Existing law establishes the Medi-Cal program, which is administered by the State Department of Health Care Services and under which qualified low-income individuals receive health care services. The Medi-Cal program is, in part, governed and funded by federal Medicaid program provisions. Existing law authorizes the Director of Health Care Services to contract, on a bid or nonbid basis, with any qualified individual, organization, or entity to provide services to, arrange for or case manage the care of Medi-Cal beneficiaries.

Existing law authorizes the renewal of a contract if the provider continues to meet the requirements of the Medi-Cal program and the contract. Under existing law, failure to meet those requirements is cause for nonrenewal of the contract. Existing law authorizes the department to terminate or decline to renew a contract, in whole or in part, if the director determines that the action is necessary to protect the health of the beneficiaries or the funds appropriated to carry out the Medi-Cal program.

Under existing law, one of the methods by which Medi-Cal services are provided is pursuant to contracts with various types of managed care plans. Existing law, commencing July 1, 2019, requires a Medi-Cal managed care plan to comply with a minimum 85% medical loss ratio. Existing law requires, effective for contract rating periods commencing on or after July 1, 2023, a Medi-Cal managed care plan to provide a remittance to the state if the ratio does not meet the minimum ratio of 85% for the corresponding reporting year.

This bill would authorize the department to terminate a for-profit Medi-Cal managed care plan contract if the Attorney General determines that the Medi-Cal managed care plan engaged or engages in anticompetitive conduct or practices, as specified, or if the department determines that the Medi-Cal managed care plan has a pattern or practice of not complying with the medical loss ratio, as described above. The bill would specify that nonrenewal of a contract under these provisions would not qualify the applicant for an administrative hearing. The bill would apply these provisions only to new contracts, and renewals of existing contracts, executed on or after January 1, 2019.

Existing law establishes the Medi-Cal program, which is administered by the State Department of Health Care Services and under which qualified low-income individuals receive health care services. The Medi-Cal program is, in part, governed and funded by federal Medicaid program provisions. Existing law authorizes the Director of Health Care Services to contract, on a bid or nonbid basis, with any qualified individual, organization, or entity to provide services to, arrange for or case manage the care of Medi-Cal beneficiaries.

Existing law authorizes the renewal of a contract if the provider continues to meet the requirements of the Medi-Cal program and the contract. Under existing law, failure to meet those requirements is cause for nonrenewal of the contract. Existing law authorizes the department to terminate or decline to renew a contract, in whole or in part, if the director determines that such action is necessary to protect the health of the beneficiaries or the funds appropriated to carry out the Medi-Cal program.

Under existing law, one of the methods by which Medi-Cal services are provided is pursuant to contracts with various types of managed care plans. Existing law, commencing July 1, 2019, requires a Medi-Cal managed care plan to comply with a minimum 85% medical loss ratio. Existing law requires, effective for contract rating periods commencing on or after July 1, 2023, a Medi-Cal managed care plan to provide a remittance to the state if the ratio does not meet the minimum ratio of 85% for the corresponding reporting year.

This bill would require authorize the department to decline to renew or award a contract, in whole or in part, of a terminate a for-profit Medi-Cal managed care plan contract if the Attorney General determines that the Medi-Cal managed care plan engaged or engages in anticompetitive conduct or practices, as specified, or if the department determines that the Medi-Cal managed care plan has a pattern or practice of not complying with the medical loss ratio, as described above, unless the department determines in writing that there is a compelling reason not to decline to renew or award the contract. above. The bill would specify that nonrenewal of a contract under these provisions would not qualify the applicant for an administrative hearing. The bill would apply these provisions only to new contracts, and renewals of existing contracts, executed on or after January 1, 2019.

Existing law establishes the Medi-Cal program, which is administered by the State Department of Health Care Services and under which qualified low-income individuals receive health care services. The Medi-Cal program is, in part, governed and funded by federal Medicaid program provisions. Existing law authorizes the Director of Health Care Services to contract, on a bid or nonbid basis, with any qualified individual, organization, or entity to provide services to, arrange for or case manage the care of Medi-Cal beneficiaries.

Existing law authorizes the renewal of a contract if the provider continues to meet the requirements of the Medi-Cal program and the contract. Under existing law, failure to meet those requirements is cause for nonrenewal of the contract. Existing law authorizes the department to terminate or decline to renew a contract, in whole or in part, if the director determines that such action is necessary to protect the health of the beneficiaries or the funds appropriated to carry out the Medi-Cal program.

Under existing law, one of the methods by which Medi-Cal services are provided is pursuant to contracts with various types of managed care plans. Existing law, commencing July 1, 2019, requires a Medi-Cal managed care plan to comply with a minimum 85% medical loss ratio. Existing law requires, effective for contract rating periods commencing on or after July 1, 2023, a Medi-Cal managed care plan to provide a remittance to the state if the ratio does not meet the minimum ratio of 85% for the corresponding reporting year.

This bill would require the department to decline to renew or award a contract, in whole or in part, of a for-profit Medi-Cal managed care plan if the Attorney General determines that the Medi-Cal managed care plan engaged or engages in anticompetitive conduct or practices, as defined, specified, or if the department determines that the Medi-Cal managed care plan has a pattern or practice of not complying with the medical loss ratio, as described above. above, unless the department determines in writing that there is a compelling reason not to decline to renew or award the contract. The bill would specify that nonrenewal of a contract under these provisions would not qualify the applicant for an administrative hearing. The bill would apply these provisions only to new contracts, and renewals of existing contracts, executed on or after January 1, 2019.

Existing law establishes the Medi-Cal program, which is administered by the State Department of Health Care Services and under which qualified low-income individuals receive health care services. The Medi-Cal program is, in part, governed and funded by federal Medicaid program provisions. Existing law authorizes the Director of Health Care Services to contract, on a bid or nonbid basis, with any qualified individual, organization, or entity to provide services to, arrange for or case manage the care of Medi-Cal beneficiaries.

Existing law authorizes the renewal of a contract if the provider continues to meet the requirements of the Medi-Cal program and the contract. Under existing law, failure to meet those requirements is cause for nonrenewal of the contract. Existing law authorizes the department to terminate or decline to renew a contract, in whole or in part, if the director determines that such action is necessary to protect the health of the beneficiaries or the funds appropriated to carry out the Medi-Cal program.

Under existing law, one of the methods by which Medi-Cal services are provided is pursuant to contracts with various types of managed care plans. Existing law, commencing July 1, 2019, requires a Medi-Cal managed care plan to comply with a minimum 85% medical loss ratio. Existing law requires, effective for contract rating periods commencing on or after July 1, 2023, a Medi-Cal managed care plan to provide a remittance to the state if the ratio does not meet the minimum ratio of 85% for the corresponding reporting year.

This bill would require the department to decline to renew or award a contract, in whole or in part, of a for-profit Medi-Cal managed care plan if the Attorney General determines that the Medi-Cal managed care plan engaged or engages in anticompetitive conduct or practices, as defined, or if the department determines that the Medi-Cal managed care plan has a pattern or practice of not complying with the medical loss ratio, as described above. The bill would specify that nonrenewal of a contract under these provisions would not qualify the applicant for an administrative hearing. The bill would apply these provisions only to new contracts, and renewals of existing contracts, executed on or after January 1, 2019.

(1)Existing law establishes the Medi-Cal program, which is administered by the State Department of Health Care Services and under which qualified low-income individuals receive health care services. The Medi-Cal program is, in part, governed and funded by federal Medicaid Program program provisions. Existing law authorizes the Director of Health Care Services to contract, on a bid or nonbid basis, with any qualified individual, organization, or entity to provide services to, arrange for or case manage the care of Medi-Cal beneficiaries.

Existing law authorizes the renewal of a contract if the provider continues to meet the requirements of the Medi-Cal program and the contract. Under existing law, failure to meet those requirements is cause for nonrenewal of the contract. Existing law authorizes the department to terminate or decline to renew a contract, in whole or in part, if the director determines that such action is necessary to protect the health of the beneficiaries or the funds appropriated to carry out the Medi-Cal program.

Under existing law, one of the methods by which Medi-Cal services are provided is pursuant to contracts with various types of managed care plans. Existing law, commencing July 1, 2019, requires a Medi-Cal managed care plan to comply with a minimum 85% medical loss ratio. Existing law requires, effective for contract rating periods commencing on or after July 1, 2023, a Medi-Cal managed care plan to provide a remittance to the state if the ratio does not meet the minimum ratio of 85% for the corresponding reporting year.

This bill would require the department to terminate or decline to renew or award a contract, in whole or in part, of a for-profit Medi-Cal managed care plan if the Attorney General determines that the Medi-Cal managed care plan engaged or engages in anticompetitive conduct or practices, as defined, or if the department determines that the Medi-Cal managed care plan has a pattern or practice of not complying with the medical loss ratio, as described above. The bill would specify that nonrenewal or termination of a contract under these provisions would not qualify the applicant for an administrative hearing. The bill would apply these provisions only to new contracts, and renewals of existing contracts, executed on or after January 1, 2019.

Existing law establishes the Medi-Cal program, which is administered by the State Department of Health Care Services and under which qualified low-income individuals receive health care services. The Medi-Cal program is, in part, governed and funded by federal Medicaid Program provisions. Existing law authorizes the Director of Health Care Services to contract, on a bid or nonbid basis, with any qualified individual, organization, or entity to provide services to, arrange for or case manage the care of Medi-Cal beneficiaries.

Existing law authorizes the renewal of a contract if the provider continues to meet the requirements of the Medi-Cal program and the contract. Under existing law, failure to meet those requirements is cause for nonrenewal of the contract. Existing law authorizes the department to terminate or decline to renew a contract, in whole or in part, if the director determines that such action is necessary to protect the health of the beneficiaries or the funds appropriated to carry out the Medi-Cal program.

This bill would require the department to terminate or decline to renew or award a contract, in whole or in part, of a for-profit health plan or insurer Medi-Cal managed care plan if the Attorney General determines that the for-profit health plan or insurer Medi-Cal managed care plan engaged or engages in anticompetitive conduct or practices, as defined, or if the department determines that the for-profit health plan or insurer Medi-Cal managed care plan has a pattern or practice of not complying with the medical loss ratio, as specified. described above. The bill would specify that nonrenewal or termination of a contract under these provisions would not qualify the applicant for an administrative hearing. The bill would apply these provisions only to new contracts, and renewals of existing contracts, executed on or after January 1, 2019.

Existing law provides for the Medi-Cal program, which is administered by the State Department of Health Care Services, pursuant to which medical benefits are provided to qualified low-income persons. Existing law authorizes the department to contract with various types of health care providers and entities in order to obtain Medi-Cal services through managed care arrangements, including managed care delivered by county organized health systems. Existing law authorizes a county contracting with the department to arrange for the delivery of Medi-Cal services to Medi-Cal beneficiaries, except that the county may exclude specified services, including certain long-term care services, dental services, services in a federal or state hospital, and home- or community-based care waivered services.

This bill would make technical, nonsubstantive changes to those provisions.

GOVERNOR'S VETO

GV Bill Id:AB 2427

Author:(Wood)

As Enrolled Ver:September 5, 2018

2/3 vote

Original Committee Reference: HEALTH

SUMMARY: Requires the Department of Health Care Services (DHCS) to include a contract provision, in each for-profit Medi-Cal managed care plan (MCMC) contract, the ability for DHCS to terminate the contract if the Attorney General has determined the MCMC plan has engaged in anticompetitive conduct, or if the MCMC has a pattern of noncompliance with specified medical loss ratios (MLR). Applies these provisions only to new contracts, and renewals of existing contracts, executed on or after January 1, 2019.

The Senate amendments:

1. Revise provisions to require DHCS to include a contract provision, in each for-profit MCMC contract, the ability for DHCS to terminate the contract if the Attorney General has determined the MCMC plan has engaged in anticompetitive conduct, or if the MCMC has a pattern of noncompliance with specified medical loss ratios. Applies these provisions only to new contracts, and renewals of existing contracts, executed on or after January 1, 2019. Allows DHCS to include a contract extension amendment or renewal contract to contain provisions to address noncompliance to ensure plan accountability, as specified, if DHCS elects to extend or renew a contract.
2. Deletes the definition of anticompetitive conduct or practices.
3. Deletes provisions of this bill related to health care service plans negotiating with the Exchange.
4. Makes technical changes.

FISCAL EFFECT: According to the Senate Appropriations Committee:

1. Costs of $561,000 (General Fund (GF)) in fiscal year 2018-19 and $1.0 million (GF) in fiscal year 2019-20 and ongoing for 2.0 deputy attorneys general and 1.0 legal secretary at the Department of Justice to set up an administrative investigatory and adjudication apparatus to determine if a for-profit MCMC plan has engaged in anticompetitive conduct and provide due process.
2. Senate Appropriations Committee notes indeterminate ongoing administrative workload costs (likely high hundreds of thousands GF, federal funds) for DHCS, to amend contracts to include the specified language regarding anticompetitive conduct; staff resources to develop outreach and training materials for MCMC plans regarding the bill's provisions and provide technical assistance to plans; and any associated costs with termination or non-renewal to transition beneficiaries to a new plan.
3. Senate Appropriations Committee notes indeterminate costs for the Department of Managed Health Care and Department of Insurance for compliance enforcement.

COMMENTS: According to the author, competitive marketplaces established through antitrust attentiveness help consumers by ensuring fair prices for services, more plans to choose from, and quality services. This bill focuses on competition among for-profit MCMC plans. Lawsuits have been filed in other states claiming deliberate conspiracy by certain insurers to reduce competition and allocate market shares in violation of federal antitrust laws, and this bill allows the state to act when for-profit MCMC plans engage in anticompetitive behavior. Additionally, last year, state law established MLR requirements for MCMC plans, and this bill makes it clear that if plans are not meeting these requirements, the state should no longer continue to allow these for-profit plans to provide services to Medi-Cal beneficiaries.

Medi-Cal Managed Care. The Medi-Cal program is projected to cover 13.7 million Californians each month in 2016-17, at a cost of $105.6 billion in total funds ($18.6 billion GF). DHCS administers Medi-Cal through two types of delivery systems: managed care and fee-for-service.

DHCS contracts with over 20 MCMC plans across California, 56 county specialty mental health plans, and two primary care case management plans (AIDS Healthcare Foundation and Family Mosaic). Slight over 79% of Medi-Cal beneficiaries (10.9 million individuals) receive care through a MCMC plan, a significant shift from December 2011, when approximately 45% of beneficiaries were enrolled in MCMC care. In California, there are six primary models of managed care. Of the 20+ MCMC plans, the following five full service plans are for-profit plans: Aetna, Anthem Blue Cross (which owns CareMore Cal MediConnect), Centene (California Health and Wellness and HealthNet), Molina, and United. Slightly over 2.9 million Medi-Cal beneficiaries were enrolled in these plans as May 2018.

MCMC plans indicate their contracts with DHCS are two to five years in duration but have been extended to settle litigation.

The California Medical Association (CMA) writes in support that this bill seeks to address profiteering in the Medi-Cal program by giving additional powers to the state to regulate for-profit MCMC plans. CMA states that California's Medi-Cal program is the largest in the country by both sheer numbers and percentage of population enrolled in the program. Providers serving the Medi-Cal population work on a tight budget but the same does not seem to be true for the for-profit health plans that participate in the program. CMA states that, in 2017, MCMC plans made more profits in California than all the rest of the country's Medicaid insurers combined. CMA states that, from 2014 to 2016, MCMC plans made a total of $5.4 billion in profits. CMA concludes that California needs this bill to help insure that for-profit plans who are entrusted with public funds to deliver necessary medical care are acting with our residents' best interests at heart. Health Access California writes in support that as the bill was recently amended on June 19, 2018 to clarify that the provisions on anti-competitive behavior do not undermine existing consumer protections. Health Access states the anticompetitive language that applies to MCMC plans as amended now recognizes that state law imposes standards on MCMC plans that may cause a health plan to withdraw, or fail to enter, a geographic region, and these standards include financial solvency, network adequacy and numerous other consumer protections.

The California Association of Health Plans writes in opposition that this bill unfairly targets for-profit MCMC plans for contract new-renewal without an opportunity to appeal. As a result, this bill could result in a loss of the MCMC contracts, thereby disrupting access to health care for Medi-Cal beneficiaries who will be placed into Medi-Cal fee-for-service until they are able to select another health plan. In addition, California Association of Health Plans argues this bill is premature and unnecessary as a new MLR was created for all MCMC plans by SB 171 (Hernandez), Chapter 768, Statutes of 2017, which requires a remittance to DHCS if they operate below the MLR. DHCS writes in opposition that this bill would have a major impact on the way DHCS currently contracts with MCMC plans to provide services to Medi-Cal beneficiaries. DHCS states it already has methods in place to address poor plan conduct, including administrative and financial sanctions up to and including contract termination. Department of Finance is opposed as this bill is duplicative of existing measures to address noncompliance by MCMC plans and may result in general fund costs not included in the administration's fiscal plan.

GOVERNOR'S VETO MESSAGE:

This bill would require Medi-Cal managed care plan contracts to include a provision allowing the Department of Health Care Services to terminate the contract if the Attorney General determines that the plan engaged in anticompetitive conduct, or if the department determines the plan has a pattern of not complying with medical loss ratio requirements.

This bill is unnecessary as the department has sufficient statutory and contractual authority to deal with inappropriate or illegal conduct by plans.

Analysis Prepared by: Kristene Mapile / HEALTH / (916) 319-2097 FN: 0005283

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 2427

Author:(Wood)

As Amended Ver:July 2, 2018

Majority vote

Original Committee Reference: HEALTH

SUMMARY: Requires the Department of Health Care Services (DHCS) to include a contract provision, in each for-profit Medi-Cal managed care plan (MCMC) contract, the ability for DHCS to terminate the contract if the Attorney General has determined the MCMC plan has engaged in anticompetitive conduct, or if the MCMC has a pattern of noncompliance with specified medical loss ratios (MLR). Applies these provisions only to new contracts, and renewals of existing contracts, executed on or after January 1, 2019.

The Senate amendments:

1. Revise provisions to require DHCS to include a contract provision, in each for-profit MCMC contract, the ability for DHCS to terminate the contract if the Attorney General has determined the MCMC plan has engaged in anticompetitive conduct, or if the MCMC has a pattern of noncompliance with specified medical loss ratios. Applies these provisions only to new contracts, and renewals of existing contracts, executed on or after January 1, 2019. Allows DHCS to include a contract extension amendment or renewal contract to contain provisions to address noncompliance to ensure plan accountability, as specified, if DHCS elects to extend or renew a contract.
2. Deletes the definition of anticompetitive conduct or practices.
3. Deletes provisions of this bill related to health care service plans negotiating with the Exchange.
4. Makes technical changes.

FISCAL EFFECT: According to the Senate Appropriations Committee:

1. Costs of $561,000 (General Fund (GF)) in fiscal year 2018-19 and $1.0 million (GF) in fiscal year 2019-20 and ongoing for 2.0 deputy attorneys general and 1.0 legal secretary at the Department of Justice to set up an administrative investigatory and adjudication apparatus to determine if a for-profit MCMC plan has engaged in anticompetitive conduct and provide due process.
2. Senate Appropriations Committee notes indeterminate ongoing administrative workload costs (likely high hundreds of thousands GF, federal funds) for DHCS, to amend contracts to include the specified language regarding anticompetitive conduct; staff resources to develop outreach and training materials for MCMC plans regarding the bill's provisions and provide technical assistance to plans; and any associated costs with termination or non-renewal to transition beneficiaries to a new plan.
3. Senate Appropriations Committee notes indeterminate costs for the Department of Managed Health Care and Department of Insurance for compliance enforcement.

COMMENTS: According to the author, competitive marketplaces established through antitrust attentiveness help consumers by ensuring fair prices for services, more plans to choose from, and quality services. This bill focuses on competition among for-profit MCMC plans. Lawsuits have been filed in other states claiming deliberate conspiracy by certain insurers to reduce competition and allocate market shares in violation of federal antitrust laws, and this bill allows the state to act when for-profit MCMC plans engage in anticompetitive behavior. Additionally, last year, state law established MLR requirements for MCMC plans, and this bill makes it clear that if plans are not meeting these requirements, the state should no longer continue to allow these for-profit plans to provide services to Medi-Cal beneficiaries.

Medi-Cal Managed Care. The Medi-Cal program is projected to cover 13.7 million Californians each month in 2016-17, at a cost of $105.6 billion in total funds ($18.6 billion GF). DHCS administers Medi-Cal through two types of delivery systems: managed care and fee-for-service.

DHCS contracts with over 20 MCMC plans across California, 56 county specialty mental health plans, and two primary care case management plans (AIDS Healthcare Foundation and Family Mosaic). Slight over 79% of Medi-Cal beneficiaries (10.9 million individuals) receive care through a MCMC plan, a significant shift from December 2011, when approximately 45% of beneficiaries were enrolled in MCMC care. In California, there are six primary models of managed care. Of the 20+ MCMC plans, the following five full service plans are for-profit plans: Aetna, Anthem Blue Cross (which owns CareMore Cal MediConnect), Centene (California Health and Wellness and HealthNet), Molina, and United. Slightly over 2.9 million Medi-Cal beneficiaries were enrolled in these plans as May 2018.

MCMC plans indicate their contracts with DHCS are two to five years in duration but have been extended to settle litigation.

The California Medical Association (CMA) writes in support that this bill seeks to address profiteering in the Medi-Cal program by giving additional powers to the state to regulate for-profit MCMC plans. CMA states that California's Medi-Cal program is the largest in the country by both sheer numbers and percentage of population enrolled in the program. Providers serving the Medi-Cal population work on a tight budget but the same does not seem to be true for the for-profit health plans that participate in the program. CMA states that, in 2017, MCMC plans made more profits in California than all the rest of the country's Medicaid insurers combined. CMA states that, from 2014 to 2016, MCMC plans made a total of $5.4 billion in profits. CMA concludes that California needs this bill to help insure that for-profit plans who are entrusted with public funds to deliver necessary medical care are acting with our residents' best interests at heart. Health Access California writes in support that as the bill was recently amended on June 19, 2018 to clarify that the provisions on anti-competitive behavior do not undermine existing consumer protections. Health Access states the anticompetitive language that applies to MCMC plans as amended now recognizes that state law imposes standards on MCMC plans that may cause a health plan to withdraw, or fail to enter, a geographic region, and these standards include financial solvency, network adequacy and numerous other consumer protections.

The California Association of Health Plans writes in opposition that this bill unfairly targets for-profit MCMC plans for contract new-renewal without an opportunity to appeal. As a result, this bill could result in a loss of the MCMC contracts, thereby disrupting access to health care for Medi-Cal beneficiaries who will be placed into Medi-Cal fee-for-service until they are able to select another health plan. In addition, California Association of Health Plans argues this bill is premature and unnecessary as a new MLR was created for all MCMC plans by SB 171 (Hernandez), Chapter 768, Statutes of 2017, which requires a remittance to DHCS if they operate below the MLR. DHCS writes in opposition that this bill would have a major impact on the way DHCS currently contracts with MCMC plans to provide services to Medi-Cal beneficiaries. DHCS states it already has methods in place to address poor plan conduct, including administrative and financial sanctions up to and including contract termination. Department of Finance is opposed as this bill is duplicative of existing measures to address noncompliance by MCMC plans and may result in general fund costs not included in the administration's fiscal plan.

Analysis Prepared by: Kristene Mapile / HEALTH / (916) 319-2097 FN: 0004290

 THIRD READING  

Bill No: AB 2427

Author:

:

Vote:

SENATE HEALTH COMMITTEE: 7-2, 6/27/18

AYES: Pan, Beall, Hernandez, Leyva, Mitchell, Monning, Roth

NOES: Nguyen, Nielsen

SENATE APPROPRIATIONS COMMITTEE: 5-2, 8/16/18

AYES: Portantino, Beall, Bradford, Hill, Wiener

NOES: Bates, Nielsen

ASSEMBLY FLOOR: 50-23, 5/30/18 - See last page for vote

SUBJECT:

SOURCE: Author

DIGEST:

This bill requires the Department of Health Care Services (DHCS) to include a contract provision in each for-profit Medi-Cal managed care plan contract that authorizes DHCS to terminate the contract if the Attorney General determines that the Medi-Cal managed care plan engaged or engages in anticompetitive conduct or practices, or if DHCS determines that the Medi-Cal managed care plan has a pattern or practice of not complying with the Medi-Cal medical loss ratio.

ANALYSIS:

Existing law:

1. Authorizes the Director of DHCS to contract, on a bid or nonbid basis, with any qualified individual, organization, or entity to provide services to, arrange for or case manage the care of Medi-Cal beneficiaries. [WIC §14087.3]
2. Requires, under the Waxman-Duffy Prepaid Health Plan Act, the director of DHCS to terminate a contract with a Medi-Cal prepaid health plan or a Medi-Cal managed health care plan if he or she finds that the standards prescribed in that body of law, the regulations, or the contract are not being complied with, that claims accrued or to accrue have not or will not be recompensed, or for other “good cause” shown. [WIC §14304]
   
3. Defines “good cause” to include, but is not limited to, three repeated and uncorrected findings of serious deficiencies that have the potential to endanger patient care, as defined by DHCS, identified in the medical audits conducted by DHCS. [WIC §14304]
   
4. Grants the DHCS director, in lieu of contract termination, the power and authority to take one or more of the following sanctions against a Medi-Cal managed care plan contractor for noncompliance with the findings by the director:
   1. Suspend enrollment and marketing activities;
   2. Require the contractor to suspend or terminate contractor personnel or subcontractors;
   3. Impose civil penalties in accordance with a specified provision of federal Medicaid regulation, with dollar amounts ranging from $5,000 to $100,000;
   4. Make one or more of the temporary suspension orders as an immediate sanction: temporarily suspend enrollment activities, temporarily suspend marketing activities, require the contractor to temporarily suspend specified personnel of the contractor, or require the contractor to temporarily suspend participation by a specified subcontractor; or,
   5. Take other appropriate action as determined necessary by DHCS. [WIC §14304]
5. Requires the DHCS director to terminate a contract with a Medi-Cal managed care plan which the US Secretary of Health and Human Services has determined does not meet the requirements for participation in the Medicaid program. [WIC §14304]
   
6. Permits DHCS to terminate a contract, in whole or in part, when the director determines that this action is necessary to protect the health of beneficiaries or the funds appropriated to carry out the Medi-Cal program. [WIC §14089.5]
   
7. Requires, commencing July 1, 2019, a Medi-Cal managed care plan to comply with a minimum 85% medical loss ratio (MLR), consistent with a federal Medicaid managed care regulation. [WIC §14197.2]
8. Requires, effective for contract rating periods commencing on or after July 1, 2023, Medi-Cal managed care plans to provide a remittance for an MLR reporting year if the plan does not meet the minimum 85% MLR. [WIC §14197.2]

This bill:

1. Requires DHCS to include a contract provision in each for-profit Medi-Cal managed care plan contract that authorizes DHCS to terminate the contract under either of the following circumstances:
2. If the Attorney General determines that the Medi-Cal managed care plan engaged or engages in anticompetitive conduct or practices, based on existing state or federal law, including, but not limited to, the Cartwright Act, the Unfair Practices Act, the federal Sherman Antitrust Act, and the federal Clayton Act; or,
   
3. If DHCS determines that the Medi-Cal managed care plan has a pattern or practice of not complying with the Medi-Cal MLR.
   
4. Requires, if DHCS elects to extend or renew a contract with a for-profit Medi-Cal managed care plan that either engages in anticompetitive conduct or practices or that violates the MLR provisions, the contract extension amendment or the renewal contract to contain provisions to address noncompliance and contractual remedies and penalties to ensure plan accountability and contract compliance during the contract extension or contract renewal period.
   
5. Prohibits nonrenewal of a contract under this bill from qualifying the applicant for an administrative hearing.
   
6. Applies this bill apply only to new contracts, and renewals of existing contracts, entered into by a Medi-Cal managed care plan and DHCS on or after January 1, 2019.
7. Defines a “Medi-Cal managed care plan” as plans in the various Medi-Cal managed are models (county organized health systems, geographic managed care, two-plan model, rural expansion, etc.).

Comments

1. Author’s statement. According to the author, this bill authorizes the state to not renew a contract with a for-profit Medi-Cal managed care plans that engage in anticompetitive conduct or if they are not spending enough on patient care compared with overhead and administrative costs. Competitive marketplaces established through antitrust attentiveness help consumers by ensuring fair prices for services, more plans to choose from, and quality services. This bill focuses on competition among for-profit Medi-Cal managed care health plans. Lawsuits have been filed in other states claiming deliberate conspiracy by certain insurers to reduce competition and allocate market shares in violation of federal antitrust laws, and this bill allows the state to act when for-profit Medi-Cal managed care plans engage in anticompetitive behavior. Additionally, last year, state law established MLR requirements for Medi-Cal managed care plans, and this bill makes it clear that if plans are not meeting these requirements, the state should no longer continue to allow these for-profit plans to provide services to Medi-Cal beneficiaries.
   
2. Medi-Cal Managed Care. DHCS contracts with over 20 Medi-Cal managed care plans across California. Slightly over 79% of Medi-Cal beneficiaries (10.9 million individuals) receive care through a Medi-Cal managed care plan. Of the 20+ Medi-Cal managed care plans, the following 5 full service plans are for-profit plans: Aetna, Anthem Blue Cross (which owns CareMore in Cal MediConnect), Centene (California Health and Wellness and HealthNet), Molina, and United. Slightly over 2.9 million Medi-Cal beneficiaries were enrolled in these for-profit Medi-Cal managed care plans as May 2018.
   
3. MLR. The May 2016 federal Medicaid managed rule requires states to ensure that each managed care plan calculates and reports a MLR. In general terms, an MLR is the percentage of each dollar the plan receives in premiums that the plan spends on health care services, as defined, versus administration, marketing and profit. The MLR requirement applies to contracts starting on or after July 1, 2017. In addition to requiring plans to calculate and report an MLR, states must develop plan rates in a way that the plan would reasonably achieve a MLR standard of at least 85% for the rate year. CMS recently indicated in an informational bulletin this rate-setting requirement applies for plan rating periods on or after July 1, 2019.

The federal rule permits states to require Medi-Cal managed care plans to meet a minimum MLR, provided the minimum MLR is equal to or higher than 85% (the standard used for projecting actuarial soundness). The MLR must be calculated and reported for each MLR reporting year by the Medi-Cal managed care plan consistent with this federal rule. In addition, the rule gives states the option of requiring a remittance if plans do not meet the MLR. SB 171 (Hernandez, Chapter, Statutes of 2017) codified the federal MLR requirements and required a remittance if a plan fails to meet the MRL, effective for contract rating periods commencing on or after July 1, 2023.

Prior to the requirements of SB 171, California did not impose a MLR on full-service Medi-Cal managed care plans, except for a federally required MLR for the Medicaid optional expansion population. In 2017, DHCS provided self-reported data from 21 Medi-Cal managed care plans indicating plans’ MLR for 2015-16 ranged from 77.9% to 97.7% (excluding Kaiser) with an unweighted average of 86.47%.

1. Medi-Cal managed care plan contracting and re-procurement. Under existing law, DHCS has broad authority to enter into contracts with plans, and to terminate contracts with plans. In addition, the model contracts with plans permit DHCS to terminate performance of work under its plan contracts contract, in whole, or in part, whenever for any reason DHCS determines that the termination is in the best interest of the state, and DHCS is required to terminate the contract for specific reasons, including immediate termination in cases where the DHCS director determines the health and welfare of members is jeopardized by continuation of the contract. DHCS indicates it has not declined to renew a Medi-Cal managed care contract.
   
2. Anti-competitive conduct. The Attorney General’s Antitrust Law Section enforces California’s antitrust laws both civilly and criminally, and federal antitrust laws civilly, through business merger/acquisition reviews, investigations of potential violations of the law, and, where necessary, litigation. The Attorney General indicates it has wide-ranging authority to investigate a Medi-Cal plan for suspected anticompetitive conduct and then bring a case under state or federal antitrust law if it finds that the plan is engaging in or has engaged in such conduct. The statutory authority under state law is the Cartwright Act and the Unfair Practices Act, and under federal law is the Sherman Act and the Clayton Act.
   

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

According to the Senate Appropriations Committee:

• $561,000 (General Fund) in fiscal year 2018-19 and $1.0 million (General Fund) in fiscal year 2019-20 and ongoing for 2.0 deputy attorneys general (DAG) and 1.0 legal secretary at the Department of Justice to set up an administrative investigatory and adjudication apparatus to determine if a for-profit Medi-Cal managed care plan has engaged in anticompetitive conduct and provide due process.
• Staff notes indeterminate ongoing administrative workload costs (likely high hundreds of thousands General Fund, federal fund) for DHCS to amend contracts to include the specified language regarding anticompetitive conduct; staff resources to develop outreach and training materials for managed care plans regarding the bill’s provisions and provide technical assistance to plans; and any associated costs with termination or non-renewal to transition beneficiaries to a new plan.
• Staff notes indeterminate costs for the Department of Managed Health Care and Department of Insurance for compliance enforcement.

SUPPORT: (Verified 8/15/18)

California Medical Association

Health Access California

OPPOSITION: (Verified 8/15/18)

America’s Health Insurance Plans

Anthem

California Association of Health Plans

Department of Finance

Department of Health Care Services

Health Net

ARGUMENTS IN SUPPORT: The California Medical Association (CMA) writes in support that this bill seeks to address profiteering in the Medi-Cal program by giving additional powers to the state to regulate for-profit Medi-Cal managed care plans. Under the bill, DHCS must decline to renew a Medi-Cal managed care contract of a for-profit health insurer if the Attorney General finds that the insurer engaged in anti-competitive conduct or has a pattern of not complying with the medical loss ratio. CMA states that California’s Medi-Cal program is the largest in the country by both sheer numbers and percentage of population enrolled in the program. Providers serving the Medi-Cal population work on a tight budget but the same does not seem to be true for the for-profit health plans that participate in the program. CMA states that, in 2017, Medi-Cal managed care plans made more profits in California than all the rest of the country’s Medicaid insurers combined. CMA states that, from 2014 to 2016, Medi-Cal managed care plans made a total of $5.4 billion in profits. CMA concludes that California needs this bill to help insure that for-profit plans who are entrusted with public funds to deliver necessary medical care are acting with our residents’ best interests at heart.

ARGUMENTS IN OPPOSITION: The California Association of Health Plans (CAHP) writes in opposition that this bill unfairly targets for-profit Medi-Cal managed care plans for contract new-renewal without an opportunity to appeal. As a result, this bill could result in a loss of the Medi-Cal managed care health plan contracts, thereby disrupting access to health care for Medi-Cal beneficiaries who will be placed into Medi-Cal fee-for-service until they are able to select another health plan. In addition, CAHP argues this bill is premature and unnecessary as a new MLR was created for all Medi-Cal managed care plans by SB 171 (Hernandez) of last year, which requires a remittance to DHCS if they operate below the MLR. CAHP also argues the overall need for this bill remains unclear, stating CAHP is unaware of any anti-competitive actions by the Attorney General against any of its plans based on their profit status or market segment, and it remains entirely unclear what the supporters hope to accomplish with this component of the bill. Finally, CAHP argues this bill will lead to unnecessary complications for plan beneficiaries as when a plan leaves a market as enrollees must seek a different plan.

DHCS writes in opposition that it already has methods in place to address poor plan conduct, including administrative and financial sanctions up to and including contract termination. For example, DHCS may place the MCP under a corrective action plan, install a monitor or require a change in plan management, suspend enrollment and marketing activities, require the plan to suspend or terminate certain subcontractors or personnel, and/or impose a monetary penalty. DHCS indicates it will most often pursue a remedy that is least disruptive to the beneficiaries enrolled in the plan, while still addressing plan deficiencies. Finally, DHCS states there are a variety of state and federal statutes and regulations that give DHCS the discretion to balance the authority to impose sanctions or terminate contracts for bad conduct with the need to maintain adequate beneficiary access to appropriate care. Not only must all factors be taken into consideration, but DHCS argues it must also be allowed to determine the appropriate remedy, given the health and access needs of Medi-Cal members.

ASSEMBLY FLOOR: 50-23, 5/30/18

AYES: Arambula, Baker, Berman, Bloom, Bonta, Burke, Caballero, Calderon, Carrillo, Cervantes, Chau, Chiu, Chu, Cooley, Cooper, Eggman, Friedman, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez Fletcher, Gray, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Levine, Limón, Low, McCarty, Medina, Mullin, Muratsuchi, Nazarian, O'Donnell, Quirk, Quirk-Silva, Reyes, Rodriguez, Rubio, Salas, Santiago, Mark Stone, Thurmond, Ting, Weber, Wood, Rendon

NOES: Acosta, Travis Allen, Bigelow, Brough, Chávez, Chen, Choi, Cunningham, Dahle, Flora, Fong, Gallagher, Harper, Kiley, Lackey, Maienschein, Mayes, Melendez, Obernolte, Patterson, Steinorth, Voepel, Waldron

NO VOTE RECORDED: Aguiar-Curry, Daly, Frazier, Grayson, Mathis

Prepared by:

8/18/18 16:16:00

**** END ****

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2017 - 2018 Regular Session

AB 2427 (Wood) - Medi-Cal: anticompetitive conduct

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

Requires the Department of Health Care Services (DHCS) to include a contract provision, in each for-profit Medi-Cal managed care plan contract, the ability for the department to terminate the contract if the Attorney General has determined the managed care plan has engaged in anticompetitive conduct, or if the managed care plan has a pattern of noncompliance with specified medical loss ratios. The bill would apply these provisions only to new contracts, and renewals of existing contracts, executed on or after January 1, 2019.

Fiscal Impact

• $561,000 (General Fund) in fiscal year 2018-19 and $1.0 million (General Fund) in fiscal year 2019-20 and ongoing for 2.0 deputy attorneys general (DAG) and 1.0 legal secretary at the Department of Justice to set up an administrative investigatory and adjudication apparatus to determine if a for-profit Medi-Cal managed care plan has engaged in anticompetitive conduct and provide due process.
• Staff notes indeterminate ongoing administrative workload costs (likely high hundreds of thousands General Fund, federal fund) for the Department of Health Care Services, to amend contracts to include the specified language regarding anticompetitive conduct; staff resources to develop outreach and training materials for managed care plans regarding the bill’s provisions and provide technical assistance to plans; and any associated costs with termination or non-renewal to transition beneficiaries to a new plan.
• Staff notes indeterminate costs for the Department of Managed Health Care and Department of Insurance for compliance enforcement.

Background:

1. DHCS’ Medi-Cal program covered approximately 13.7 million Californians each month in 2016-17. Medi-Cal is delivered through either managed care or fee-for-service. DHCS contracts with over 20 Medi-Cal managed care plans across California, 56 county specialty mental health plans, and two primary care case management plans (AIDS Healthcare Foundation [AHF] and Family Mosaic). Around 79 percent of Medi-Cal beneficiaries (10.9 million individuals) receive care through a Medi-Cal managed care plan. In California, there are six primary models of managed care. Of the 20+ Medi-Cal managed care plans, the following 5 full service plans are for-profit plans: Aetna, Anthem Blue Cross (which owns CareMore Cal MediConnect), Centene (California Health and Wellness and HealthNet), Molina, and United. Medi-Cal managed care plans indicate their contracts with DHCS are two to five years in duration but have been extended.

The May 2016 federal Medicaid managed rule requires states to ensure that each managed care plan calculates and reports a medical loss ratio (MLR), which is the percentage of each dollar the plan receives in premiums that the plan spends on health care services, as defined, versus administration, sales, marketing and profit. The MLR requirement applies to contracts starting on or after July 1, 2017. The federal rule permits states to require Medi-Cal managed care plans to meet a minimum MLR, provided the minimum MLR is equal to or higher than 85 percent (the standard used for projecting actuarial soundness). The MLR must be calculated and reported for each MLR reporting year by the Medi-Cal managed care plan consistent with this federal rule. In addition, the rule gives states the option of requiring a remittance if plans do not meet the MLR. SB 171 (Hernandez, Chapter, Statutes of 2017) codified the federal MLR requirements and required a remittance if a plan fails to meet the MRL, effective for contract rating periods commencing on or after July 1, 2023.

Existing law authorizes DHCS to enter into contracts with plans, and to terminate contracts with plans. DHCS must terminate the contract for specific reasons, including immediate termination in cases where the DHCS director determines the health and welfare of members is jeopardized by continuation of the contract. The Attorney General’s Antitrust Law Section enforces California’s antitrust laws both civilly and criminally, and federal antitrust laws civilly, through business merger/acquisition reviews, investigations of potential violations of the law, and, where necessary, litigation.

Proposed Law:

AB 2427 includes the following provisions:

• Requires DHCS to include a contract provision in each for-profit Medi-Cal managed care plan contract that authorizes the department to terminate the contract under either of the following circumstances:
  • If the Attorney General determines that the Medi-Cal managed care plan engaged or engages in anticompetitive conduct or practices, based on existing state or federal law, including, but not limited to, the Cartwright Act, the Unfair Practices Act, the federal Sherman Antitrust Act, and the federal Clayton Act.
  • If the department determines that the Medi-Cal managed care plan has a pattern or practice of not complying with the medical loss ratio, as defined.
• If DHCS elects to extend or renew a contract with a for-profit Medi-Cal managed care plan that either engages in anticompetitive conduct or practices, the contract extension amendment or the renewal contract must contain provisions to address noncompliance and contractual remedies and penalties to ensure plan accountability and contract compliance during the contract extension or contract renewal period.
• Prohibits nonrenewal of a contract under this section to qualify the applicant for an administrative hearing.
• Provides this section must apply only to new contracts, and renewals of existing contracts, entered into by a Medi-Cal managed care plan and the department on or after January 1, 2019.

Related Legislation:

• AB 595 (Wood) requires prior approval by the director of the Department of Managed Health Care (DMHC) for a health plan that intends to merge or consolidate with, or enter into an agreement resulting in its purchase, acquisition or control by, any entity and allows the DMHC director to disapprove a transaction if the transaction would substantially lessen competition. The bill is being considered during today’s hearing.
• AB 2416 (Wood) would have required a health plan that has a contract with DHCS, as specified, to negotiate with Covered California regarding offering individual products in approved service areas that overlap with counties where there are 2 or fewer health care service plans offering products in Covered California as of the 2018 plan year. AB 2416 was held on the Assembly Appropriations suspense file and the contents of that bill were inserted into this bill, and subsequently amended out of this bill and placed into AB 2472 (Wood).
  
• AB 2499 (Arambula) deletes requirements in existing law that health insurance MLRs be implemented to the extent required by, in compliance with and not to exceed federal law, and instead, requires MLRs to be consistent with federal law and any rules or regulations issued as in effect on January 1, 2017.
• AB 351 (Steinberg, 1999) would have required the Attorney General to approve in advance any merger, acquisition or change in control of a health plan doing business in California to ensure that such transaction would not substantially lessen competition or create a monopoly in the state. AB 351 was vetoed. In his veto message, Governor Davis wrote:

This bill requires the Attorney General to review and approve mergers and other acquisitions involving health care service plans to ensure that these transactions do not substantially lessen competition or create a monopoly in California.

While I agree with the author that this issue should receive scrutiny at the state level, I think the responsibility to examine a merger or acquisitions impact on patient care and competition should reside in my new Department of Managed Care. I would consider signing carefully crafted legislation that provides the Department of Managed Care with the authority to consider anti-competitive concerns arising out of such transactions, in consultation with the Attorney General of the State of California and federal regulators.

-- END --

SENATE COMMITTEE ON HEALTH

Senator Dr. Richard Pan, Chair

BILL NO: AB 2427

SUBJECT: Medi-Cal: anticompetitive conduct

SUMMARY:

1. Requires Department of Health Care Services (DHCS) to decline to renew or award a contract, in whole or in part, of a for-profit Medi-Cal managed care plan under specified circumstances, unless DHCS determines in writing that there is a compelling reason not to decline to renew or award the contract.

Existing law:

1. Establishes the Medi-Cal program, administered by the DHCS, under which low income individuals are eligible for medical coverage. [WIC §14000, et seq.]
   
2. Authorizes the Director of DHCS to contract, on a bid or nonbid basis, with any qualified individual, organization, or entity to provide services to, arrange for or case manage the care of Medi-Cal beneficiaries. [WIC §14087.3]
3. Requires, under the Waxman-Duffy Prepaid Health Plan Act, the director of DHCS to terminate a contract with a Medi-Cal prepaid health plan or a Medi-Cal managed health care plan if he or she finds that the standards prescribed in that body of law, the regulations, or the contract are not being complied with, that claims accrued or to accrue have not or will not be recompensed, or for other “good cause” shown. [WIC §14304]
   
4. Defines “good cause” to include, but is not limited to, three repeated and uncorrected findings of serious deficiencies that have the potential to endanger patient care, as defined by DHCS, identified in the medical audits conducted by DHCS. [WIC §14304]
   
5. Grants the DHCS director, in lieu of contract termination, the power and authority to take one or more of the following sanctions against a Medi-Cal managed care plan contractor for noncompliance with the findings by the director:
6. Suspend enrollment and marketing activities;
7. Require the contractor to suspend or terminate contractor personnel or subcontractors;
8. Impose civil penalties in accordance with a specified provision of federal Medicaid regulation, with dollar amounts ranging from $5,000 to $100,000;
9. Make one or more of the temporary suspension orders as an immediate sanction: temporarily suspend enrollment activities, temporarily suspend marketing activities, require the contractor to temporarily suspend specified personnel of the contractor, or require the contractor to temporarily suspend participation by a specified subcontractor; or,
10. Take other appropriate action as determined necessary by DHCS. [WIC §14304]
11. Requires the DHCS director to terminate a contract with a Medi-Cal managed care plan which the US Secretary of Health and Human Services has determined does not meet the requirements for participation in the Medicaid program. [WIC §14304]
    
12. Permits DHCS to terminate a contract, in whole or in part, when the director determines that this action is necessary to protect the health of the beneficiaries or the funds appropriated to carry out the Medi-Cal program. [WIC §14089.5]
    
13. Requires, commencing July 1, 2019, a Medi-Cal managed care plan to comply with a minimum 85% medical loss ratio (MLR), consistent with a federal Medicaid managed care regulation. [WIC §14197.2]
14. Requires, effective for contract rating periods commencing on or after July 1, 2023, Medi-Cal managed care plans to provide a remittance for an MLR reporting year if the plan does not meet the minimum 85% MLR. [WIC §14197.2]
15. Requires DHCS to determine the remittance amount on a plan-specific basis for each rating region of the plan, and to calculate the federal and nonfederal share amounts associated with each remittance. [WIC §14197.2]
16. Requires, after DHCS returns the requisite federal share amounts associated with any remittance funds, the remaining remittance amounts to be transferred to the Medically Underserved Account for Physicians within the Health Professions Education Fund, to be used upon appropriation by the Legislature, for the purposes of the Steven M. Thompson Physician Corps Loan Repayment Program. [WIC §14197.2]

This bill:

1. Requires DHCS to decline to renew or award a contract, in whole or in part, of a for-profit Medi-Cal managed care plan under either of the following circumstances, unless DHCS determines in writing that there is a compelling reason not to decline to renew or award the contract:
   
2. If the Attorney General determines that the Medi-Cal managed care plan engaged or engages in anticompetitive conduct or practices, based on specified provisions of existing state or federal law, including the Cartwright Act, the Unfair Practices Act, the federal Sherman Antitrust Act, and the federal Clayton Act; or,
3. If DHCS determines that the Medi-Cal managed care plan has a pattern or practice of not complying with the MLR.
4. Prohibits nonrenewal of a contract under this bill from qualifying the applicant for an administrative hearing.
5. Requires this bill to apply only to new contracts, and renewals of existing contracts, entered into by a Medi-Cal managed care plan and DHCS on or after January 1, 2019.
   
6. Defines a “Medi-Cal managed care plan” as plans in the various Medi-Cal managed are models (county organized health systems, geographic managed care, two-plan model, rural expansion, etc.).

FISCAL EFFECT:

According to the Assembly Appropriations Committee, this bill would have negligible costs if a non-renewal was not invoked, but if DHCS were required to non-renew a contract, it would incur uncertain, significant administrative costs to transition a large volume of beneficiaries to a new plan, including costs to maintain continuity of care with a beneficiary's current providers in some cases (general fund (GF)/federal). If this occurred, other plans could experience additional cost pressure on managed care rates if remaining plans had to expand capacity in a short period of time to handle a large influx of new enrollees (GF/federal). 

PRIOR VOTES:

COMMENTS:

1. Author’s statement. According to the author, this bill requires the state to not renew a contract of for-profit Medi-Cal managed care plans that engage in anticompetitive conduct or if they are not spending enough on patient care compared with overhead and administrative costs. Competitive marketplaces established through antitrust attentiveness help consumers by ensuring fair prices for services, more plans to choose from, and quality services. This bill focuses on competition among for-profit Medi-Cal managed care health plans. Lawsuits have been filed in other states claiming deliberate conspiracy by certain insurers to reduce competition and allocate market shares in violation of federal antitrust laws, and this bill allows the state to act when for-profit Medi-Cal managed care plans engage in anticompetitive behavior. Additionally, last year, state law established MLR requirements for Medi-Cal managed care plans, and this bill makes it clear that if plans are not meeting these requirements, the state should no longer continue to allow these for-profit plans to provide services to Medi-Cal beneficiaries.
   
2. Medi-Cal Managed Care. The Medi-Cal program is projected to cover 13.7 million Californians each month in 2016-17, at a cost of $105.6 billion in total funds ($18.6 billion GF). DHCS administers Medi-Cal through two types of delivery systems: managed care and FFS.
   
   DHCS contracts with over 20 Medi-Cal managed care plans across California, 56 county specialty mental health plans, and two primary care case management plans (AIDS Healthcare Foundation [AHF] and Family Mosaic). Slight over 79% of Medi-Cal beneficiaries (10.9 million individuals) receive care through a Medi-Cal managed care plan, a significant shift from December 2011, when approximately 45% of beneficiaries were enrolled in Medi-Cal managed care. In California, there are six primary models of managed care. Of the 20+ Medi-Cal managed care plans, the following 5 full service plans are for-profit plans: Aetna, Anthem Blue Cross (which owns CareMore Cal MediConnect), Centene (California Health and Wellness and HealthNet), Molina, and United. Slightly over 2.9 million Medi-Cal beneficiaries were enrolled in these plans as May 2018.
   

Medi-Cal managed care plans indicate their contracts with DHCS are two to five years in duration but have been extended to settle litigation.

1. MLR. The May 2016 federal Medicaid managed rule requires states to ensure that each managed care plan calculates and reports a MLR. In general terms, an MLR is the percentage of each dollar the plan receives in premiums that the plan spends on health care services, as defined, versus administration, sales, marketing and profit. The MLR requirement applies to contracts starting on or after July 1, 2017. In addition to requiring plans to calculate and report an MLR, states must develop plan rates in a way that the plan would reasonably achieve a MLR standard of at least 85% for the rate year. CMS recently indicated in an informational bulletin this rate-setting requirement applies for plan rating periods on or after July 1, 2019.

The federal rule permits states to require Medi-Cal managed care plans to meet a minimum MLR, provided the minimum MLR is equal to or higher than 85% (the standard used for projecting actuarial soundness). The MLR must be calculated and reported for each MLR reporting year by the Medi-Cal managed care plan consistent with this federal rule. In addition, the rule gives states the option of requiring a remittance if plans do not meet the MLR. SB 171 (Hernandez, Chapter, Statutes of 2017) codified the federal MLR requirements and required a remittance if a plan fails to meet the MRL, effective for contract rating periods commencing on or after July 1, 2023.

Prior to the requirements of SB 171, California did not impose a MLR on full-service Medi-Cal managed care plans, except for a federally required MLR for the Medicaid optional expansion population. DHCS indicates Medi-Cal managed care plan contracts establish a risk corridor pertaining to the MLR for ACA optional expansion members, for the incurred periods of January 1, 2014, through June 30, 2015, and July 1, 2015, through June 30, 2016. Plans are required to expend at least 85% of net capitation payments received for ACA optional expansion members on allowed medical expenses for ACA optional expansion members, for each county or region. A plan which does not meet the minimum 85% threshold for a given county or region must return to DHCS the difference between 85% of total net capitation payments and actual allowed medical expenses. If a plan’s MLR exceeds 95% of total net capitation payments, then DHCS must make additional payment to the plan equal to the difference between the plans’ allowed medical expenses and 95% of net capitation payments.

DHCS’ May 2018 Estimate contains a policy change that budgets additional payments to and recoveries from plans related to the ACA optional expansion MLR risk corridor calculations, as required by the existing Medi-Cal plan contracts. On aggregate, DHCS indicates it expects to recover funds from plans following the completion of the ACA optional expansion MLR calculations. Based on preliminary estimates, DHCS assumes $2 billion will be recouped from plans for both reporting periods.

In 2017, DHCS provided self-reported data from 21 Medi-Cal managed care plans indicating plans’ MLR for 2015-16 ranged from 77.9% to 97.7% (excluding Kaiser) with an unweighted average of 86.47%.

1. Medi-Cal managed care plan contracting and re-procurement. Under existing law, DHCS has broad authority to enter into contracts with plans, and to terminate contracts with plans. In addition, the model contracts with plans permit DHCS to terminate performance of work under its plan contracts contract, in whole, or in part, whenever for any reason DHCS determines that the termination is in the best interest of the state, and DHCS is required to terminate the contract for specific reasons, including immediate termination in cases where the DHCS director determines the health and welfare of members is jeopardized by continuation of the contract. DHCS indicates it has not declined to renew a Medi-Cal managed care contract.
   
   DHCS has announced a Medi-Cal Managed Care Request for Proposal (RFP) and Request for Application (RFA) schedule by Medi-Cal managed care model type. The RFP and RFP by model type (as of May 2017) is as follows:

Medi-Cal Managed Care RFP and RFA Schedule by Model Type Updated 5/16/17

*The “Medi-Cal Managed Care RFP/RFA Schedule” lists future Requests For Proposal (RFP) and Request for Application (RFA) opportunities.

The chart will be updated as additional RFP/RFAs are planned. The Office of Medi-Cal Procurement website will host all further details related to the RFPs referenced in this chart.
**Implementation date subject to change based on plan readiness.

1. Anti-competitive conduct. The Attorney General’s Antitrust Law Section enforces California’s antitrust laws both civilly and criminally, and federal antitrust laws civilly, through business merger/acquisition reviews, investigations of potential violations of the law, and, where necessary, litigation. The AG indicates it has wide-ranging authority to investigate a Medi-Cal plan for suspected anticompetitive conduct and then bring a case under state or federal antitrust law if it finds that the plan is engaging in or has engaged in such conduct. The statutory authority under state law is the Cartwright Act and the Unfair Practices Act, and under federal law is the Sherman Act and the Clayton Act, which this bill incorporates by cross reference.
   
2. Related legislation. AB 595 (Wood) requires prior approval by the director of the Department of Managed Health Care (DMHC) for a health plan that intends to merge or consolidate with, or enter into an agreement resulting in its purchase, acquisition or control by, any entity and allows the DMHC director to disapprove a transaction if the transaction would substantially lessen competition. AB 595 passed the Senate Health Committee by a vote of 7-1 on June 20, 2018.

AB 2416 (Wood) would have required a health plan that has a contract with DHCS, as specified, to negotiate with Covered California regarding offering individual products in approved service areas that overlap with counties where there are 2 or fewer health care service plans offering products in Covered California as of the 2018 plan year. AB 2416 was held on the Assembly Appropriations suspense file and the contents of that bill were inserted into this bill, and subsequently amended out of this bill and placed into AB 2472 (Wood), which passed the Senate Health Committee by a 7-0 vote on June 20, 2018.

AB 2499 (Arambula) deletes requirements in existing law that health insurance MLRs be implemented to the extent required by, in compliance with and not to exceed federal law, and instead, requires MLRs to be consistent with federal law and any rules or regulations issued as in effect on January 1, 2017. AB 2499 passed the Senate Health Committee by a vote of 7-1 on June 20, 2018.

1. Prior legislation. AB 1688 (Committee on Health, Chapter 511, Statutes of 2017) made several changes including changes to implement provisions of the federal Medicaid managed care rules related to record retention, health plan penalties, external quality review programs and health plan accreditation.
   

SB 171 implements a federal option to require a Medi-Cal managed care plans to provide a remittance if the plan fails to meet an 85% MLR, beginning with contract periods commencing with July 1, 2023, among other provisions.

AB 351 (Steinberg of 1999) would have required the Attorney General to approve in advance any merger, acquisition or change in control of a health plan doing business in California to ensure that such transaction would not substantially lessen competition or create a monopoly in the state. AB 351 was vetoed. In his veto message, Governor Davis wrote:

This bill requires the Attorney General to review and approve mergers and other acquisitions involving health care service plans to ensure that these transactions do not substantially lessen competition or create a monopoly in California.

While I agree with the author that this issue should receive scrutiny at the state level, I think the responsibility to examine a merger or acquisitions impact on patient care and competition should reside in my new Department of Managed Care. I would consider signing carefully crafted legislation that provides the Department of Managed Care with the authority to consider anti-competitive concerns arising out of such transactions, in consultation with the Attorney General of the State of California and federal regulators.

1. Support. The California Medical Association (CMA) writes in support that this bill seeks to address profiteering in the Medi-Cal program by giving additional powers to the state to regulate for-profit Medi-Cal managed care plans. Under the bill, DHCS must decline to renew a Medi-Cal managed care contract of a for-profit health insurer if the Attorney General finds that the insurer engaged in anti-competitive conduct or has a pattern of not complying with the medical loss ratio. CMA states that California’s Medi-Cal program is the largest in the country by both sheer numbers and percentage of population enrolled in the program. Providers serving the Medi-Cal population work on a tight budget but the same does not seem to be true for the for-profit health plans that participate in the program. CMA states that, in 2017, Medi-Cal managed care plans made more profits in California than all the rest of the country’s Medicaid insurers combined. CMA states that, from 2014 to 2016, Medi-Cal managed care plans made a total of $5.4 billion in profits. CMA concludes that California needs this bill to help insure that for-profit plans who are entrusted with public funds to deliver necessary medical care are acting with our residents’ best interests at heart.

Health Access California writes in support that as the bill was recently amended on June 19, 2018 to clarify that the provisions on anti-competitive behavior do not undermine existing consumer protections. Health Access states the anticompetitive language that applies to Medi-Cal managed care plans as amended now recognizes that state law imposes standards on Medi-Cal managed care plans that may cause a health plan to withdraw, or fail to enter, a geographic region, and these standards include financial solvency, network adequacy and numerous other consumer protections.

1. Opposition. The California Association of Health Plans writes in opposition that this bill unfairly targets for-profit Medi-Cal managed care plans for contract new-renewal without an opportunity to appeal. As a result, this bill could result in a loss of the Medi-Cal managed care health plan contracts, thereby disrupting access to health care for Medi-Cal beneficiaries who will be placed into Medi-Cal fee-for-service until they are able to select another health plan. In addition, CAHP argues this bill is premature and unnecessary as a new MLR was created for all Medi-Cal managed care plans by SB 171, which requires a remittance to DHCS if they operate below the MLR. CAHP also argues the overall need for this bill remains unclear, stating CAHP is unaware of any anti-competitive actions by the Attorney General against any of its plans based on their profit status or market segment, and it remains entirely unclear what the supporters hope to accomplish with this component of the bill. Finally, CAHP argues this bill will lead to unnecessary complications for plan beneficiaries as when a plan leaves a market enrollees must seek a different plan. While all plans strive to preserve continuity of care, any change may result in some disruption to existing relationships with providers, pharmacies, and hospitals. CAHP argues that, instead of jeopardizing the remarkable progress California has already made with this bill, it looks forward to rolling up its sleeves and working together to find solutions that will further improve health care access, and keep down costs for the state and coverage accessible for the Medi-Cal

DHCS writes in opposition that this bill would have a major impact on the way DHCS currently contracts with Medi-Cal managed care plans to provide services to Medi-Cal beneficiaries. DHCS states it already has methods in place to address poor plan conduct, including administrative and financial sanctions up to and including contract termination. For example, DHCS may place the MCP under a corrective action plan, install a monitor or require a change in plan management, suspend enrollment and marketing activities, require the plan to suspend or terminate certain subcontractors or personnel, and/or impose a monetary penalty. DHCS indicates it will most often pursue a remedy that is least disruptive to the beneficiaries enrolled in the plan, while still addressing plan deficiencies.

In addition, though anticompetitive practices or failure to comply with the MLR are very serious, DHCS states they may be due to causes other than bad conduct, which should be taken into account. For example, in the case of the MLR requirement, a plan could fail to comply with the MLR requirements due to inadvertently overstated capitation rates attributable to a healthier-than-anticipated population. In such a case, there may be interim solutions to address noncompliance, such as requiring the plan to repay the state or to change the rates. Furthermore, DHCS states there are a variety of state and federal statutes and regulations that give DHCS the discretion to balance the authority to impose sanctions or terminate contracts for bad conduct with the need to maintain adequate beneficiary access to appropriate care. Not only must all factors be taken into consideration, but DHCS must also be allowed to determine the appropriate remedy, given the health and access needs of Medi-Cal members.

1. Cross reference correction. This bill prohibits the nonrenewal of a Medi-Cal managed care contract under this bill from qualifying the applicant for an administrative hearing, including a hearing pursuant to Section 14123, which relates to suspension of a Medi-Cal provider. The reference to 14124 should instead be a reference to Health and Safety Code Section 100171.

SUPPORT AND OPPOSITION:

Support: California Medical Association

Health Access California

Oppose: America’s Health Insurance Plans

Anthem

California Association of Health Plans

Department of Health Care Services

Health Net

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 2427

Author:(Wood)

As Amended Ver:May 25, 2018

Majority vote

SUMMARY: Requires the Department of Health Care Services (DHCS) to decline to renew or award a contract, in whole or in part, of a for-profit Medi-Cal Managed Care (MCMC) plan, if a determination is made that the for-profit MCMC engaged or engages in anticompetitive conduct, as defined, or has a pattern or practice of not complying with the medical loss ratio (MLR), as specified. Also requires, on or after January 1, 2020, a health care service plan (health plan) that has a contract with DHCS, as specified, to negotiate with Covered California regarding offering individual products on the Exchange in the health plan's approved service areas that overlap with counties where there are two or fewer health plans offering products on the Exchange as of the 2018 plan year.

FISCAL EFFECT: According to the Assembly Appropriations Committee:

1. This bill would have negligible costs if a non-renewal was not invoked, but if DHCS were required to non-renew a contract, it would incur uncertain, significant administrative costs to transition a large volume of beneficiaries to a new plan, including costs to maintain continuity of care with a beneficiary's current providers in some cases (general fund (GF)/federal). If this occurred, other plans could experience additional cost pressure on managed care rates if remaining plans had to expand capacity in a short period of time to handle a large influx of new enrollees (GF/federal). 
2. To the extent new workload is created in the areas of Qualified Health Plan (QHP) certification application review and negotiation, Covered California may incur additional staff costs of up to $300,000 (California Health Trust Fund).
3. If Covered California contracts with additional QHPs as a result of the negotiations required by this bill, this would likely result in unknown additional operational costs (California Health Trust Fund).

COMMENTS: According to the author, this bill requires the state to terminate a contract of for-profit MCMC plans that engage in anticompetitive conduct or if they are not spending enough on patient care compared with overhead and administrative costs. Competitive marketplaces established through antitrust attentiveness help consumers by ensuring fair prices for services, more to choose from, and quality services. This bill focuses on competition among for-profit MCMC health plans.

Additionally, last year, state law established MLR requirements for MCMC plans, and this bill makes it clear that if plans are not meeting these requirements, the state should no longer continue to allow these for-profit plans to provide services to Medi-Cal beneficiaries.

Finally, this bill is intended to increase access to care by increasing health plan competition. There are many areas in California with one or two health plan choices and this lack of competition is impacting premium prices. This bill requires health plans with Medi-Cal contracts and that are also licensed to offer health plans that qualify under the Patient Protection and Affordable Care Act (ACA), to negotiate with Covered California, the state's official health care marketplace where individuals, families and small businesses can find health care coverage through the ACA.

1. Attorney General (AG) Review. Antitrust enforcement is an important component of a free market economy. Competitive marketplaces established through antitrust attentiveness help consumers by ensuring fair prices for services, more choice, quality services and the steady introduction of innovative new services. Diligent antitrust enforcement also helps businesses by protecting them from unfair competition and helping to establish a level playing field on which to compete. The AG's Antitrust Law Section enforces California's civil and criminal antitrust laws and federal civil antitrust laws, through business merger/acquisition reviews, investigations of potential violations of the law and, where necessary, litigation. This bill focuses on competition among for-profit MCMC plans.
2. MLR. Existing federal Medicaid Managed Care regulations, published on May 6, 2016, revise regulations governing Medicaid managed care plans and requires states to ensure that each managed care plan calculates and reports an MLR. In general terms, an MLR is the percentage of each dollar the plan receives in premiums that the plan spends on health care services, as defined, versus administration, sales, marketing and profit. In addition to requiring plans to calculate and report an MLR, states must develop plan rates in a way that the plan would reasonably achieve a MLR standard of at least 85% for the rate year. The federal rule permits states to require MCMC plans to meet a minimum MLR, provided the minimum MLR is equal to or higher than 85% (the standard used for projecting soundness). The MLR must be calculated and reported for each MLR reporting year by the MCMC plan consistent with this federal rule. In addition, the rule gives states the option of requiring a remittance if plans do not meet the MLR. DHCS provided self-reported data from 21 MCMC plans indicating plans' MLR for 2015-16 ranged from 77.9% to 97.7% (excluding Kaiser) with an unweighted average of 86.47%.

A recent article published November 5, 2017, in the Los Angeles Times titled, "Insurers make billions off Medicaid in California during Obamacare expansion," used data from unaudited financial disclosures from MCMC plans to estimate that MCMC plans made $5.4 billion in profits from 2014 to 2016, primarily due to higher rates paid for beneficiaries receiving coverage under the expansion of Medi-Cal pursuant to the Affordable Care Act. These findings seem to suggest capitation rates paid to MCMC plans do not align with the actual utilization and provision of health care services to Medi-Cal beneficiaries during this time period. In the article, the DHCS Director indicates that these data do not account for additional auditing, rate adjustments and retroactive recoupments that will occur in the future. DHCS is required to adjust capitation rates paid since the implementation of the Medicaid expansion to account for actual encounter and utilization data reported by the plans. Downward adjustments to these capitation rates for prior periods have resulted in significant expected recoupments from MCMC plans. The May 2017 Medi-Cal Estimate indicates that the DHCS began recoupment in January 2017 for the expansion population and will recoup $5.3 billion, all federal funds, for the period from July 2015 through December 2016. There may be additional recoupments for periods after December 2016. It is unclear whether the data cited in the Los Angeles Times article reflects these recoupments.

1. Covered California. Aside from the Medi-Cal optional expansion, the ACA also established online marketplaces, known as Health Benefit Exchanges (HBEs) to give individuals, who do not have access to public coverage or affordable employer coverage, the ability to purchase insurance. In order to make insurance more affordable, premium and cost-sharing credits are available to those who qualify. Under the ACA, states were given the option to either administer their own HBEs or use the federal platform: Healthcare.gov. While the majority of states chose to use the federal platform, California created the California Health Benefit Exchange, known as Covered California. Covered California facilitates the purchase of QHPs by individuals and small employers and develops standard benefit designs to allow consumers to shop and compare QHP products. As an active purchaser of health insurance, Covered California negotiates premiums and QHP contract provisions, like its "Triple Aim" framework that seeks to lower costs, improve quality, and improve health outcomes, while ensuring a good choice of plans for consumers. Covered California has served approximately 2.5 million residents since enrollment began in 2014 and is the largest state-run marketplace.
2. Covered California 2018 report. A March 8, 2018 Covered California analysis found that absent any federal policy action, premium increases for every state could range from 12 to 32 %. The analysis also noted that availability of insurer choice varies across and within states. Since 2014, most states have seen declines in the number of insurers offering individual market products, particularly those offering coverage through the health insurance marketplaces. In 2018, states averaged 3.5 insurers participating on their health insurance marketplaces, compared with an average of five insurers per state in 2014. Issuers have cited various reasons for exiting the markets, including a higher-than-anticipated risk score, underfunding of the federal risk-corridor program and uncertainty over implementation of policies affecting insurance markets (e.g., cost-sharing reduction payments, enforcement of the federal mandate) according to the report. Existence of insurer choice is important not only in providing consumer options, but because choice is directly correlated with lower premiums.
3. Individual Market Changes. According to Covered California, for the 2018 plan year, Health Net Life reduced coverage in the following regions, where it serves about 1,367 people: Region 1 (Northern Counties); 3 (Contra Costa); 7 (Santa Clara); and, 11 (Fresno, Kings, and Madera); and, also expanded its offerings in Regions 15 and 16 (Los Angeles County); Region 17 (San Bernardino, Riverside); 18 (Orange); and, 19 (San Diego). Anthem Blue Cross (Anthem) withdrew from 16 of California's 19 regions, affecting about 153,000 people. Anthem will, however, continue to serve Regions 1 (Northern counties); 7 (Santa Clara County); and, 10 (Central Valley), where it covers over 108,000 enrollees, approximately 41% of its current enrollment. Anthem's change impacted individual products on and off California's exchange.
4. Counties with two or less health plans. In plan year 2018, Covered California has approximately 213 zip codes or partial zip codes (8 % of zip codes/partial zip codes in California) in which consumers have only one choice of health plan and approximately 635 zip codes/partial zip codes (24 % of zip codes in California) in which consumers are limited to two health plan choices. Consumers have only one health plan choice in Monterey, San Benito, San Luis Obispo, Santa Barbara, Inyo, Mono, and most of Kings County. Twenty-two additional counties have either two plans, or two or less plans, in all the zip codes/partial zip codes in the county. For approximately one-third of the zip codes in California, consumers are limited to one or two health plans in their region.

In a prior version of this bill, the California Medical Association writes that this bill will help to insure that for-profit health insurers who are entrusted with public funds to deliver necessary medical care are acting in the best interests of California residents.

Health Access California states that in regions where consumers do not have an adequate choice of plans, the state has a strong interest to use its relationships and purchasing power to ask these licensed managed care plans to participate in Covered California. Western Center on Law and Poverty states that adding another health insurance plan to a region would further stabilize the market in those areas and potentially lower prices through increased competition.

In a prior version of this bill, the California Association of Health Plans states that this bill unfairly targets for-profit MCMC plans for disciplinary action and could result in a loss of MCMC plan contracts, thereby disrupting access to health care for Medi-Cal beneficiaries.

Analysis Prepared by: Kristene Mapile / HEALTH / (916) 319-2097 FN: 0003347

Date of Hearing: April 24, 2018

ASSEMBLY COMMITTEE ON HEALTH

Jim Wood, Chair

ABPCA Bill Id:AB 2427

Author:(Wood) – As Amended Ver:March 23, 2018

SUBJECT: Medi-Cal: anticompetitive conduct.

SUMMARY: Requires the Department of Health Care Services (DHCS) to terminate or decline to renew or award a contract, in whole or in part, of a for-profit health plan or insurer, if a determination is made that the for-profit health plan or insurer engaged or engages in anticompetitive conduct, as defined, or has a pattern or practice of not complying with the medical loss ratio (MLR), as specified. Specifically, this bill:

1. Requires DHCS to terminate or decline to renew or award a contract, in whole or in part, of a for-profit health plan or insurer if the Attorney General (AG) determines that the for-profit health plan or insurer engaged or engages in anticompetitive conduct or practices, as defined, or if DHCS determines that the for-profit health plan or insurer has a pattern or practice of not complying with the MLR, as specified.
2. Defines anticompetitive conduct or practices to include, but is not limited to, any arrangement, agreement, conspiracy, or practice that prohibits or otherwise prevents health plans, insurers, or entities to enter a market, or a specific geographic area, to offer or sell managed care, health plan, health care, or insurer services and benefits, to administer employee benefits, or to contract with providers, or that prohibits or otherwise prevents others from bidding or contracting to provide services to Medi-Cal beneficiary.
3. Makes other technical and conforming changes.

EXISTING LAW:

1. Establishes the Medi-Cal program, administered by DHCS, under which qualified low-income persons receive health care benefits and, in part, governed and funded by federal Medicaid program provisions.
2. Provides that Medi-Cal services are provided pursuant to contracts with various types of Medi-Cal managed care (MCMC) health plans, including through a county organized health system, two plan, and geographic managed care plan model.
3. Allows contract renewal if the provider continues to meet the requirements of existing law, regulations, and the contract. Provides that failure to meet these requirements shall be cause for nonrenewal of the contract. Allows DHCS to condition renewal on timely completion of a mutually agreed upon plan of correction of any deficiencies.
4. Allows DHCS to terminate or decline to renew a contract, in whole or in part, when the DHCS Director determines that such action is necessary to protect the health of the beneficiaries or the funds appropriated to carry out the Medi-Cal program.
5. Requires the DHCS Director to terminate a contract with a prepaid health plan or a MCMC plan upon a finding of noncompliance or for other good cause, as described, in accordance with specified procedures, or, in lieu of contract termination, and authorizes the DHCS Director to take one or more specified sanctions, including the imposition of civil penalties, against the contractor for noncompliance. Sets forth, in federal regulations, the maximum civil monetary penalty that a state may impose depending on the nature of the MCMC plan’s action or failure to act. Authorizes the DHCS Director to impose a civil penalty in specified amounts that are consistent with those federal regulations depending on the nature of the plan’s action or failure to act, as specified.
6. Requires, beginning July 1, 2019, a MCMC plan to comply with a minimum 85% MLR and to calculate and report the MLR for each MLR reporting year, as defined. Requires, effective for contract rating periods commencing on or after July 1, 2023, a MCMC plan to provide a remittance to the state if the ratio does not meet the minimum ratio of 85% for that reporting year consistent with those federal regulations. Requires DHCS to determine the remittance amount on a plan-specific basis for each rating region of the plan and to calculate the federal and nonfederal share amounts associated with each remittance.
7. Establishes the Department of Managed Health Care (DMHC) to regulate health plans, and the Department of Justice (DoJ) and AG to bring civil and criminal legal actions against individuals and businesses acting in restraint of trade.
   
8. Establishes, under the federal Sherman Antitrust Act, prohibitions against agreements and conduct that restrict trade; and monopolization, attempted monopolization, and conspiracies to monopolize. Establishes, under the federal Clayton Act, prohibitions of mergers and acquisitions where the effect may be to substantially lessen competition or tend to create a monopoly.
   
9. Establishes under federal law, the Federal Trade Commission (FTC) to enforce the antitrust laws in health care markets to prevent anticompetitive conduct that would deprive consumers of the benefits of competition. Establishes, under the Hart-Scott-Rodino Act, the FTC and the DOJ requirement to review most of the proposed transactions that affect commerce in the United States and are over a certain size, and either agency can take legal action to block deals that it believes would “substantially lessen competition.”

FISCAL EFFECT: This bill has not yet been analyzed by a fiscal committee.

COMMENTS:

1. PURPOSE OF THIS BILL. According to the author, this bill requires the state to terminate a contract of for-profit MCMC plans that engage in anticompetitive conduct or if they are not spending enough on patient care compared with overhead and administrative costs.

Competitive marketplaces established through antitrust attentiveness help consumers by ensuring fair prices for services, more to choose from, and quality services. This bill focuses on competition among for-profit MCMC health plans. Lawsuits have been filed in other states claiming deliberate conspiracy by certain insurers to reduce competition and allocate market shares in violation of federal antitrust laws and this bill allows the state to act when for profit MCMC health plans engage in anticompetitive behavior.

Additionally, last year, state law established MLR requirements for MCMC plans, and this bill makes it clear that if plans are not meeting these requirements, the state should no longer continue to allow these for-profit plans to provide services to Medi-Cal beneficiaries.

1. BACKGROUND.
   1. AG Review. Antitrust enforcement is an important component of a free market economy. Competitive marketplaces established through antitrust attentiveness help consumers by ensuring fair prices for services, more choice, quality services and the steady introduction of innovative new services. Diligent antitrust enforcement also helps businesses by protecting them from unfair competition and helping to establish a level playing field on which to compete. The AG’s Antitrust Law Section enforces California’s civil and criminal antitrust laws and federal civil antitrust laws, through business merger/acquisition reviews, investigations of potential violations of the law and, where necessary, litigation. This bill focuses on competition among for-profit MCMC plans.
   2. MLR. Existing federal Medicaid Managed Care regulations, published on May 6, 2016, revise regulations governing Medicaid managed care plans and requires states to ensure that each managed care plan calculates and reports an MLR. In general terms, an MLR is the percentage of each dollar the plan receives in premiums that the plan spends on health care services, as defined, versus administration, sales, marketing and profit. In addition to requiring plans to calculate and report an MLR, states must develop plan rates in a way that the plan would reasonably achieve a MLR standard of at least 85% for the rate year. The federal rule permits states to require MCMC plans to meet a minimum MLR, provided the minimum MLR is equal to or higher than 85% (the standard used for projecting soundness). The MLR must be calculated and reported for each MLR reporting year by the MCMC plan consistent with this federal rule. In addition, the rule gives states the option of requiring a remittance if plans do not meet the MLR. DHCS provided self-reported data from 21 MCMC plans indicating plans’ MLR for 2015-16 ranged from 77.9% to 97.7% (excluding Kaiser) with an unweighted average of 86.47%.

Existing law directs any revenue from the MLR remittance to the Steven Thompson Loan Repayment Program (STLRP), which encourages recently licensed physicians to practice in health professional shortage areas in California. The STLRP repays up to $105,000 per individual licensed physician in educational loans in exchange for full-time service for at least three years.

A recent article published November 5, 2017, in the Los Angeles Times, titled “Insurers make billions off Medicaid in California during Obamacare expansion,” used data from unaudited financial disclosures from MCMC plans to estimate that MCMC plans made $5.4 billion in profits from 2014 to 2016, primarily due to higher rates paid for beneficiaries receiving coverage under the expansion of Medi-Cal pursuant to the Affordable Care Act. These findings seem to suggest capitation rates paid to MCMC plans do not align with the actual utilization and provision of health care services to Medi-Cal beneficiaries during this time period. In the article, the DHCS Director indicates that these data do not account for additional auditing, rate adjustments and retroactive recoupments that will occur in the future. DHCS is required to adjust capitation rates paid since the implementation of the Medicaid expansion to account for actual encounter and utilization data reported by the plans. Downward adjustments to these capitation rates for prior periods have resulted in significant expected recoupments from MCMC plans. The May 2017 Medi-Cal Estimate indicates that the DHCS began recoupment in January 2017 for the expansion population and will recoup $5.3 billion, all federal funds, for the period from July 2015 through December 2016. There may be additional recoupments for periods after December 2016. It is unclear whether the data cited in the Los Angeles Times article reflects these recoupments.

1. SUPPORT. The California Medical Association writes that this bill will help to insure that for-profit health insurers who are entrusted with public funds to deliver necessary medical care are acting in the best interests of California residents.
2. OPPOSITION. The California Association of Health Plans states that this bill unfairly targets for-profit MCMC plans for disciplinary action and could result in a loss of MCMC plan contracts, thereby disrupting access to health care for Medi-Cal beneficiaries. Anthem Blue Cross contends that the current authority of the DHCS Director is clear.
3. RELATED LEGISLATION.
   1. AB 595 (Wood) permits the DMHC Director to disapprove a merger transaction or agreement if the Director finds the transaction would substantially lessen competition in health plan products or create a monopoly in this state, including, but not limited to, health coverage products for a specific line of business. Allows the DMHC Director to obtain an opinion from a consultant with expertise to assess the competitive impact of the transaction. AB 595 is pending in the Senate Health Committee.
   2. AB 2416 (Wood) requires a health plan that has a contract with DHCS, as specified, to negotiate with Covered California regarding offering individual products on the Exchange in approved service areas that overlap with counties where there are 2 or fewer health care service plans offering products on the Exchange as of the 2018 plan year. AB 2416 is pending in the Assembly Health Committee.
   3. AB 2499 (Arambula) increases the minimum MLR percentages applicable to health plans and health insurers by 5%, as specified. AB 2499 is pending in the Assembly Appropriations Committee.
4. PREVIOUS LEGISLATION.
   1. SB 171 (Ed Hernandez), Chapter 768, Statutes of 2017, implements various provisions of the federal regulations, as amended May 6, 2016, governing Medicaid managed care plans. Requires, commencing July 1, 2019, requires a MCMC plan to comply with a minimum 85% MLR and to calculate and report the MLR for each MLR reporting year, as defined. Requires, effective for contract rating periods commencing on or after July 1, 2023, a MCMC plan to provide a remittance to the state if the ratio does not meet the minimum ratio of 85% for that reporting year consistent with those federal regulations. Requires DHCS to determine the remittance amount on a plan-specific basis for each rating region of the plan and to calculate the federal and nonfederal share amounts associated with each remittance.
   2. SB 932 (Hernandez) of 2016 would have required any person that intends to merge with, consolidate, acquire, purchase, or control, directly or indirectly, any health plan to give notice to, and to secure the prior approval from, the DMHC Director and would require the DMHC Director to hold a public hearing and make specified findings regarding the proposal prior to approving these transactions. SB 932 was held in the Senate Appropriations Committee.
   3. AB 351 (Steinberg) of 1999 would have established various requirements governing the merger, acquisition, or change of control of a nonprofit health care service plan doing business in the state, including notice to the AG, solicitation of public comments regarding the proposed transaction, and the consent or conditional consent of the AG. AB 351 was vetoed by the Governor, who indicated:
      “This bill requires the Attorney General to review and approve mergers and other acquisitions involving health care service plans to ensure that these transactions do not substantially lessen competition or create a monopoly in California.
      
      While I agree with the author that this issue should receive scrutiny at the state level, I think the responsibility to examine a merger or acquisitions impact on patient care and competition should reside in my new Department of Managed Care. I would consider signing carefully crafted legislation that provides the Department of Managed Care with the authority to consider anti-competitive concerns arising out of such transactions, in consultation with the Attorney General of the State of California and federal regulators.”
      
5. TECHNICAL AMENDMENTS. The author wishes to amend this bill to delete reference to insurers and clarify that this bill applies to new MCMC plan contracts and the renewal of existing MCMC plan contracts.

REGISTERED SUPPORT / OPPOSITION:

Support

California Medical Association

Opposition

Anthem Blue Cross

California Association of Health Plans

Analysis Prepared by: Kristene Mapile / HEALTH / (916) 319-2097

Date of Hearing: May 16, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 2427

Author:(Wood) – As Amended Ver:April 30, 2018

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill requires the Department of Health Care Services (DHCS) to terminate or decline to renew or award a contract of a for-profit Medi-Cal managed care plan in the following cases:

1. The attorney general determines that the Medi-Cal managed care plan engaged or engages in anticompetitive conduct or practices.
2. DHCS determines that the Medi-Cal managed care plan has a pattern or practice of not complying with the medical loss ratio (the percentage of premium dollars spent on health care).

FISCAL EFFECT:

This bill would have negligible costs if a termination or non-renewal was not invoked, but if DHCS were required to terminate or non-renew a contract, it would incur uncertain, significant administrative costs to transition a large volume of beneficiaries to a new plan, including costs to maintain continuity of care with a beneficiary's current providers in some cases (GF/federal).

If this occurred, other plans could experience additional cost pressure on managed care rates if remaining plans had to expand capacity in a short period of time to handle a large influx of new enrollees (GF/federal).

COMMENTS:

1. Purpose. According to the author, this bill requires the state to terminate a for-profit plan's contract if the plan engages in anticompetitive conduct or if the plan is not spending enough on patient care. Lawsuits have been filed in other states claiming deliberate conspiracy by certain insurers to reduce competition and allocate market shares in violation of federal antitrust laws. This bill requires the state to act in such a scenario.
2. Antitrust. The Attorney General's Antitrust Law Section enforces California’s civil and criminal antitrust laws and federal civil antitrust laws through business merger and acquisition reviews, investigations of potential violations of law, and litigation.
3. Medical Loss Ratio. Existing federal Medicaid managed care regulations require states to ensure each managed care plan calculates and reports an MLR. An MLR is the percentage of each dollar the plan receives in premiums that the plan spends on health care services, as defined, versus administration, sales, marketing, and profit. Beginning next year, plans are required to comply with a minimum 85% MLR.
4. Support and Opposition. The California Medical Association writes this bill will help to insure that for-profit health insurers who are entrusted with public funds to deliver necessary medical care are acting in the best interests of California residents. Anthem Blue Cross and the California Association of Health Plans state this bill unfairly targets for-profit plans for disciplinary action and could result in a loss of plan contracts, thereby disrupting access to health care for Medi-Cal beneficiaries.

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