BILL ANALYSIS Ó AB 366 Page 1 Date of Hearing: May 13, 2015 ASSEMBLY COMMITTEE ON APPROPRIATIONS Jimmy Gomez, Chair AB 366 (Bonta) - As Amended April 7, 2015 ----------------------------------------------------------------- |Policy |Health |Vote:|16 - 0 | |Committee: | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: Yes State Mandated Local Program: NoReimbursable: No SUMMARY: This bill increases provider payment rates in the Medi-Cal program. Specifically, this bill: AB 366 Page 2 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: AB 366 Page 3 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 AB 366 Page 4 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 AB 366 Page 5 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. AB 366 Page 6 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 AB 366 Page 7 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