BILL ANALYSIS
SENATE COMMITTEE ON PUBLIC SAFETY
Senator Mark Leno, Chair A
2009-2010 Regular Session B
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9
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AB 1985 (Galgiani) 5
As Amended June 21, 2010
Hearing date: June 29, 2010
Penal Code
SM:dl
CORRECTIONS: DURABLE MEDICAL EQUIPMENT
HISTORY
Source: California Prison Health Care Services (Federal
Receiver)
Prior Legislation: AB 2119 (Galgiani) - 2008, held on suspense
in Assembly Appropriations Committee;
AB 1762 (Committee on Budget) - Chapter 230,
Statutes of 2003
AB 747 (Matthews) - Chap. 659, Statutes of 2003
Support: None known
Opposition:Disability Rights California
Assembly Floor Vote: Ayes 52 - Noes 22
KEY ISSUES
SHOULD THE CALIFORNIA DEPARTMENT OF CORRECTIONS AND
REHABILITATION (CDCR) BE REQUIRED BY JANUARY 1, 2011 TO ADOPT
STANDARD FORMS FOR USE BY CONTRACT HEALTH SERVICE PROVIDERS,
DEVELOP THE ABILITY TO ACCEPT SECURE ELECTRONIC SUBMISSION OF
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CLAIMS FROM CONTRACT HEALTHCARE SERVICE PROVIDERS, PROVIDE
ELECTRONIC CLAIM STATUS INFORMATION TO THOSE PROVIDERS, AND
AUDIT THOSE CLAIMS, AS SPECIFIED?
(CONTINUED)
SHOULD CDCR BE AUTHORIZED, SUBJECT TO APPROVAL BY THE FEDERAL
RECEIVER OF MEDICAL CARE SO LONG AS THE RECEIVERSHIP EXISTS, TO
ADOPT THE METHODOLOGIES USED IN THE MEDI-CAL PROGRAM FOR PROCUREMENT
OF DURABLE MEDICAL EQUIPMENT (DME)?
SHOULD EACH OF THESE PROVISIONS BE EXEMPT FROM THE REQUIREMENTS OF
THE ADMINISTRATIVE PROCEDURES ACT?
PURPOSE
The purpose of this bill is to (1) adopt specified legislative
findings and declarations; (2) require the CDCR by January 1,
2011, to adopt standard forms for use by contract health service
providers, develop the ability to accept secure electronic
submission of claims from contract healthcare service providers,
provide electronic claim status information to those providers,
and audit those claims, as specified; (3) authorize, subject to
approval by the federal receiver of medical care so long as the
receivership exists, to adopt the methodologies used in the
Medi-Cal program regarding procurement of durable medical
equipment (DME); and (4) exempt provisions of the bill from the
Administrative Procedures Act.
Current law establishes the following Durable Medical Goods
(DME) reimbursement rules for Medi-Cal:
a) Requires the Department of Health Care Services (DHCS)
to establish a list of covered services and maximum
allowable reimbursement rates for DME, as defined, and
requires the list to specify utilization controls to be
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applied to each type of DME;
b) Requires reimbursement for DME, except wheelchairs and
speech-generating devices to be the lesser of:
i) The amount billed pursuant to DHCS regulations;
ii) An amount that does not exceed 80% Medicare
allowance; or,
iii) The guaranteed negotiated acquisition cost by means
of exclusive or nonexclusive contracts on a bid plus a
specified percentage markup.
c) Requires reimbursement for wheelchairs and
speech-generating devices and their related accessories to
be the lesser of:
i) The amount billed pursuant to DHCS regulations;
ii) An amount that does not exceed 100% of Medicare
allowance; or,
iii) The guaranteed negotiated acquisition cost by means
of exclusive or nonexclusive contracts on a bid plus a
specified percentage markup.
d) Requires reimbursement for all DME utilizing codes with
no specified maximum allowable rate to be the lesser of:
i) The amount billed pursuant to DHCS regulations;
ii) The guaranteed negotiated acquisition cost
negotiated by means of exclusive or nonexclusive
contracts on a bid plus a specified percentage markup;
iii) The actual acquisition cost plus a markup
established by DHCS;
iv) A specified percentage of the manufacturer's
suggested retail purchase price on June 1, 2006, as
specified, not to exceed 15% for wheelchairs and
wheelchair accessories if the provider employs or
contracts with a qualified rehabilitation professional;
or,
v) A price established through targeted
product-specific cost containment provisions developed
with providers.
e) Requires reimbursement for all DME supplies and
accessories billed to the Medi-Cal Program to be the lesser
of the amount billed pursuant to pursuant to DHCS
regulations or the acquisition cost plus a 23% markup;
and,(Welfare & Inst. Code 14105.48.)
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This bill requires CDCR, by January 1, 2011, to do the
following:
Adopt industry standard claims forms for use by contract
healthcare service providers.
Be able to accept secure electronic submission of claims
from contract healthcare service providers.
Perform periodic audits of claims paid to contract
healthcare providers.
Provide secure, remote electronic access to claim status
information to those contract healthcare service providers
submitting claims electronically in the manner required by
the department.
This bill would permit CDCR to adopt policies and procedures for
the purpose of enabling electronic healthcare claims management
and processing and would exempt the adoption, amendment, or
repeal of policies and procedures for this limited purpose from
the rulemaking provisions of the Administrative Procedure Act,
as specified.
This bill authorizes CDCR, upon approval of the federal
receiver, or at such time as CDCR is no longer under the
authority of the federal receiver, to do all of the following:
The department may establish a list of covered services
and maximum allowable reimbursement rates for durable
medical equipment as defined in Section 51160 of Title 22
of the California Code of Regulations. The list may specify
utilization controls to be applied to each type of durable
medical equipment.
The department may set reimbursement for durable medical
equipment, except wheelchairs, wheelchair accessories, and
speech-generating devices and related accessories, at the
lesser of (1) the amount billed pursuant to Section 51008.1
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of Title 22 of the California Code of Regulations, (2) an
amount that does not exceed 80 percent of the lowest
maximum allowance for California established by the federal
Medicare Program for the same or similar item or service,
or (3) the guaranteed acquisition cost negotiated by means
of the contracting process provided for pursuant to Section
14105.3 of the Welfare and Institutions Code plus a
percentage markup to be established by the department.
The department may set reimbursement for wheelchairs,
wheelchair accessories, and speech-generating devices and
related accessories at the lesser of (1) the amount billed
pursuant to Section 51008.1 of Title 22 of the California
Code of Regulations, (2) an amount that does not exceed 100
percent of the lowest maximum allowance for California
established by the federal Medicare Program for the same or
similar item or service, or (3) the guaranteed acquisition
cost negotiated by means of the contracting process
provided for pursuant to Section 14105.3 of the Welfare and
Institutions Code plus a percentage markup to be
established by the department.
The department may set reimbursement for all durable
medical equipment billed to the department utilizing codes
with no specified maximum allowable rate at the lesser of
(1) the amount billed pursuant to Section 51008.1 of Title
22 of the California Code of Regulations, (2) the
guaranteed acquisition cost negotiated by means of the
contracting process provided for pursuant to Section
14105.3 of the Welfare and Institutions Code plus a
percentage markup to be established by the department, (3)
the actual acquisition cost plus a markup to be established
by the department, (4) the manufacturer's suggested retail
purchase price on June 1, 2006, and documented by a printed
catalog or a hard copy of an electronic catalog page
showing the price on that date, reduced by a percentage
discount not to exceed 20 percent, or not to exceed 15
percent for wheelchairs and wheelchair accessories if the
provider employs or contracts with a qualified
rehabilitation professional, as defined in paragraph (3) of
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subdivision (c) of Section 14105.485 of the Welfare and
Institutions Code, or (5) a price established through
targeted product-specific cost containment provisions
developed with providers.
The department may set reimbursement for all durable
medical equipment supplies and accessories billed to the
department at the lesser of (1) the amount billed pursuant
to Section 51008.1 of Title 22 of the California Code of
Regulations, or (2) the acquisition cost plus a 23-percent
markup.
The department may establish "capped rental"
reimbursement for specific items of durable medical
equipment. Items in this category may be reimbursed on a
monthly rental basis not to exceed a period of continuous
use of 10 months. After 10 months of rent have been paid,
the provider shall continue to provide the item without
charge, except for maintenance and servicing fees, until
the medical necessity ends. If the department establishes
"capped rental" reimbursement pursuant to this subdivision,
monthly reimbursement for the rental of these specific
items of durable medical equipment may not exceed 80
percent of the lowest maximum allowance for California
established by the federal Medicare Program for the same or
similar item or service.
This bill would exempt each of the above actions from the
rulemaking provisions of the Administrative Procedures Act or to
the review and approval of the Office of Administrative Law.
RECEIVERSHIP/OVERCROWDING CRISIS AGGRAVATION
The severe prison overcrowding problem California has
experienced for the last several years has not been solved. In
December of 2006 plaintiffs in two federal lawsuits against the
Department of Corrections and Rehabilitation sought a
court-ordered limit on the prison population pursuant to the
federal Prison Litigation Reform Act. On January 12, 2010, a
federal three-judge panel issued an order requiring the state to
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reduce its inmate population to 137.5 percent of design capacity
-- a reduction of roughly 40,000 inmates -- within two years.
In a prior, related 184-page Opinion and Order dated August 4,
2009, that court stated in part:
"California's correctional system is in a tailspin,"
the state's independent oversight agency has reported.
. . . (Jan. 2007 Little Hoover Commission Report,
"Solving California's Corrections Crisis: Time Is
Running Out"). Tough-on-crime politics have increased
the population of California's prisons dramatically
while making necessary reforms impossible. . . . As a
result, the state's prisons have become places "of
extreme peril to the safety of persons" they house, .
. . (Governor Schwarzenegger's Oct. 4, 2006 Prison
Overcrowding State of Emergency Declaration), while
contributing little to the safety of California's
residents, . . . . California "spends more on
corrections than most countries in the world," but the
state "reaps fewer public safety benefits." . . . .
Although California's existing prison system serves
neither the public nor the inmates well, the state has
for years been unable or unwilling to implement the
reforms necessary to reverse its continuing
deterioration. (Some citations omitted.)
. . .
The massive 750% increase in the California prison
population since the mid-1970s is the result of
political decisions made over three decades, including
the shift to inflexible determinate sentencing and the
passage of harsh mandatory minimum and three-strikes
laws, as well as the state's counterproductive parole
system. Unfortunately, as California's prison
population has grown, California's political
decision-makers have failed to provide the resources
and facilities required to meet the additional need
for space and for other necessities of prison
existence. Likewise, although state-appointed experts
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have repeatedly provided numerous methods by which the
state could safely reduce its prison population, their
recommendations have been ignored, underfunded, or
postponed indefinitely. The convergence of
tough-on-crime policies and an unwillingness to expend
the necessary funds to support the population growth
has brought California's prisons to the breaking
point. The state of emergency declared by Governor
Schwarzenegger almost three years ago continues to
this day,
California's prisons remain severely overcrowded, and
inmates in the California prison system continue to
languish without constitutionally adequate medical and
mental health care.<1>
The court stayed implementation of its January 12, 2010 ruling
pending the state's appeal of the decision to the U.S. Supreme
Court. On Monday, June 14, 2010, The U.S. Supreme Court agreed
to hear the state's appeal in this case.
This bill does not appear to aggravate the prison overcrowding
crisis described above.
COMMENTS
1. Need for This Bill
According to the author:
As a cost-saving measure to address the exorbitant
cost of durable medical equipment (DME) for Medi-Cal,
Assembly Bill 747 (Matthews, 2003) was introduced to
----------------------
<1> Three Judge Court Opinion and Order, Coleman v.
Schwarzenegger, Plata v. Schwarzenegger, in the United States
District Courts for the Eastern District of California and the
Northern District of California United States District Court
composed of three judges pursuant to Section 2284, Title 28
United States Code (August 4, 2009).
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require the then-titled Department of Health Services
to establish a list of covered services and maximum
allowable reimbursement rates for durable medical
equipment. The bill would have provided that
reimbursement for these items, of durable medical
equipment, would be the lesser of specified amounts.
The bill also would have required the department to
establish "capped rental" reimbursement for specific
items, of durable medical equipment, and would require
that items in this category be reimbursed on a monthly
rental basis as prescribed.
This language was later adopted in the Budget Trailer
bill on Health (AB 1762; Budget Act of 2003) as a cost
saver for the Medi-Cal program under the then-titled
Department of Health Services.
The Department of Corrections and Rehabilitation's
medical care system is in a current state of crisis,
as evidenced by the fact it was placed in a federal
receivership. Any way the state of California can
assist the Receiver in finding ways to cut state costs
in the prison medical care system is a plus.
Assembly Bill 1985 is a re-introduction of Assembly
Bill 2119 (Galgiani) intended to streamline the costs
of the Department of Corrections and Rehabilitation
medical care system as it has already been
accomplished under the Medi-Cal program under the
Department of Health Care Services.
AB 1985 will provide cost savings to the Department of
Corrections and Rehabilitation by permitting the
department (1) to establish a list of covered services
and maximum allowable reimbursement rates for durable
medical equipment used for inmate medical care; (2)
provide that reimbursement for these items of durable
medical equipment may be the lesser of specified
amounts; and (3) to establish capped rental
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reimbursement for specific items of durable medical
equipment and provide that items in this category be
reimbursed on a monthly basis as prescribed.
The intent of this legislation is to achieve the same
cost savings in prison healthcare as it was achieved
for the Medi-Cal program under the Department of
Health Care Services, by mirroring the language from
Assembly Bill 747 adopted by the Budget Act of 2003.
2. The Federal Prison Health Care Receivership
The inadequate provision of medical services to inmates at CDCR
prompted several class action lawsuits and court-ordered reforms
over the last several years. After "numerous experts testified
as to the 'incompetence and indifference' of prison physicians
and medical staff and described an 'abysmal' medical delivery
system where 'medical care too often sinks below gross
negligence to out-right cruelty'. . .[i]n February 2006, the
district court issued an order appointing a Receiver and
conferring upon the Receiver all of the powers of the Secretary
of the CDCR with respect to the delivery of medical care, while
concurrently suspending the Secretary's exercise of the same."
(Plata v. Schwarzenegger, 2010 U.S. App. LEXIS 8969, 5-6 (9th
Cir. Cal. Apr. 30, 2010).) The California Prison Health Care
Services (CPHCS) is a non-profit organization created to house
the activities of the federal Receiver and works at the
direction of federal Health Care Receiver, J. Clark Kelso.
3. Background
In December 2002, the State Auditor published a report regarding
the purchasing and contracting practices of DHCS for DME,
medical supplies, and hearing aids under Medi-Cal. The report
found that Medi-Cal expenditures for DME rose by 70% from 1998
through 2001 while expenditures for medical supplies decreased
by 6.3%. As a response to these cost increases, the Legislature
implemented major cost savings provisions by passing AB 1762,
which were implemented in 2004. According to DHCS, Medi-Cal
spending on DME has decreased significantly from $143 million in
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2003 to $99 million in 2009. DHCS notes that other factors may
have played a role in reducing costs such as change in demand,
participation of DME providers, and activities of Medi-Cal
Audits and Investigations Branch.
4. Current CDCR DME Procurement
According to CDCR, prisons purchase DME in the same manner as
other non-medical equipment. For purchase contracts of less
than $100,000, individual CDCR facilities must obtain at least
two or three bids and choose the lowest qualified bidder (with
certain exceptions designed to favor purchases from small
businesses and disabled veterans business enterprises).
Purchases of $100,000 or more are processed through DGS to
determine if DGS has a contract in place to purchase the
specific item or items. DGS secures contracts by using the
competitive invitation for bid process. This process includes
advertising DGS' requirements through the state contracts
register, receiving bids from at least three vendors, and
accepting the lowest competitive bid that meets DGS'
requirements. The Receiver may, but is not required to, follow
existing state law in the acquisition of DME.
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5. Purchasing DME: Medi-Cal and CDCR
As noted above, following a Bureau of State Audits report in
2002 about prohibitive DME cost escalation in Medi-Cal, AB 1762
was enacted to require Medi-Cal to establish price caps and fee
schedules. Following enactment of those provisions, Medi-Cal
DME costs were reduced substantially. While the enactment of AB
1762 may have generated cost savings and alleviated escalating
expenditures under Medi-Cal, the funding and circumstances of
health care provided in California prisons are fundamentally
different. It is not clear whether the approach that was
effective for Medi-Cal would be workable or effective in the
corrections environment. The CDCR approach to DME is focused
around competitive bidding for costs of less than $100,000 and
for costs in excess of $100,000 the Department of General
Services handles procurement. It is unclear how easily CDCR
could adapt to the approach contained in this bill. However,
the Receiver's office observes that the permissive nature of
this bill would allow CDCR to use this procurement methodology
for those types of medical equipment for which it feels this
would be appropriate and it would not be locked in to using this
approach for all medical equipment.
ARE THE MEDI-CAL DME PROCUREMENT RULES APPROPRIATE FOR CDCR?
IS THERE A DEMONSTRATED NEED FOR CDCR TO ADOPT THESE PROCUREMENT
RESTRICTIONS?
BECAUSE THIS PORTION OF THE BILL IS ENTIRELY PERMISSIVE, IS IT
NECESSARY?
6. Administrative Procedures Act Exemption
This bill would require CDCR to establish the capability to
accept secure electronic submission of claims from contract
healthcare service providers and provide secure, remote
electronic access to claim status information to those contract
healthcare service providers submitting claims electronically.
It would also permit CDCR to adopt the Medi-Cal procurement
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rules for purchasing durable medical equipment. As to both of
these the bill would currently exempt these provisions from the
rulemaking provisions of the Administrative Procedures Act (APA)
or to the review and approval of the Office of Administrative
Law. The author has indicated she will take an amendment to
delete these exemptions.
SHOULD THIS AMENDMENT BE TAKEN?
7. Argument in Opposition
Disability Rights California states:
AB 1985 would permit the Department of Corrections and
Rehabilitation to establish a list of covered services
and maximum allowable reimbursement rates for durable
medical equipment (DME) used for inmate medical care.
The list may specify utilization controls to be
applied to each type of DME and adopts the definition
of DME under the Medi-Cal program.
Adoption of Medi-Cal's limited definition of DME,
permission to impose utilization controls, and
requirement for the cheapest DME purchase and rental
will further curtail an already reduced access to
medical equipment in penal correctional facilities.
Coupled with the lower standard of medical care
available to inmates, AB 1985 will compromise health
services to inmates with disabilities by resulting in
the selection of inappropriate DME or denial of
appropriate DME.
AB 1985 runs counter to inmates' rights under the
Americans with Disabilities Act (ADA). Under the ADA,
inmates with disabilities must be afforded equal
access to the same services and activities, and
receive the same benefits and aids as inmates without
disabilities. The program restrictions of AB 1985
will arbitrarily limit the determination, and in many
cases deny the receipt, of items of DME that would be
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necessary to afford equal access and benefits as
mandated by the ADA.
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