of this section by means of provider bulletins or
32similar instructions, without taking regulatory action until the time
33regulations are adopted. The department shall adopt regulations
34by July 1, 2018, in accordance with the requirements of Chapter
353.5 (commencing with Section 11340) of Part 1 of Division 3 of
36Title 2 of the Government Code. Beginning July 1, 2016, and
37notwithstanding Section 10231.5 of the Government Code, the
38department shall provide a status report to the Legislature on a
39semiannual basis, in compliance with Section 9795 of the
40Government Code, until regulations have been adopted.

P10   1(h) This section shall be implemented only if and to the extent
2that federal financial participation is available and any necessary
3federal approvals have been obtained.

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SEC. 4.  

Section 14301.6 is added to the Welfare and
5Institutions Code
, to read:

6

14301.6.  

To the extent federal financial participation is not
7jeopardized and consistent with federal law, the department shall
8pay Medi-Cal managed care plans rate range increases, as defined
9by paragraph (4) of subdivision (b) of Section 14301.4, at a
10minimum level of 100 percent of the rate range available with
11respect to all enrollees who are not subject to the rate range
12payment requirements described in Section 14301.5.

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13

begin deleteSEC. 5.end delete
14begin insertSEC. 4.end insert  

This act is an urgency statute necessary for the
15immediate preservation of the public peace, health, or safety within
16the meaning of Article IV of the Constitution and shall go into
17immediate effect. The facts constituting the necessity are:

18In order to ensure, at the earliest possible time, access to
19medically necessary care for Medi-Cal beneficiaries, it is necessary
20that this act take effect immediately.



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