BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     AB 366


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          Date of Hearing:  May 13, 2015


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                                 Jimmy Gomez, Chair


          AB  
          366 (Bonta) - As Amended April 7, 2015


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          Urgency:  Yes State Mandated Local Program:  NoReimbursable:  No


          SUMMARY: This bill increases provider payment rates in the  
          Medi-Cal program. Specifically, this bill:  













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          1)Repeals implementation of prior year Medi-Cal rate reductions,  
            including the 10% reduction for affected Medi-Cal providers.

          2)Increases fee-for service (FFS) Medi-Cal reimbursement rates  
            for specified medical services to the amounts reimbursed by  
            the federal Medicare program, and by a similar amount for  
            dental services. Requires actuarially equivalent increases for  
            managed care. 





          3)Increases Medi-Cal hospital reimbursement rates for inpatient  
            hospital services by 16% on a one-time basis and requires  
            annual increases linked to the medical component of the  
            California consumer price index (CPI).  Requires actuarially  
            equivalent increases for managed care.



          4)Conditions granting rate increases on compliance with  
            applicable federal law and regulations, availability of  
            federal financial participation, and obtaining necessary  
            federal approvals.

          5)Authorizes the Department of Health Care Services (DHCS) to  
            implement through provider bulletins or other similar  
            instructions until July 1, 2018 at which time DHCS is required  
            to adopt regulations.





          FISCAL EFFECT:











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          1)Approximately $11.1 billion total funds ($6.6 billion GF) in  
            increased costs to Medi-Cal in 2016-17, and growing as  
            specified on an annual basis thereafter.  This consists of:



             a)   Increased hospital payments of $1.7 billion ($841  
               million GF).  In future years, hospital payments would  
               automatically increase annually by hundreds of millions of  
               dollars per year, depending on the medical CPI.



             b)   Decreased hospital quality assurance fee (QAF) revenues  
               of $1.2 billion. This reduction is associated with the  
               effect increased state payments to hospitals have on the  
               ability to raise funds through the hospital QAF.  This  
               estimate assumes the QAF is extended past its current  
               expiration in December 2016.



             c)   Increased GF costs related to the reduction of revenues  
               for children's' health care coverage associated with the  
               hospital QAF, of $195 million, and potentially growing in  
               future years.



             d)   $538 million ($269 million GF) associated with restoring  
               the 10% payment reductions to certain FFS providers, and  
               actuarially equivalent reductions in managed care.



             e)   $10.9 billion ($5.3 billion GF) to increase specified  
               payments in FFS, managed care, and dental rates to the  








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               equivalent of Medicare rates.



          1)$616 million ($308 million GF) over 2015-16 and 2016-17 in  
            lost savings and repayment related to the bill's repeal of  
            2011 provider cuts.  This includes cuts that have been  
            implemented, and some that have not yet been implemented.  



          COMMENTS:


          


          1)Purpose. The purpose of this bill is to increase payment rates  
            in the Medi-Cal program to reverse cuts made in the recent  
            recession and increase rates up to Medicare levels, which the  
            author believes will result in increased access to care for  
            Medi-Cal patients.  



          2)Background. California pays its Medi-Cal FFS providers some of  
            the lowest rates in the country.  Medi-Cal has paid poorly by  
            national standards for quite some time; a 2001 LAO report  
            notes that 1998 FFS rates were 47 percent of Medicare rates,  
            as compared to 51% today.  With the Medi-Cal program projected  
            to cover one-third of the state, or 12.2 million people in  
            2015-16, there is a state interest in ensuring enrollees can  
            access care.  



          3)Access in Medi-Cal. Surveys of Californians conducted before  
            coverage expansions enacted under the ACA consistently showed  
            a wide gap between Medi-Cal enrollees and other insured  








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            populations with respect to access to care. For example, a  
            2011 survey funded by the California HealthCare Foundation of  
            over 1,500 Medi-Cal beneficiaries identified difficulties in  
            finding health care providers who accepted their coverage, as  
            34% of Medi-Cal beneficiaries said it was difficult to find  
            health care providers who accepted their insurance, compared  
            to 13% for people with other coverage. The transition of most  
            Medi-Cal enrollees to managed care has been touted as ensuring  
            better access, as plans must meet network adequacy and other  
            access standards in order to remain licensed.  Oversight of  
            managed care compliance with timely access and provider  
            network adequacy standards is currently being improved through  
            the passage of SB 964 (Ed Hernández), Chapter 573, Statutes of  
            2014, and related budget proposals.   By federal law, FFS  
            payments must be sufficient to enlist enough providers so that  
            care and services are available to Medicaid beneficiaries to  
            at least the same extent that they are available to the  
            general population in a geographic area.  

          4)Legislative Analyst's Office (LAO) Recommendations. A review  
            of access issues in Medi-Cal, relevant to the 10% provider  
            cuts made pursuant to Chapter 3, Statutes of 2011 (AB 97,  
            Committee on Budget), is highlighted in the LAO Analysis of  
            the 2014-15 Health Budget.  Key points include that the debate  
            over provider rates has largely focuses on FFS reductions,  
            while most enrollees are now in managed care.   In addition,  
            LAO states they are unaware of any compelling evidence to  
            support the widely held notion that FFS rate-setting strongly  
            and persistently influences capitated rate-setting for  
            Medi-Cal managed care.  The LAO recommends refocusing  
            oversight priorities on monitoring the managed care system  
            instead of on FFS rate levels, given the state has delegated  
            much de facto control over provider payment policy to Medi-Cal  
            managed care plans.  


          5)Related Legislation.  SB 243 (Ed Hernandez), pending in Senate  
            Appropriations Committee, is virtually identical to this bill.  
             








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          6)Prior Legislation. Numerous bills have addressed Medi-Cal  
            payments; most recently:  


             a)   AB 1805 (Skinner and Pan) required DHCS to disregard the  
               10% payment reductions for Medi-Cal providers.  AB 1805 was  
               set for hearing in this committee, but the hearing was  
               cancelled at the request of the author.


             b)   AB 900 (Alejo) of 2013 eliminated scheduled Medi-Cal  
               payment reductions for distinct part skilled nursing  
               facilities.  AB 900 was held on the Suspense File of this  
               committee.


             c)   SB 646 (Nielsen) of 2013 was similar to AB 900 and was  
               held in the Senate Appropriations Committee.


             d)   SB 640 (Lara) of 2013 required scheduled Medi-Cal  
               payment reductions not apply to Medi-Cal provider and  
               managed care health plans for services delivered after June  
               1, 2011.  SB 640 was held on the Suspense File of the  
               Senate Appropriations Committee.


             e)   AB 97 (Committee on Budget), Chapter 3, Statutes of  
               2011, reduced Medi-Cal provider FFS and managed care  
               payments by 10% effective June 1, 2011.  


          1)Staff Comments. This bill raises provider payments in Medi-Cal  
            significantly, ostensibly to increase access, with no  
            corresponding evaluation of whether the over $11 billion  
            annual costs is paying off in terms of increased access or  
            health outcomes for Medi-Cal enrollees. Access monitoring and  








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            evaluation would seem to be a critical missing piece of this  
            proposal.  The author may also wish to consider whether there  
            are more cost-effectiveness ways of increasing access, such as  
            more targeted rate increases in areas with known access  
            problems, or complimentary approaches that could increase  
            providers' willingness to see Medicaid patients that are not  
            strictly monetary.  Staff also notes automatic price increases  
            linked to medical inflation even beyond Medicare levels, such  
            as those proposed for hospital payments, would not incentivize  
            cost-efficient provision of services.
            
            Finally, taking a very broad view, even access to care is  
            likely an intermediate metric; many observers would agree the  
            state is not interested in health care access simply for  
            access's sake, but for its role in improving health outcomes.   
            While access to health care has a significant effect on health  
            outcomes and is certainly worthy of attention, research shows  
            environmental and social determinants play a much bigger role  
            in health status.  If improving health is the ultimate  
            outcome, the author may also wish to consider how this  
            proposal measures up against the costs and benefits of other  
            approaches to improving health. In addition, given the sheer  
            magnitude of the state fiscal impact, there are obvious  
            opportunity costs for other state priorities.  

          Analysis Prepared by:Lisa Murawski / APPR. / (916)  
          319-2081