BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          AB 1568 (Bonta) - Medi-Cal:  demonstration project
          
           ----------------------------------------------------------------- 
          |                                                                 |
          |                                                                 |
          |                                                                 |
           ----------------------------------------------------------------- 
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Version: June 2, 2016           |Policy Vote: HEALTH 7 - 0       |
          |                                |                                |
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Urgency: Yes                    |Mandate: No                     |
          |                                |                                |
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Hearing Date: June 20, 2016     |Consultant: Brendan McCarthy    |
          |                                |                                |
           ----------------------------------------------------------------- 
          
          This bill meets the criteria for referral to the Suspense File.


          Bill  
          Summary:  AB 1568 is one of two bills that would authorize in  
          statute the state's new Medi-Cal Section 1115 waiver, known as  
          "Medi-Cal 2020". This bill includes statutory provisions of the  
          waiver relating to the Dental Transformation Initiative, the  
          Whole Person Care Program, and evaluations required under the  
          Special Terms and Conditions of the waiver.


          Fiscal  
          Impact:  The following information represents the fiscal impact  
          of the entire Section 1115 waiver. Although AB 1568 contains  
          only a portion of the implementing language for the new waiver,  
          this bill is contingent on SB 815 (the other implementing bill)  
          and the federal government has approved Medi-Cal 2020 as a  
          single waiver. Therefore, the fiscal information below reflects  
          the complete fiscal impact of the waiver.

          Over the course of the five-year waiver period, the state will  
          be able to access at least $6.2 billion in additional federal  
          funding that the state would not be eligible for without the  







          AB 1568 (Bonta)                                        Page 1 of  
          ?
          
          
          waiver. The state is eligible for the additional funding under  
          the waiver for two primary reasons. First, the state's  
          continuing use of Medi-Cal managed care reduces costs relative  
          to the alternative fee-for-service system. The federal  
          government will allow the state to use a portion of those  
          projected savings for waiver programs. Second, the federal  
          government will allow the state draw down federal matching funds  
          for certain "state only" health care programs that are not  
          currently eligible for federal funding. The General Fund savings  
          from receiving those additional federal funds will be redirected  
          to a specific waiver program.

          The following are the major elements of Medi-Cal 2020. Note that  
          the funding amounts are for the five-year waiver period, unless  
          otherwise noted.

           PRIME - $3.7 billion (federal funds). The Public Hospital  
            Redesign and Incentives in Medi-Cal (PRIME) program authorizes  
            federal matching funds to make incentive payments to  
            Designated Public Hospitals and District/Municipal Public  
            Hospitals in order to improve care delivery and strengthen  
            their ability to take on risk-based payments.

           Global Payment Program - at least $236 million (federal  
            funds). The Global Payment Program restructures the  
            distribution of federal funding for uncompensated care. This  
            includes disproportionate share hospital funding (DSH) to  
            designated public hospitals (excluding University of  
            California hospitals) in order to incentivize improvements in  
            care delivery and provision of care in appropriate settings.  
            Medi-Cal 2020 maintains the DSH funding methodology for other  
            hospitals, with DSH funding for UC hospitals capped by fiscal  
            year.  The $236 million in federal funding is only for the  
            first year of the waiver. Additional funding in subsequent  
            years will be determined based on future uncompensated care.  
            Also, the figures above do not include existing DSH funding of  
            about $5.9 billion in federal funds over the waiver period.

           Dental Transformation Initiative - $375 million (federal  
            funds). The Dental Transformation Initiative permits incentive  
            payments to qualified dental providers to improve dental care  
            and utilization among children enrolled in Medi-Cal. The state  
            share of funding for this program is provided through the  
            redirection of existing General Fund support for specific  








          AB 1568 (Bonta)                                        Page 2 of  
          ?
          
          
            state only health care programs which will be eligible for  
            federal matching funds under the waiver.

           Designated State Health Programs - $375 million (federal  
            funds). The waiver authorizes the state to access federal  
            matching funds for several existing health care programs that  
            are currently funded only with state and local funds. By  
            making these programs eligible for federal matching funds, the  
            waiver frees up state funding to support the Dental  
            Transformation Initiative and to draw down federal matching  
            funds.

           Whole Person Care - $1.5 billion (federal funds). This program  
            allows participating lead entities (primarily counties) to  
            claim federal matching funds for efforts to coordinate health,  
            behavioral health, and social services for high-risk Medi-Cal  
            beneficiaries who are high-utilizers of health care services.  
            Federal matching funds will be available for a variety of  
            social services and supports that are not eligible for federal  
            matching funds absent the waiver.

          The Department of Health Care Services has requested additional  
          administrative funding to oversee Medi-Cal 2020 of $34 million  
          over the five-year waiver period, including $11 million in the  
          Budget Year (General Fund and federal funds).


          Background:  Under state and federal law, the Department of Health Care  
          Services operates the Medi-Cal program, which provides health  
          care coverage to low income individuals, families, and children.  
          The federal government provides matching funds that vary from  
          50% to 90% of expenditures depending on the category of  
          beneficiary.

          Current federal law allows states to apply for "Section 1115  
          waivers" of requirements of the federal Social Security Act.  
          This process allows states, on a case by case basis, to make  
          changes to their Medicaid program with the approval of the  
          federal Centers for Medicare and Medicaid Services. In general,  
          for the federal government to approve a waiver, the state must  
          demonstrate that the waiver will assist in promoting the  
          objectives of Medicaid and that total federal costs will not  
          exceed fee-for-service equivalent costs to the federal  
          government over the period of the waiver, typically five years.  








          AB 1568 (Bonta)                                        Page 3 of  
          ?
          
          
          In general, Section 1115 waivers allow states to draw down  
          federal matching funds for activities that would not normally be  
          eligible for federal funds, for example non-health care services  
          or services to the uninsured.

          California's prior Section 1115 wavier, referred to as the  
          "Bridge to Reform Waiver" was set to expire in October 2015 but  
          was extended until the end of 2015. The prior wavier was  
          designed to provide about $10 billion in addition federal  
          funding to the state to fund an early implementation of the  
          coverage expansion under the Affordable Care Act and to invest  
          in safety net health care programs. The additional federal funds  
          were available due to cost savings created through the use of  
          Medi-Cal managed care to reduce per beneficiary expenditures  
          below what they would have been through fee-for-service health  
          care.


          Proposed Law:  
            AB 1568 is one of two bills that would authorize in statute  
          the state's new Medi-Cal Section 1115 waiver, known as "Medi-Cal  
          2020". This bill includes statutory provisions of the waiver  
          relating to the Dental Transformation Initiative, the Whole  
          Person Care Program, and the evaluations required under the  
          Special Terms and Conditions of the waiver.
          Major provisions of the bill would:
                 Establish two new waiver programs - Whole Person Care  
               and the Dental Transformation Initiative;
                 Contain numerous administrative provisions relating to  
               implementation of the Waiver by the Department of Health  
               Care Services;
                 Condition implementation of the bill and the waiver upon  
               federal approval and the availability of federal funding;
                 Authorize the fund-swap, under which new federal  
               matching funds for designated state-only health care  
               programs would free up existing General Fund monies that  
               would be redirected to provide the state share of cost for  
               the Dental Transformation Initiative;
                 Continuously appropriate certain funds received under  
               the waiver.
                 Require the Department to conduct any study, report,  
               evaluation, or assessment required in the Special Terms and  
               Conditions.









          AB 1568 (Bonta)                                        Page 4 of  
          ?
          
          
          The operation of this bill is contingent upon the enactment of  
          SB 815 (Hernandez and de Leon).

          This bill is an urgency measure.


          Related  
          Legislation:  SB 815 (Hernandez and de Leon) contains other  
          implementing language for the Medi-Cal 2020 Section 1115 waiver.  
          That bill is pending in the Assembly.


          Staff  
          Comments:  Determining available federal funding under the  
          waiver.  Both the prior and the new Section 1115 waivers were  
          financed with additional federal funding that is available to  
          the state, due to the cost-savings associated with using managed  
          care to deliver Medi-Cal benefits versus the alternative  
          fee-for-service system. The Department of Health Care Services,  
          with oversight from the federal government, calculates the  
          projected costs of providing care under Medi-Cal managed care  
          versus the projected costs of doing so under fee-for-service.  
          Under the prior waiver, the state was able to use all of the  
          "budget neutrality room" under the projected fee-for-service  
          cost to justify the additional federal funding available. The  
          financing for the new Medi-Cal 2020 waiver has changed. Under  
          Medi-Cal 2020, the federal government has reduced the savings  
          projections that the state can use to justify additional federal  
          funding. Under Medi-Cal 2020, the amount of savings will vary by  
          Medi-Cal eligibility group. Doing so reflects the fact that  
          certain Medi-Cal populations have been in managed care for  
          longer and therefore managed care reflects the status quo for  
          those groups. For example, the state can claim a much lower  
          level of savings for families in urban counties (which were the  
          first group to be mandatorily enrolled in managed care) than for  
          rural families or seniors and persons with disabilities. 

          Additional federal funding under the waiver.  As noted above,  
          the fiscal projections for Medi-Cal 2020 only reflect the  
          additional federal funding for the Global Payment Program that  
          will be available in the first year of the waiver. In subsequent  
          years, the amount of additional federal funding that will be  
          available will be based on a study of the amount of  
          uncompensated care that is provided by designated public  








          AB 1568 (Bonta)                                        Page 5 of  
          ?
          
          
          hospitals.

          Use of non-state funds to draw down federal funding. Much of the  
          non-federal share of funding programs under Medi-Cal 2020 will  
          be provided by hospitals. For example, both the PRIME and Global  
          Payment Program will be funded by public hospitals transferring  
          funding to the state (referred to as intergovernmental transfers  
          of IGTs). The state will use those local funds to draw down  
          federal matching funds and then provide the combined funding  
          back to hospitals through Medi-Cal payments. Similarly,  
          non-federal funding for Whole Person Care pilots is likely to be  
          provided by counties using intergovernmental transfers. In  
          addition, public hospitals will continue to draw down federal  
          funding for hospital services through certified public  
          expenditures, under which local governments certify that they  
          have made expenditures for patient care and the federal  
          government recognizes those payments as being eligible for  
          federal matching funds.


                                      -- END --