Amended in Senate May 12, 2015

Amended in Senate April 13, 2015

Senate Bill No. 243

Introduced by Senator Hernandez

(Principal coauthor: Assembly Member Bonta)

(Coauthors: Senators begin insert Block, Cannella, end insert Galgiani, begin insert Hall, end insert Hertzberg, begin insert Hill, Jackson, end insert Pan, Pavley, Roth, Stone, Wieckowski, and Wolk)

(Coauthors: Assembly Members Achadjian, begin insert Bonilla, Burke, end insert Campos, begin insert Chiu, Chu, Cooley, end insert Cooper, Dababneh, begin insert Dodd, Frazier, Gatto, Gonzalez, Gordon, Gray, Roger Hernández, Jones-Sawyer, end insert Levine, Lopez, Low, Maienschein, begin insert McCarty, end insert Nazarian, begin insert O end insert begin insert ’Donnell, Quirk, end insert Rendon, begin insert Ridley-Thomas, Rodriguez, end insert Santiago, Steinorth, begin insert Mark Stone, end insert Thurmond, Ting, begin delete and Waldron end delete begin insert Waldron, and Wood end insert )

February 17, 2015

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

LEGISLATIVE COUNSEL’S DIGEST

SB 243, as amended, Hernandez. 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 by begin delete 16 percent end delete begin insert 16% end insert 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 based, at a minimum, on increases in the medical component of the California Consumer Price Index. Commencing with the 2015-16 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.

(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 Medicare program, for both fee-for-service and managed care plans.

This bill, commencing January 1, 2016, would begin delete require, only to the extent permitted by federal law and that federal financial participation is available, end delete begin insert require end insert 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 Medicare 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. begin insert The bill, commencing January 1, 2016, would require rates paid to Denti-Cal providers for dental services provided to adults and children to be increased by the equivalent percentage as the percentage increase required for other fee-for-service Medi-Cal providers. The bill would require those provisions to be implemented only to the extent permitted by federal law and that federal financial participation is available. 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.

(4) This bill would declare that it is to take effect immediately as an urgency statute.

Vote: ²⁄₃. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

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

SECTION 1.  

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

14105.28.  

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

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

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

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

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

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

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

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

(8) Facilitation of improvement of quality and outcomes.

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

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

(b) (1) (A) (i) The department shall develop and implement
a 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 in state and out of state, including Medicare critical access
hospitals, but excluding public hospitals, psychiatric hospitals,
and rehabilitation hospitals, which include alcohol and drug
rehabilitation hospitals.

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

(iii) Claims for payments pursuant to the payment methodology
based on diagnosis-related groups established under this section
shall be increased by 16 percent for the 2015-16 fiscal year.
Managed care rates to Medi-Cal managed care health plans shall
be increased by a proportionately equal amount for increased
payments for hospital services for the 2015-16 fiscal year.

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

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

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

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

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

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

(C) Hospital case mix factors.

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

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

(F) Frequency of begin delete grouper end delete begin insert group end insert updates for the diagnosis-related
groups.

(G) The extent to which the particular grouping algorithm for
the diagnosis-related groups accommodates ICD-10 diagnosis and
procedure codes, and applicable requirements of the federal Health
Insurance Portability and Accountability Act of begin delete 1996. end delete begin insert 1996 (Public
Law 104-191). end insert

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

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

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

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

(c) The department shall submit to the Legislature a status report
on the implementation of this section on April 1, 2011, April 1,
2012, April 1, 2013, and April 1, 2014.

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

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

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

(2) As an alternative to paragraph (1), and notwithstanding the
rulemaking provisions of Chapter 3.5 (commencing with Section
11340) of Part 1 of Division 3 of Title 2 of the Government Code,
or any other law, the department may implement and administer
this section by means of provider bulletins, all-county letters,
manuals, or other similar instructions, without taking regulatory
action. The department shall notify the fiscal and appropriate policy
committees of the Legislature of its intent to issue a provider
bulletin, all-county letter, manual, or other similar instruction, at
least five days prior to issuance. In addition, the department shall
provide a copy of any provider bulletin, all-county letter, manual,
or other similar instruction issued under this paragraph to the fiscal
and appropriate policy committees of the Legislature.

SEC. 2.  

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

14105.194.  

(a) Notwithstanding Sections 14105.07, 14105.191,
14105.192, and 14105.193, payments to providers for dates of
service on or after June 1, 2011, shall be determined without
application of the reductions in Sections 14105.07, 14105.191,
14105.192, and 14105.193, except as otherwise provided in this
section.

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

(c) The director shall implement this section 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 the payments provided for in this section.

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

SEC. 3.  

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

14105.196.  

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

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

(2) Increase reimbursement rates for other Medi-Cal providers
to the amounts reimbursed by the federal Medicare program in
order to ensure access to medically necessary health care services,
and to comply with federal Medicaid requirements that care and
services are available to Medi-Cal enrollees at least to the extent
that care and services are available to the general population in
the geographic area.

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

(b) (1) (A) Commencing January 1, 2016, payments for medical
care services rendered by fee-for-service Medi-Cal begin delete providers,
including dental providers, end delete begin insert providers end insert shall not be less than 100
percent of the payment rate that applies to those services as
established by the Medicare program for services rendered by
fee-for-service providers.

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

begin insert

(C) Commencing January 1, 2016, rates paid to Denti-Cal
providers for dental services reimbursed under the Denti-Cal
program for services provided to adults and children shall be
increased by the equivalent percentage as the percentage increase
required under subparagraph (A).

end insert

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

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

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

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

(f) Notwithstanding any other law, the department shall
implement the payment increase required by this section to
managed care health plans that contract pursuant to Chapter 8.75
(commencing with Section 14591) and to contracts with the Senior
Care Action Network and the AIDS Healthcare Foundation in the
following manner, to the extent that the services are provided
through any of these contracts, payments by the department to
managed care health plans shall be increased by the actuarially
equivalent amount of the payment increases pursuant to contract
amendments or change orders effective on or after January 1, 2016.

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

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

SEC. 4.  

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

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