BILL ANALYSIS �
SB 208
Page 1
Date of Hearing: September 6, 2013
ASSEMBLY COMMITTEE ON HEALTH
Richard Pan, Chair
SB 208 (Lara) - As Amended: August 30, 2013
SENATE VOTE : Not relevant.
SUBJECT : Public social services: contracting.
SUMMARY : Deletes a prohibition on Medi-Cal prepaid health plans
(PHPs) entering into any subcontract in which consideration is
determined by a percentage of the primary contractor's payment
from the Department of Health Care Services (DHCS), subject to
objection from DHCS and instead authorizes these arrangements.
Establishes requirements related to cultural and linguistic
competency for requests for proposals submitted by regional
centers. (This provision is the jurisdiction of the Assembly
Human Services Committee and therefore not covered in this
analysis).
EXISTING LAW :
1)Establishes the Medi-Cal program, to provide various health
and long-term services to low-income women, parent and
caretaker adults, children, elderly, and people with
disabilities. Effective January 1, 2014, provides services to
childless adults, who are not pregnant, between the ages of 19
and 65.
2)Authorizes DHCS to enter into contracts with managed care plan
(MCP) organizations to provide services to Medi-Cal enrollees.
3)Requires most persons eligible for Medi-Cal to enroll in a
Medi-Cal MCP.
4)Defines subcontract in the Medi-Cal program as an agreement
entered into by the PHP with any of the following:
a) A provider of health care services who agrees to furnish
such services to Medi-Cal beneficiaries enrolled in the
PHP;
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b) A marketing organization; and,
c) Any other person or organization who agrees to perform
any administrative function or service for the operation of
the PHP specifically related to securing or fulfilling its
contractual obligations with DHCS.
5)Establishes Medicare as a federal health insurance program to
provide coverage to eligible individuals who are disabled or
over age 65.
6)Establishes the Coordinated Care Initiative (CCI) that
requires DHCS to seek federal approval to establish
demonstration sites in up to eight counties to provide
coordinated Medi-Cal and Medicare benefits to persons who are
dually eligible and authorizes DHCS to require seniors and
persons with disabilities (SPDs) who are eligible for Medi-Cal
only (not Medicare) to mandatorily enroll in Medi-Cal managed
care (MCMC) MCPs.
7)Provides for regulation of health plans by the Department of
Managed Health Care (DMHC) under the Knox-Keene Health Care
Service Plan Act of 1975 (Knox-Keene).
FISCAL EFFECT : This bill, as amended, has not been analyzed by
a fiscal committee.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the sponsors of this
amendment, these provisions are necessary to allow health
plans to contract in a consistent fashion for both Medi-Cal
and Medicare services. The sponsors, California Association
of Physician Groups, Health Net, and L.A. Care Health Plan (LA
Care) acknowledge that this prohibition stems from a scandal
in the mid-1970s, involving California PHPs which received
national attention. These programs had been launched by the
Governor Reagan Administration in an attempt to control costs
of Medi-Cal, several years before the advent of Knox-Keene.
According to background supplied by these sponsors, in
November 1976, the U.S. General Accounting Office (now
Government Accountability Office) determined that five
supposed nonprofit PHPs were, in fact, "fronts for
profit-making companies" that "obtained most of the state
health funds through subcontracts and then spent the money in
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questionable ways." The sponsors point out however, that
since then, not only are these plans and contracts governed by
Knox-Keene, but additionally in 1999, DMHC implemented a
comprehensive financial solvency program for Risk Bearing
Organizations (RBOs), pursuant to enacted legislation at the
time. The sponsors argue that improved oversight by DMHC
eliminated the need for artificial constraints on payment
mechanisms that were imposed back in 1977, before the Medi-Cal
PHPs developed into the modern Medi-Cal MCP system of today.
The sponsors also argue that health plans have paid capitated
providers in the Medicare Advantage (MA) program using a
percent of premium, with significant success. In addition,
the sponsors state that the need for a consistent payment
methodology between Medicare and MCMC will ensure a
streamlined payment process in the Duals Demonstration
program, known as the CCI, scheduled to begin no earlier than
April 2014.
According to LA Care, currently it pays capitated provider
groups in Medi-Cal a negotiated rate. For SPDs,
subcontractors are paid a rate that is developed based on a
number of factors including expected utilization for the
overall population within the aid category, what services are
delegated to the capitated provider and the amount paid by
DHCS. For the family aid category, LA Care further defines
the capitation by age and gender within the aid category to
better align payment with risk. LA Care stated that DHCS
often gives preliminary rates and does not finalize them until
well into the rate year. Additionally, mid-year benefit
changes have occurred and the impact on rates is not known
until many months or possibly years after the services have
been provided and paid for by the plan. As a result, it is
inefficient and administratively burdensome and time consuming
to have to do a contract amendment each time there is a rate
change or adjustment. If percent of premium were allowed, it
would be transparent to the subcontractor and they would
receive their rate adjustment much quicker than having to go
through a contract amendment execution process.
2)BACKGROUND . DHCS will shortly have almost its entire
population in MCMC. Currently MCMC in California serves about
5.2 million enrollees in 30 counties, or about 69% of the
total Medi-Cal population. There are three models. The
oldest model is the County Operated Health System (COHS).
COHS plans serve about one million enrollees through six
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health plans in 14 counties: Marin, Mendocino, Merced,
Monterey, Napa, Orange, San Mateo, San Luis Obispo, Santa
Barbara, Santa Cruz, Solano, Sonoma, Ventura, and Yolo. Eight
more counties are in the process of transitioning
approximately 80,000 children and fee-for-service (FFS)
enrollees into a COHS (Del Norte, Humboldt, Lake, Lassen,
Modoc, Shasta, Siskiyou, and Trinity). In the COHS model,
DHCS contracts with a health plan created by the County Board
of Supervisors and all Medi-Cal enrollees are in the same
health plan. The second model is the two-Plan model in which
there is a "Local Initiative" and a "commercial plan." DHCS
contracts with both plans. The two-plan model serves about
3.6 million beneficiaries in Alameda, Contra Costa, Fresno,
Kern, Kings, Los Angeles, Madera, Riverside, San Bernardino,
San Francisco, San Joaquin, Santa Clara, Stanislaus, and
Tulare. In November 2013, 18 more counties will transition
approximately 200,000 children, families, seniors and people
with disabilities into a regional Two-Plan model. Thirdly,
two-counties employ the Geographic Managed Care (GMC) model:
Sacramento and San Diego. DHCS contracts with several
commercial plans in those counties and there are about 600,000
enrollees.
DHCS is also participating in a demonstration project authorized
by the 2010 federal Patient Protection and Affordable Care Act
to improve coordination of services for persons who are dually
eligible for state Medicaid programs and Medicare. The CCI,
now entitled Cal MediConnect was authorized by the Legislature
as a three-year, eight county demonstration project. The
eight counties are Alameda, Los Angeles, Orange, Riverside,
San Bernardino, San Diego, San Mateo, and Santa Clara covering
456,000 dual eligible enrollees. Cal MediConnect will combine
the continuum of health care, acute care, behavioral health,
and Long Term Supports and Services through Medi-Cal MCPs
using a capitated payment model to provide Medicare and
Medi-Cal benefits through existing plans. The phase in of
enrollment is scheduled to begin no sooner than April 1, 2014.
3)Knox-Keene. Knox-Keene is the regulatory framework that most
MCPs operate under in California. It is a comprehensive set
of rules that cover mandatory basic services, financial
stability, availability and accessibility of providers, review
of provider contracts, the administrative organization,
consumer disclosure, and the grievance requirements. It is
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administered and enforced by DMHC. Among the factors that led
to its passage, including the selection at the time of the
Department of Corporations (DOC) as the regulatory entity,
were a number the scandals associated with Medi-Cal PHPs and
lax oversight by the Department of Health Services (DHS) (now
DHCS) in the early 70's when Governor Reagan expanded use of
PHPs in the Medi-Cal program as a means of reducing costs. In
1999, comprehensive health plan reform legislation, moved
regulation from the DOC and led to the creation of DMHC.
Responsibility for Knox-Keene regulation was transferred to
the new department in July 2000. However, it continued to be
under the Business, Transportation and Housing Agency, rather
than the Health and Human Services Agency until it was
transferred in 2012 by AB 922 (Monning), Chapter 552, Statutes
of 2011.
As a result of the increase in sub-contracting to independent
practice associations (IPAs) and medical groups, DMHC has also
been tasked with assessing the adequacy of financial reserves
and the administrative capacity of all RBOs to fulfill
delegated responsibilities and to timely process and pay all
medical claims for the medical services that are delegated by
a health plan to the RBO. The DMHC's assessment activities
include review of all financial information submitted by the
RBOs, including certified public accountant-audited and
company-prepared financial statements. If an RBO becomes
noncompliant with Knox-Keene financial solvency requirements,
the RBO is required to develop a corrective action plan which
the DMHC reviews to ensure the RBO's proposed corrective
action plan and financial assumptions are viable and will
correct the RBO's financial problems.
4)Regulation of State Funded Managed Care Programs . California
has adopted the national trend to use various models of
managed care in place of FFS in its public programs such as
Medi-Cal. Similar to commercial HMOs, the enrollee receives a
subset of the Medi-Cal benefits through an MCP. The plan is
paid a per member capitated rate for each enrollee which is
set by an actuarial methodology. The plan in turn
sub-contracts with providers, medical groups, or in some cases
another plan, to provide Medi-Cal covered services to
enrollees. As in commercial managed care, the enrollee's
choice of providers may be limited to those in the plan's
network, but the plan is required to ensure timely access to
care. MCMC developed along two separate paths in California.
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In 1985 federal law specifically authorized the Health Plan of
San Mateo and the Santa Barbara Regional Health Authority as
Health Insuring Organizations (known under state law as COHS).
There is no choice in these counties as all enrollees are in
the same plan, although some services may be provided outside
the plan or are "carved-out." Because of the specific federal
authority, these entities are not required to be licensed by
the state. Even prior to mandatory enrollment of SPDs in the
two-plan and GMC counties, in a COHS county everyone,
regardless of disability category is in the same health plan.
Although COHS are not required to obtain a Knox-Keene license
for Medi-Cal, DHCS requires them to meet Knox-Keene standards
by contract.
When expanded use of PHPs was again proposed as a means of
reducing costs in Medi-Cal in 1993, a basic tenet was that the
plans in the two-plan and GMC counties would be required to
obtain Knox-Keene licensure. COHS continued to be exempted
from this requirement. However many of the COHS obtained a
Knox-Keene license in order to participate in the Healthy
Families program. In the most recent contracts, DHCS required
each COHS to meet Knox-Keene requirements. Currently DHCS
audits the plans regularly for contract compliance and audits
the Knox-Keene plans jointly with DMHC. The general practice
of DHCS is to require the plan to submit a corrective action
plan if there are deficiencies. Financial and fraud
investigation reviews are performed by the Controller's
office. DHCS is also in the process of entering into an
inter-agency agreement to train the Controller's staff to be
able to perform medical audits.
5)SUPPORT . According to the supporters, currently, Medicare and
Medi-Cal capitated reimbursement rates are treated
differently. For over a decade, health plans have paid
capitated providers in the MA program using a percent of
premium, with significant success. The MA program serves over
a million seniors in California, including several hundred
thousand voluntarily-enrolled dual-eligible beneficiaries.
The supporters further argue that it has an excellent track
record of patient satisfaction and provider financial
solvency. According to this support, Medi-Cal is prevented
from following the same payment method as Medicare; which is a
problem given the forthcoming convergence of the two programs
in the Cal MediConnect program (Duals Demonstration Pilot).
They support this bill because it creates transparency for
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providers and health plans; while incentivizing health care
organizations to work together in order to meet performance
standards. Furthermore, they argue, allowing consideration to
be based off the premium contract ensures that the patient
receives quality coverage because the reimbursement and/or
payment are based on the beneficiary getting the appropriate
level of care for his/her diagnoses. The need for a
consistent payment methodology for Medicare and Medi-Cal
services is genuine, and this bill is the best means to ensure
a streamlined payment process in the Cal MediConnect Program;
which is crucial for beneficiaries requiring adequate
continuity of care during the transition According to the
sponsors, the prohibition of paying a percent of premium is
inconsistent with how health plans currently pay capitated
providers such as IPAs, medical groups, and hospitals in the
MA program. This contracting method accommodates the risk
adjustment of Medicare capitation payment methodology which is
enrollee-specific.
6)PREVIOUS LEGISLATION . AB 1693 (Keene), Chapter 1036, Statutes
of 1977, establishes a pilot program, revises the
authorization of DHCS (then DHS) to contract with PHPs to
provide services to Medi-Cal enrollees, at the enrollees
option. Provides for regulation of the PHPs, including
sub-contracts and enacted consumer protections.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Physician Groups (cosponsor)
Health Net (cosponsor)
L.A. Care Health Plan (cosponsor)
Opposition
None on file.
Analysis Prepared by : Marjorie Swartz / HEALTH / (916)
319-2097