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 --