BILL ANALYSIS                                                                                                                                                                                                    Ó



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          Date of Hearing:  June 15, 2016


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                               Lorena Gonzalez, Chair


          SB 815  
          (Hernandez) - As Amended June 9, 2016


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          Urgency:  Yes State Mandated Local Program:  NoReimbursable:  No


          SUMMARY:


          This urgency bill implements portions of a new, major Medi-Cal  
          waiver;  it is a companion bill to AB 1568 (Bonta), upon which  
          it is contingent.  Specifically, this bill:


          1)Authorizes the Department of Health Care Services (DHCS) to  
            implement provisions of the Medi-Cal 2020 Demonstration  
            Project, implementing the Special Terms and Conditions (STCs)  
            negotiated with and approved by the federal Centers for  
            Medicare and Medicaid Services (CMS).  










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          2)Specifies two major components of Medi-Cal 2020, as follows:  


             a)   Global Payment Program (GPP), which restructures the  
               distribution of federal funding for uncompensated care,  
               including disproportionate share hospitals (DSH) funding,  
               to designated public hospitals (DPHs), excluding University  
               of California (UC) hospitals, in order to incentivize  
               improvements in care delivery and provision of care in  
               appropriate settings. The bill maintains the DSH funding  
               methodology for other hospitals, with DSH funding for UC  
               hospitals capped by fiscal year.  


             b)   Public Hospital Redesign and Incentives in Medi-Cal  
               (PRIME), which authorizes federal matching funds to make  
               incentive payments to DPHs and District/Municipal Public  
               Hospitals (DMPHs), in order to improve care delivery and  
               strengthen their ability to take on risk-based payments. 


          3)Codifies a federally required assessment of access to care in  
            Medi-Cal, as specified, and states legislative intent to  
            encourage contracting between DPHs and multiple Medi-Cal  
            managed care plans in order to ensure access.


          4)Contains a number of administrative provisions, including an  
            exemption for DHCS from the regulatory process, exemption of  
            contracts from the Public Contract Code and approval by  
            Department of General Services, and authorization for the  
            director of DHCS to modify any process or methodology if  
            necessary to comply with federal law or the STCs, among other  
            provisions. 


          5)Conditions implementation on federal approval and availability  
            of federal financial participation (FFP).









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          6)Authorizes the nonfederal share of matching funds for a  
            portion of waiver implementation through a fund swap, whereby  
            DHCS may claim FFP for state expenditures on Designated State  
            Health Programs (DSHPs), as specified, and appropriates an  
            amount of GF equal to such FFP to the Health Care Deposit  
            Fund, as specified.


          7)Contains numerous other provisions and details related to  
            waiver implementation.


          8)Provides that this bill becomes operative only if AB 1568  
            (Bonta) is enacted and takes effect before January 1, 2017.


          FISCAL EFFECT:


          1)DHCS has requested administrative resources through an April  
            2016 Spring Finance Letter totaling $33.6 million for waiver  
            implementation over its five-year lifetime, $14 million of the  
            total is for contract costs, and $10.8 million of which is  
            requested for 2016-17.  Funding will pay for implementation,  
            monitoring, oversight, evaluation and assessment, technical  
            assistance, program development, and related activities  
            (GF/federal). 


            The funding request is the cost to implement the entire  
            waiver, but only certain elements of the waiver are included  
            in this bill.  Other provisions are implemented in AB 1568  
            (Bonta), a companion bill.  


          2)Federal matching funds available by waiver program component  
            are as follows:









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              PRIME                           $3.73 billion


                 Global Payment Program(GPP)$236 million* 


                 Dental Transformation Initiative (DTI)$375 million**


                 Designated State Health Programs$375 million


                 Whole Person Care (WPC)    $1.5 billion** 


            --------------------------------------------------------------- 
            ---------------


                 Total                         $6.2 billion


            


            * The $236 million for GPP only represents additional waiver  
            funding; it does not include the existing federal  
            Disproportionate Share Hospitals (DSH) component of GPP  
            funding. Federal DSH funding over the five-year life of the  
            waiver is projected to be about $5.8 billion.  In addition,  
            only the first year of federal funding for GPP is shown here.   
            Funding in subsequent years is based on a study of  
            uncompensated care.



            **DTI and WPC are implemented in AB 1568 (Bonta).










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          COMMENTS:


          1)Purpose. According to the author, while the STCs outline the  
            programmatic and financing elements of Medi-Cal 2020, this  
            bill is needed to provide the statutory framework.  In  
            addition, this bill would grant flexibility to DHCS to  
            implement Medi-Cal 2020 without using the regular contracting  
            and regulatory processes due to waiver timelines, and would  
            require notification to the Legislature regarding  
            waiver-related activities.  Numerous health care provider and  
            advocacy groups support this bill, and it has no opposition. 


          2)Federal Medicaid Waivers. Section 1115 of the federal Social  
            Security Act authorizes the federal government to waive  
            certain Medicaid rules.  This authority has been used in order  
            to allow states to test innovative program improvements and to  
            facilitate coverage expansions. To obtain a waiver, a state  
            negotiates with CMS about which Medicaid provisions might be  
            waived, what innovations the state is proposing, and how the  
            state plans to achieve budget neutrality (a requirement that  
            waivers cannot cost the federal government more with the  
            waiver than without the waiver).  The negotiations are  
            memorialized in the STCs, which constitute a contract between  
            CMS and the state.  In addition, the state adopts authorizing  
            legislation, such as this bill, to implement the waiver. 





            Recent waivers have included the 2005 waiver, which  
            established Medi-Cal's public hospital funding mechanisms and  
            provided for coverage expansions in certain counties, and the  
            2010 "Bridge to Reform" waiver, which included, among other  
            provisions, a phased implementation of health care reform  
            through early expansion of Medi-Cal at local option,  
            expansions of managed care, and a precursor to the PRIME  








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            program for public hospitals called the delivery system reform  
            incentive pool (DSRIP). 


          1)California's new 1115 Waiver: Medi-Cal 2020.  On December 30,  
            2015, DHCS received CMS approval of the five-year Medi-Cal  
            2020 waiver, which began January 1, 2016. Medi-Cal 2020 is  
            anticipated to provide $6.2 billion in federal matching funds  
            over the five years of the waiver, as specified above. The  
            details of Medi-Cal 2020 are in the 300+ page STCs and related  
            attachments agreed to by the state and CMS. 


            This bill implements a portion of the overall waiver, while  
            other major waiver programs are included in AB 1568 (Bonta), a  
            companion bill.  Specifically, AB 1568 implements the Whole  
            Person Care (WPC) program, which 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.  AB 1568 also  
            implements the Dental Transformation Initiative (DTI), which  
            permits incentive payments to qualified dental providers to  
            improve dental care and utilization among children enrolled in  
            Medi-Cal.  The WPC program, the DTI, and the GPP program for  
            uncompensated care are new components of Medi-Cal 2020.  


          2)Available Federal Funding. As noted, waivers are approved by  
            CMS pursuant to projections they will not increase federal  
            costs overall.  In the case of Medi-Cal 2020, the level of  
            federal resources is calculated based on two primary factors.  
            First, the state's continuing use of Medi-Cal managed care  
            reduces costs relative to the alternative fee-for-service  
            system. CMS will allow the state to use a portion of those  
            projected savings for waiver programs. Second, CMS will allow  
            the state draw down federal matching funds for certain  
            "state-only" health care programs that are not currently  
            eligible for federal funding.   








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            Under the prior waiver, the state was able to use all of the  
            "budget neutrality room," the difference between projected  
            fee-for-service cost and managed care cost, to justify the  
            federal funding available. Under Medi-Cal 2020, however, CMS  
            has reduced the savings projections that the state can use to  
            justify this funding. Under Medi-Cal 2020, the amount of  
            savings will vary by Medi-Cal eligibility group, whereby a  
            lower level of savings is allowed for Medi-Cal eligibility  
            groups who have been enrolled in managed care for a longer  
            period of time. This new methodology reflects the fact for  
            these Medi-Cal populations, managed care costs are more  
            reflective of the status quo. 





          3)Non-federal share of Costs. The waiver does not "provide"  
            federal funds, but allows states to claim federal matching  
            funds for designated programs and services that would  
            otherwise not qualify.  The nonfederal share of costs for  
            Medi-Cal 2020 waiver programs are provided through various  
            means, as indicated below.  


             a)   Intergovernmental transfers (IGTs). IGTs are transfers  
               of public funds between governmental entities, such as from  
               a county to the state. The nonfederal share of PRIME and  
               GPP will be funded by transfers of funds from public  
               hospitals to the state, whereby the state will match the  
               transfer with federal funds and remit the local funds, with  
               matching federal funds, back to the hospital.  Similarly,  
               the nonfederal share for the WPC pilots is likely to be  
               funded by counties through transfers of local revenues.  


             b)   Certified Public Expenditures (CPEs). Under a CPE  








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               arrangement, government providers certify their Medicaid  
               expenditures to the state, and the state then obtains  
               federal reimbursement on the basis of the CPEs. Under the  
               state's prior two waivers as well as this one, DPHs use  
               CPEs to claim federal matching funds for services provided  
               to Medi-Cal beneficiaries on a fee-for-service basis.   


             c)   General Fund (GF). GF provides the nonfederal share for  
               programs being continued under this waiver, including  
               Medi-Cal managed care and the Coordinated Care Initiative.   
               In addition, the waiver allows the state to claim federal  
               matching funds for spending on State Designated Health  
               Programs, which are various state-funded health programs  
               specified in the STCs. This essentially frees up an equal  
               amount of GF, which is used to fund the nonfederal share  
               for the DTI. 


          4)Related Legislation. AB 1568 (Bonta) is a companion measure to  
            this bill, and is pending in the Senate Appropriations  
            Committee.  AB 1568 and this bill, which were identical  
            measures that contained the entire authorizing statute for the  
            Medi-Cal 2020 waiver, were both amended on June 2, 2016.  The  
            amendments divided the authorizing statute between the two  
            bills, which are intended for joint enactment.  


          Analysis Prepared by:Lisa Murawski / APPR. / (916)  
          319-2081

















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