BILL ANALYSIS                                                                                                                                                                                                    Ó



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

          SB 243 (Hernandez) - Medi-Cal:  reimbursement:  provider rates
          
           ----------------------------------------------------------------- 
          |                                                                 |
          |                                                                 |
          |                                                                 |
           ----------------------------------------------------------------- 
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Version: May 12, 2015           |Policy Vote: HEALTH 8 - 0       |
          |                                |                                |
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Urgency: Yes                    |Mandate: No                     |
          |                                |                                |
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Hearing Date: May 18, 2015      |Consultant: Brendan McCarthy    |
          |                                |                                |
           ----------------------------------------------------------------- 


          This bill meets the criteria for referral to the Suspense File.




          


          Bill  
          Summary:  SB 243 would require the Department of Health Care  
          Services to raise a variety of rates paid to Medi-Cal providers  
          and require the Department to rescind existing rate reductions  
          to specified providers.


          Fiscal  
          Impact:  
           Annual costs of $11.1 billion per year in total funds ($6.6  
            billion General Fund) due to increased payments to Medi-Cal  
            providers in 2016-17, and growing as specified on an annual  
            basis thereafter.  These costs include:

               o      $1.7 billion ($841 million General Fund) per year  







          SB 243 (Hernandez)                                     Page 1 of  
          ?
          
          
                 for increased hospital payments.  In future years,  
                 hospital payments would automatically increase annually  
                 by hundreds of millions of dollars per year, depending on  
                 the medical CPI.

               o      $1.2 billion (special fund) decreased hospital  
                 quality assurance fee (QAF) revenues. This reduction is  
                 associated with the effect that increased state payments  
                 to hospitals has on the ability to raise funds through  
                 the hospital QAF.  This estimate assumes the QAF is  
                 extended past its current expiration in December 2016.

               o      $195 million per year (General Fund) relating to the  
                 reduction in revenues for children's' health care  
                 coverage associated with the hospital QAF and potentially  
                 growing in future years.

               o      $538 million ($269 million General Fund) associated  
                 with restoring the 10% payment reductions to certain  
                 fee-for-service providers and actuarially equivalent  
                 reductions in managed care.

               o      $10.9 billion ($5.3 billion General Fund) to  
                 increase specified payments in fee-for-service, managed  
                 care, and dental rates to the equivalent of Medicare  
                 rates.

               o      $616 million ($308 million General Fund) 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.  


          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.  
          Medi-Cal provides coverage to childless adults and parents with  
          household incomes up to 138 percent of the federal poverty level  
          and to children with household incomes up to 266 percent of the  
          federal poverty level. The federal government provides matching  
          funds that vary from 50 percent to 90 percent of expenditures  
          depending on the category of beneficiary.
          Over the last several years, there have been a variety of  








          SB 243 (Hernandez)                                     Page 2 of  
          ?
          
          
          attempts by the state to reduce payment rates to Medi-Cal  
          providers, in an effort to reduce state spending on the program.  
          Many of those rate reductions have been enjoined by the courts  
          or repealed and replaced by different budget actions. 

          As part of the 2011-12 budget (AB 97, Committee on Budget,  
          Statutes of 2011), the state imposed a 10% reduction in the  
          rates paid to many fee-for-service Medi-Cal providers and  
          required the capitated rates paid to managed care plans to be  
          reduced by an actuarially equivalent amount. In addition,  
          payment rates for distinct part skilled nursing facilities  
          (located on a hospital campus) were "rolled back" to the payment  
          rates in place in 2008-09 and then reduced by 10%. Rate  
          reductions were made retroactive to June 1, 2011 for all  
          fee-for-service providers. 

          Many of those rate reductions were enjoined by the courts until  
          June 2013. At that point, the state had legal authority to both  
          reduce provider rates going forward and to "claw back" rate  
          reductions for services provided between June 2011 and June  
          2013. (Providers subject to claw backs include pharmacies,  
          durable medical equipment providers, clinical laboratories,  
          distinct part nursing facilities, and radiology services.) Rate  
          reductions for Medi-Cal managed care providers will be made  
          going forward but the state will not recoup unrealized savings.  
          Since the enactment of the 2013-14 Budget Act, several  
          categories of providers have been exempted from Medi-Cal rate  
          reductions by statute or administrative action of the  
          Department.


          Proposed Law:  
            SB 243 would require the Department of Health Care Services to  
          raise a variety of rates paid to Medi-Cal providers and require  
          the Department to rescind existing rate reductions to specified  
          providers.
          Specific provisions of the bill would:
           Require payments to providers for services after June 1, 2011  
            to be determined without the current provider rate reductions.  
            (The Department of Health Care Services indicates that this  
            provision would require both the elimination of rate  
            reductions for services provided after enactment of this bill  
            and eliminate the ability to require claw back payments for  
            services provided between June 2011 and June 2013.);








          SB 243 (Hernandez)                                     Page 3 of  
          ?
          
          
           Require payments to Medi-Cal fee-for-service providers to be  
            equal to the Medicare payment rate for those services;
           Require payments for dental services to be increased in  
            proportion to the increase in other fee-for-service payments  
            rates to the Medicare rate level;
           Require payments to hospitals under the diagnosis related  
            group payment system to be increased by 16% for the 2015-16  
            year and subsequently increased each year by the medical  
            component of the Consumer Price Index;
           Require capitated payments to Medi-Cal managed care plans to  
            be increased by the actuarially equivalent amount necessary to  
            equal all of the increases in fee-for-service rates included  
            in the bill;
           Include an urgency clause.


          Related  
          Legislation:  
           AB 366 (Bonta) is identical to this bill. That bill is in the  
            Assembly Appropriations Committee.
           AB 1805 (Skinner and Pan, 2014) would have eliminated the 10%  
            provider rate reduction. That bill was never heard in the  
            Assembly Appropriations Committee.
           AB 900 (Alejo, 2013) would have eliminated the rate reductions  
            for distinct part skilled nursing facilities. That bill was  
            held on this committee's Suspense File.
           SB 646 (Nielsen, 2013) was similar to AB 900 (Alejo, 2013).  
            That bill was held on this committee's Suspense File.
           SB 640 (Lara, 2013) would have eliminated the 10% provider  
            rate reduction. That bill was held on this committee's  
            Suspense File.


          Staff  
          Comments:  Concerns have been raised by providers and advocates  
          that low reimbursement rates in the Medi-Cal program result in  
          providers limiting their participation in the program. Providers  
          may accept no Medi-Cal patients, refuse new Medi-Cal patients,  
          or limit the number of Medi-Cal patients in their practice.  
          Surveys of providers performed by the Medical Board of  
          California and the National Centers for Health Statistics Data  
          Brief have found that providers accept new Medi-Cal patients at  
          lower rates than new patients with other sources of health care  
          coverage and at lower rates than providers in other states.








          SB 243 (Hernandez)                                     Page 4 of  
          ?
          
          
          Currently, about 80% of Medi-Cal beneficiaries are enrolled in  
          Medi-Cal managed care plans. Commercial Medi-Cal managed care  
          plans are subject to network adequacy and timely access to care  
          requirements under the Knox-Keene Act and regulations adopted by  
          the Department of Managed Health Care. Non-commercial Medi-Cal  
          managed care plans (such as county organized health systems) are  
          not directly regulated by those requirements. However, the  
          Department of Health Care Services includes substantively  
          similar requirements in its contracts with managed care plans.


          According to the Legislative Analyst's Office, there is little  
          evidence that fee-for-service rates strongly influence the  
          capitated payment rates that the state negotiates with Medi-Cal  
          managed care plans. Given the overwhelming enrollment of  
          Medi-Cal beneficiaries in managed care, the Legislative  
          Analyst's Office has recommended that the Legislature focus it  
          oversight with regard to Medi-Cal access issues on the process  
          for setting managed care rates and the network adequacy  
          requirements that those plans are required to meet. The  
          Legislative Analyst's Office has recommended that the  
          Legislature's oversight of the fee-for-service system should  
          focus on services that are only provided through  
          fee-for-service, such as long-term care and dental services.


          The intended purpose of this bill is to ensure that Medi-Cal  
          beneficiaries have access to the necessary medical services they  
          are entitled to, by ensuring that providers are paid at rates  
          sufficient to allow them to continue to accept Medi-Cal  
          patients. It is important to note that this bill would increase  
          provider rates across the board (in effect paying providers more  
          to see the Medi-Cal patients they are going to see anyway), in  
          the hope that doing so will encourage those providers and other  
          providers to see more Medi-Cal patients. The costs for actually  
          increasing access to Medi-Cal services are not included in the  
          cost estimates above and would depend on how providers respond,  
          if at all, to higher reimbursement rates. 


          It would be more cost effective for the state to develop  
          targeted incentive programs to encourage providers to either  
          increase the share of Medi-Cal patients they are currently  
          accepting or encourage other providers to begin accepting  








          SB 243 (Hernandez)                                     Page 5 of  
          ?
          
          
          Medi-Cal patients, rather than implementing across-the-board  
          rate increases for services already being provided.


          The only costs that may be incurred by a local agency relate to  
          crimes and infractions. Under the California Constitution, such  
          costs are not reimbursable by the state.







                                      -- END --