BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session SB 815 (Hernandez) - Medi-Cal: demonstration project ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: May 3, 2016 |Policy Vote: HEALTH 8 - 0 | | | | |--------------------------------+--------------------------------| | | | |Urgency: Yes |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: May 23, 2016 |Consultant: Brendan McCarthy | | | | ----------------------------------------------------------------- This bill meets the criteria for referral to the Suspense File. Bill Summary: SB 815 would authorize in statute the state's new Medi-Cal Section 1115 waiver, known as "Medi-Cal 2020". Fiscal Impact: 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 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 SB 815 (Hernandez) Page 1 of ? 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 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 SB 815 (Hernandez) Page 2 of ? 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. 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 SB 815 (Hernandez) Page 3 of ? Medi-Cal managed care to reduce per beneficiary expenditures below what they would have been through fee-for-service health care. Proposed Law: SB 815 would authorize in statute the state's new Medi-Cal Section 1115 waiver, known as "Medi-Cal 2020". Major provisions of the bill would: Establish the four new waiver programs - the Global Payment Program, PRIME, Whole Person Care, and Dental Transformation Initiative; Require a comprehensive assessment of access to care in Medi-Cal; 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; Authorize the continuation of numerous programs and authorities authorized in prior waivers, including the state's current methodology for paying certain hospitals; Continuously appropriate certain funds received under the waiver. This bill is an urgency measure. Related Legislation: AB 1568 (Bonta and Atkins) is identical to this measure. That bill is pending in the Assembly Appropriations Committee. 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 SB 815 (Hernandez) Page 4 of ? 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 type 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 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 SB 815 (Hernandez) Page 5 of ? federal matching funds. -- END --