Existing federal law, the federal Patient Protection and Affordable Care Act (PPACA), enacted various health care coverage market reforms that took effect January 1, 2014. PPACA required each state, by January 1, 2014, to establish an American Health Benefit Exchange to facilitate the purchase of qualified health benefit plans by qualified individuals and qualified small employers. PPACA defines a qualified health plan as a plan that, among other requirements, provides an essential health benefits package. Existing state law creates the California Health Benefit Exchange, also known as Covered California, to facilitate the purchase of qualified health plans by qualified individuals and qualified small employers.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975 (Knox-Keene), provides for the licensure and regulation of health care service plans by the Department of Managed Health Care. Existing law provides for the regulation of health insurers by the Department of Insurance. Existing law provides for the Medi-Cal program, which is administered by the State Department of Health Care Services, 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.

This bill would create the California Health Care Cost, Quality, and Equity Commission, an independent state agency, to control in-state health care costs and set the amounts accepted as payment by health plans, hospitals, physicians, physician groups, and other health care providers, among other things. The bill would provide that funding for the commission would be provided from the Managed Care Fund and the Insurance Fund, subject to appropriation by the Legislature. The bill would provide that the commission would have 11 paid members, including the Secretary of California Health and Human Services or his or her designee, a CalPERS representative, and 9 members with specified experience appointed to staggered 6-year terms by the Governor, Senate Committee on Rules, and Speaker of the Assembly, as specified. The bill would require the commission to convene an advisory committee to meet at least quarterly with 15 19 volunteer members, including, but not limited to, a representative of a licensed health facility and a representative of CalPERS.

This bill would provide the powers of the commission, including authorization to adopt regulations and employ necessary staff, and would require the commission to meet at least quarterly and prepare a written report annually, as specified. The bill would require the commission, beginning July 1, 2019, to annually determine the base amounts that health care entities, as defined, are required to accept as full payment for health care services, and would specify that the base amount for a health care provider shall be a percentage of Medicare rates not lower than 100% of Medicare rates. The bill would permit a health care service plan or health insurer to negotiate a contracted rate that is not based on Medicare rates. The bill would exempt noncontracting physicians and other noncontracting health professionals, as defined, from the base amounts until health care service plans and health insurers provide information on average contracted amounts to the commission and the commission sets a base amount for noncontracting physicians and other noncontracting health professionals. The bill would require the commission, on or before July 1, 2019, to establish an appeal process to consider adjustments to the base amounts to be paid to health care providers, entities, and would require the commission to consider specified factors during an appeal. The bill would require the commission to adopt regulations to establish the Purchaser Participation Program on or before July 1, 2019, to allow the commissions executive director to award reasonable fees to a person or fees, not to exceed $400,000 annually, to an organization that represents purchasers or consumers interests and made a substantial contribution to a regulation, order, or decision, as specified. The bill would require the commission to obtain the information necessary to determine total health care expenditures and to set a global growth cap for total health care expenditures, as specified.

This bill would require the commission to estimate the cost savings to the General Fund from lower health care costs paid by public employers because of this bill, and require the Department of Finance to estimate the cost to increase reimbursement rates, as specified, and estimate how much of those costs could be paid using the estimated cost savings to the General Fund. The bill would express the intent of the Legislature to transfer that cost savings, upon appropriation, to programs that recruit and retain health professionals in underserved areas, as specified.

This bill would exempt a Medi-Cal managed health care plan or individuals receiving coverage through Medicare or another federal health program from the bills provisions. The bill would prohibit a health care provider from billing or collecting an amount other than the applicable cost sharing from an individual, and would provide that an individual would not owe a health care provider an amount other than that applicable cost sharing.

This bill would require all information to be submitted electronically to the commission to facilitate public disclosure, but would provide that specified information be kept confidential.

Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.

Existing federal law, the federal Patient Protection and Affordable Care Act (PPACA), enacted various health care coverage market reforms that took effect January 1, 2014. PPACA required each state, by January 1, 2014, to establish an American Health Benefit Exchange to facilitate the purchase of qualified health benefit plans by qualified individuals and qualified small employers. PPACA defines a qualified health plan as a plan that, among other requirements, provides an essential health benefits package. Existing state law creates the California Health Benefit Exchange, also known as Covered California, to facilitate the purchase of qualified health plans by qualified individuals and qualified small employers.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975 (Knox-Keene), provides for the licensure and regulation of health care service plans by the Department of Managed Health Care. Existing law provides for the regulation of health insurers by the Department of Insurance. Existing law provides for the Medi-Cal program, which is administered by the State Department of Health Care Services, 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.

This bill would create the California Health Care Cost, Quality, and Equity Commission, an independent state agency, to control in-state health care costs and set the amounts accepted as payment by health plans, hospitals, physicians, physician groups, and other health care providers, among other things. The bill would provide that funding for the commission would be provided from specified funds, including the Managed Care Fund and the Insurance Fund, subject to appropriation by the Legislature. The bill would provide that the commission would have 9 11 paid members, including the Secretary of California Health and Human Services or his or her designee, a CalPERS representative, and 7 9 members with specified experience appointed to staggered 6-year terms by the Governor, Senate Committee on Rules, and Speaker of the Assembly, as specified. The bill would require the commission to convene an advisory committee to meet at least quarterly with 15 volunteer members, including, but not limited to, a representative of a licensed health facility and a representative of CalPERS.

This bill would provide the powers of the commission, including authorization to adopt regulations and employ necessary staff, and would require the commission to meet at least quarterly and prepare a written report annually, as specified. The bill would require the commission, beginning July 1, 2019, to annually determine the base amounts that health care entities, as defined, are required to accept as full payment for health care services, and would specify that the base amount for a health care provider shall be a percentage of Medicare rates not lower than 100% of Medicare rates. The bill would permit a health care service plan or health insurer to negotiate a contracted rate that is not based on Medicare rates. The bill would exempt noncontracting physicians and other noncontracting health professionals, as defined, from the base amounts until health care service plans and health insurers provide information on average contracted amounts to the commission and the commission sets a base amount for noncontracting physicians and other noncontracting health professionals. The bill would require the commission, on or before July 1, 2019, to establish an appeal process to consider adjustments to the base amounts to be paid to health care providers, and would require the commission to consider specified factors during an appeal. The bill would require the commission to adopt regulations to establish the Purchaser Participation Program on or before July 1, 2019, to allow the commissions executive director to award reasonable fees to a person or organization that represents purchasers interests and made a substantial contribution to a regulation, order, or decision, as specified. The bill would require the commission to obtain the information necessary to determine total health care expenditures and to set a global growth cap for total health care expenditures, as specified.

This bill would exempt a Medi-Cal managed health care plan or individuals receiving coverage through Medicare or another federal health program from the bills provisions. The bill would prohibit a health care provider from billing or collecting an amount other than the applicable cost sharing from an individual, and would provide that an individual would not owe a health care provider an amount other than that applicable cost sharing.

This bill would require all information to be submitted electronically to the commission to facilitate public disclosure, but would provide that specified information be kept confidential.

Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975, establishes the Department of Managed Health Care and sets forth its powers and duties relating to the licensing and regulation of health care service plans.

This bill would make a nonsubstantive change in those provisions.

Date of Hearing: May 23, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 3087

Author:(Kalra) – As Amended Ver:May 2, 2018

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

SUMMARY:

This bill establishes the Health Care Cost, Quality, and Equity Commission (commission) to, among other functions, control in-state health care costs and set the amounts accepted as payment by health plans, hospitals, physicians, physician groups, and other healthcare providers. Specifically, this bill:

1. Creates an 11-member commission, as specified, as well as an advisory committee, and establishes conflict-of-interest provisions that apply to members.
2. Allows two special funds—the Managed Care Fund and the Insurance Fund— to be used upon appropriation as a funding source for the commission.
3. Enumerates the commission's powers to set rates, as follows:
   1. Beginning July 1, 2019, and annually thereafter, set base amounts that each health care entity shall accept as payment in full for health care services covered by health coverage or insurance. (Health care entities are health plans and insurers; licensed health facilities like hospitals, clinics, and skilled nursing facilities; ambulatory surgery or other outpatient setting; state-licensed laboratory, radiology, or imaging centers, physicians and other licensed health care providers who independently bill for services; and physician organizations and medical groups.) In the case of health plans and insurers, the base amount is the premium they are allowed to charge.
   2. For health providers, specifies the base amount is a percentage of the rate paid by Medicare for the same or similar service, and sets the Medicare rate as the minimum rate for the service in a particular geographic region.
   3. For health plans and insurers, specifies the base amount is a percentage of the rate paid by Medicare Advantage to a health plan in the county, adjusted for specified factors.
   4. Requires the commission to consider a number of factors as it develops base amounts, including evidence of the financial status of plans and providers, health care provider compensation, fair returns on investment, avoidance of confiscatory results, labor costs, state and federal law changes, capital investments, and changes in care delivery.
   5. Requires the commission to review base amounts annually to ensure amounts are sufficient to meet enumerated goals, including maintaining an adequate workforce; provider return on investment (ROI); financial solvency for plan insurers, and risk-bearing organizations; avoidance of confiscatory results; improvements in health outcomes; reductions in costs and health disparities; accessibility; and the needs of underserved areas.
   6. Requires the commission to collect data on average contract rates prior to setting non-contracted rates.
   7. Requires the commission to review Medi-Cal reimbursement as compared to base amounts, and states the intent of the Legislature to better align Medi-Cal financing with Medicare rates.
4. Allows plans that are not state-regulated—plans regulated federally under the Employee Retirement Income Security Act of 1974 (ERISA plans)—to pay the base amounts and adjusted amounts established by the commission, and restricts providers' ability to charge in excess of these rates.
5. Requires the commission to estimate state savings, and expenses legislative intent that GF savings from lower public employee health care costs be allocated, upon appropriation, to existing health care workforce training and loan forgiveness programs for health professionals.
6. Establishes an appeals process for considering adjustments to the base rates, enumerates criteria that shall be considered in deciding an appeal, and establishes a process whereby "interim relief" can be granted when it is alleged the amount is arbitrary or capricious or in case of a bona fide emergency. States a final determination is subject to judicial review.
7. Prohibits a health care provider from charging a person more than the applicable patient share of cost for the service, and limits charges to uninsured individuals to no more than the base or adjusted amount determined by the commission.
8. Gives the commission power to obtain data from various state departments and authorizes the commission to require health care entities to report data.
9. Requires the commission to obtain the information necessary to determine total health care expenditures and set a global cap on the annual growth of total health care expenditures that does not exceed the annual growth of the gross state product (GDP), and report on progress. It allows the commission to order corrective action to stay within the cap.
10. Requires the commission to review and consider increases in prescription drug prices.

FISCAL EFFECT:

1. Commission. All funds are Managed Care Fund and Insurance Fund, in proportion to the number of covered lives regulated by each department.
   1. Uncertain, significant ongoing staff and contract costs for core commission functions. Assuming roughly 50 staff, $4 million in contract costs, and commissioner compensation of $100,000 annually, long-range costs in the range of $15 million annually. These costs would likely phase in over the first one-to-two years of operation. Depending on the degree of analytical sophistication, the degree to which Medicare rates are modified, the level of need for actuarial services, and other factors, costs could vary.
   2. Data collection and information technology cost could vary widely but could easily be in the millions of dollars in start-up costs. Ongoing costs are uncertain. This bill requires the commission to collect data on average contract rates for services over the last three years by geographic area for purposes of developing non-contract rates and it allows the commission to access data from other state agencies. It makes additional data collection discretionary. Cost depends largely on the extent to which existing data sources provide sufficient information for the commission to fulfill its duties. In order to take into account the wide range of factors the commission must examine and to ensure adequate payment, it is likely the commission would need to mandate additional types of health care services and cost data reporting from health care entities, as authorized. The commission would also need to build infrastructure to store, clean, access, and analyze the data.
2. Appeals to final commission determinations. Unknown costs to Office of Administrative Hearings within DGS (Service Revolving Fund, reimbursed by the commission) or to the commission itself, if appeals are conducted internally. Legal costs could also be incurred if providers are not satisfied with the appeals decisions and seek judicial review. Appeals costs and workload are likely to be somewhat inversely proportional to the rate levels – in other words, lower rates would generate more appeals.
3. Data-sharing costs to other state departments. Unknown, significant costs to the Office of Statewide Health Planning and Development, Department of Managed Health Care, California Department of Insurance, and health profession licensing boards within the Department of Consumer Affairs (various special funds).
4. Effect on state health care costs. If the commission is successful in slowing long-term cost growth trends, uncertain potential reductions in long-term growth trends in state health care costs paid on behalf of current and retired employees, through the Medi-Cal program, and in the health care delivery systems operated by the state, including the Department of State Hospitals and California Department of Corrections and Rehabilitation. If this occurred, local governments and school districts would also benefit from reductions in costs on behalf of current and retired employees and in the cost of direct health care delivery. The potential for dramatic cost reductions is limited, however, because to retain an adequate provider workforce, California's provider payments would need to be competitive with payments in other states that do not limit reimbursement. Nevertheless, even very modest reductions in projected cost growth on a base as large as public health care spending in the state would be a substantial sum.
5. Cost pressure on Medi-Cal rates. This bill states intent to align Medi-Cal rates with Medicare rates, creating cost pressure to the state to fulfill this intent. The Legislative Analyst's Office estimated in 2015 this change would cost over $5 billion to the General Fund.

COMMENTS:

1. Purpose. This bill is an ambitious attempt to systematize prices in an industry that has long been criticized for high cost, poor outcomes, lack of price transparency, and misaligned financial incentives. It is intended to rationalize health care rate-setting to ensure rates that are adequate and not excessive.
2. Background. According to the Commonwealth Fund, the United States spends far more on health care than other high-income countries. At an informational hearing conducted by the Assembly Select Committee on Health Care Delivery Systems and Universal Coverage (select committee) on January 17, 2018, experts described variation in provider payments by public and private payers. The federal government sets provider rates for Medicare, and states set physician and hospital payment rates for Medicaid.  In the commercial market, payers and providers negotiate contracts to determine rates and network inclusion.  According to the presentation, private insurers reimburse hospitals about 75% more than Medicare and Medicaid and can vary both within and across markets.

The California Health Care Foundation notes hospital care accounts for the largest source of healthcare spending (36%); followed by physician and clinical services (26%); prescription drugs (13%); and, nursing home care (5%). Health care cost growth is a large and growing problem for employers, government entities, and individuals. Since year-over-year cost growth exceeds growth in GDP, health care generally has represented a larger and larger share of GDP.

1. Other states. In 1971, Maryland established an all-payer payment system for hospital services. Under this payment system, hospitals receive a rate for each of their services from the state. All payers, including Medicare, Medicaid, private and uninsured, pay the same rate. A federal waiver was required to implement this system.

Massachusetts has implemented a number of activities to address high health care costs. That state created a statewide global cap on public and private health care costs, similar to that proposed in this bill. The Massachusetts law specifies a target growth rate for overall medical spending based on the growth rate of the state’s economy. A commission has authority to obtain the information necessary to determine total health care expenditures in order to set the global growth cap.

1. How does this bill work? This bill regulates the rates or amounts that state-licensed health care entities may receive as payment for health care services covered by plans and insurers, as well as the premium rates health plans and insurers can charge. Generally, the rates will be set at a percentage of Medicare rates, which are already adjusted for geographical differences. The appeals process will allow providers to present evidence that demonstrates the need for higher rates. It allows, but does not require, federally regulated plans to make use of the state-established rates. It also tasks the commission with setting and maintaining a global cap on health care expenditures to align with GDP growth.
2. Support. This bill is enthusiastically supported by a large number of labor, consumer, and health advocacy groups. It is co-sponsored by California Labor Federation, Health Access California, SEIU California, and UNITE HERE International Union. Health Access states this bill helps rein in rising health care costs and protects consumer’s pocketbooks by establishing an independent commission that sets reasonable base amounts that hospitals, doctors, and health plans can collect from commercial payers. SEIU notes although this bill would not set one rate across all payers in that it only applies to the commercial market, the commission would be required to consider a provider’s reliance on Medi-Cal and to make necessary adjustments.
3. Opposition. Health plans and insurers, as well as a strikingly large array of health care providers, are unanimous in strong opposition to this bill. The California Hospital Association asserts payment reductions contained in this bill will lead to large cuts in hospital services, and force many hospitals, especially those in underserved areas, to close. Kaiser Permanente (KP) believes that this bill undermines KP’s unique integrated delivery system and argues that cost containment deserves more thoughtful discussion and that this bill does not address the underlying cost drivers and marketplace dynamics that are driving premium increases. Physician groups argue this bill will drive physicians out of the state and make it extremely difficult to recruit the next generation to practice in California.

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

Date of Hearing: May 16, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 3087

Author:(Kalra) – As Amended Ver:May 2, 2018

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

SUMMARY:

This bill establishes the Health Care Cost, Quality, and Equity Commission (commission) to, among other functions, control in-state health care costs and set the amounts accepted as payment by health plans, hospitals, physicians, physician groups, and other healthcare providers. Specifically, this bill:

1. Creates an 11-member commission, as specified, as well as an advisory committee, and establishes conflict-of-interest provisions that apply to members.
2. Allows two special funds—the Managed Care Fund and the Insurance Fund— to be used upon appropriation as a funding source for the commission.
3. Enumerates the commission's powers to set rates, as follows:
   1. Beginning July 1, 2019, and annually thereafter, set base amounts that each health care entity shall accept as payment in full for health care services covered by health coverage or insurance. (Health care entities are health plans and insurers; licensed health facilities like hospitals, clinics, and skilled nursing facilities; ambulatory surgery or other outpatient setting; state-licensed laboratory, radiology, or imaging centers, physicians and other licensed health care providers who independently bill for services; and physician organizations and medical groups.) In the case of health plans and insurers, the base amount is the premium they are allowed to charge.
   2. For health providers, specifies the base amount is a percentage of the rate paid by Medicare for the same or similar service, and sets the Medicare rate as the minimum rate for the service in a particular geographic region.
   3. For health plans and insurers, specifies the base amount is a percentage of the rate paid by Medicare Advantage to a health plan in the county, adjusted for specified factors.
   4. Requires the commission to consider a number of factors as it develops base amounts, including evidence of the financial status of plans and providers, health care provider compensation, fair returns on investment, avoidance of confiscatory results, labor costs, state and federal law changes, capital investments, and changes in care delivery.
   5. Requires the commission to review base amounts annually to ensure amounts are sufficient to meet enumerated goals, including maintaining an adequate workforce; provider return on investment (ROI); financial solvency for plan insurers, and risk-bearing organizations; avoidance of confiscatory results; improvements in health outcomes; reductions in costs and health disparities; accessibility; and the needs of underserved areas.
   6. Requires the commission to collect data on average contract rates prior to setting non-contracted rates.
   7. Requires the commission to review Medi-Cal reimbursement as compared to base amounts, and states the intent of the Legislature to better align Medi-Cal financing with Medicare rates.
4. Allows plans that are not state-regulated—plans regulated federally under the Employee Retirement Income Security Act of 1974 (ERISA plans)—to pay the base amounts and adjusted amounts established by the commission, and restricts providers' ability to charge in excess of these rates.
5. Requires the commission to estimate state savings, and expenses legislative intent that GF savings from lower public employee health care costs be allocated, upon appropriation, to existing health care workforce training and loan forgiveness programs for health professionals.
6. Establishes an appeals process for considering adjustments to the base rates, enumerates criteria that shall be considered in deciding an appeal, and establishes a process whereby "interim relief" can be granted when it is alleged the amount is arbitrary or capricious or in case of a bona fide emergency. States a final determination is subject to judicial review.
7. Prohibits a health care provider from charging a person more than the applicable patient share of cost for the service, and limits charges to uninsured individuals to no more than the base or adjusted amount determined by the commission.
8. Gives the commission power to obtain data from various state departments and authorizes the commission to require health care entities to report data.
9. Requires the commission to obtain the information necessary to determine total health care expenditures and set a global cap on the annual growth of total health care expenditures that does not exceed the annual growth of the gross state product (GDP), and report on progress. It allows the commission to order corrective action to stay within the cap.
10. Requires the commission to review and consider increases in prescription drug prices.

FISCAL EFFECT:

1. Commission. All funds are Managed Care Fund and Insurance Fund, in proportion to the number of covered lives regulated by each department.
   1. Uncertain, significant ongoing staff and contract costs for core commission functions. Assuming roughly 50 staff, $4 million in contract costs, and commissioner compensation of $100,000 annually, long-range costs in the range of $15 million annually. These costs would likely phase in over the first one-to-two years of operation. Depending on the degree of analytical sophistication, the degree to which Medicare rates are modified, the level of need for actuarial services, and other factors, costs could vary.
   2. Data collection and information technology cost could vary widely but could easily be in the millions of dollars in start-up costs. Ongoing costs are uncertain. This bill requires the commission to collect data on average contract rates for services over the last three years by geographic area for purposes of developing non-contract rates and it allows the commission to access data from other state agencies. It makes additional data collection discretionary. Cost depends largely on the extent to which existing data sources provide sufficient information for the commission to fulfill its duties. In order to take into account the wide range of factors the commission must examine and to ensure adequate payment, it is likely the commission would need to mandate additional types of health care services and cost data reporting from health care entities, as authorized. The commission would also need to build infrastructure to store, clean, access, and analyze the data.
2. Appeals to final commission determinations. Unknown costs to Office of Administrative Hearings within DGS (Service Revolving Fund, reimbursed by the commission) or to the commission itself, if appeals are conducted internally. Legal costs could also be incurred if providers are not satisfied with the appeals decisions and seek judicial review. Appeals costs and workload are likely to be somewhat inversely proportional to the rate levels – in other words, lower rates would generate more appeals.
3. Data-sharing costs to other state departments. Unknown, significant costs to the Office of Statewide Health Planning and Development, Department of Managed Health Care, California Department of Insurance, and health profession licensing boards within the Department of Consumer Affairs (various special funds).
4. Effect on state health care costs. If the commission is successful in slowing long-term cost growth trends, uncertain potential reductions in long-term growth trends in state health care costs paid on behalf of current and retired employees, through the Medi-Cal program, and in the health care delivery systems operated by the state, including the Department of State Hospitals and California Department of Corrections and Rehabilitation. If this occurred, local governments and school districts would also benefit from reductions in costs on behalf of current and retired employees and in the cost of direct health care delivery. The potential for dramatic cost reductions is limited, however, because to retain an adequate provider workforce, California's provider payments would need to be competitive with payments in other states that do not limit reimbursement. Nevertheless, even very modest reductions in projected cost growth on a base as large as public health care spending in the state would be a substantial sum.
5. Cost pressure on Medi-Cal rates. This bill states intent to align Medi-Cal rates with Medicare rates, creating cost pressure to the state to fulfill this intent. The Legislative Analyst's Office estimated in 2015 this change would cost over $5 billion to the General Fund.

COMMENTS:

1. Purpose. This bill is an ambitious attempt to systematize prices in an industry that has long been criticized for high cost, poor outcomes, lack of price transparency, and misaligned financial incentives. It is intended to rationalize health care rate-setting to ensure rates that are adequate and not excessive.
2. Background. According to the Commonwealth Fund, the United States spends far more on health care than other high-income countries. At an informational hearing conducted by the Assembly Select Committee on Health Care Delivery Systems and Universal Coverage (select committee) on January 17, 2018, experts described variation in provider payments by public and private payers. The federal government sets provider rates for Medicare, and states set physician and hospital payment rates for Medicaid.  In the commercial market, payers and providers negotiate contracts to determine rates and network inclusion.  According to the presentation, private insurers reimburse hospitals about 75% more than Medicare and Medicaid and can vary both within and across markets.

The California Health Care Foundation notes hospital care accounts for the largest source of healthcare spending (36%); followed by physician and clinical services (26%); prescription drugs (13%); and, nursing home care (5%). Health care cost growth is a large and growing problem for employers, government entities, and individuals. Since year-over-year cost growth exceeds growth in GDP, health care generally has represented a larger and larger share of GDP.

1. Other states. In 1971, Maryland established an all-payer payment system for hospital services. Under this payment system, hospitals receive a rate for each of their services from the state. All payers, including Medicare, Medicaid, private and uninsured, pay the same rate. A federal waiver was required to implement this system.

Massachusetts has implemented a number of activities to address high health care costs. That state created a statewide global cap on public and private health care costs, similar to that proposed in this bill. The Massachusetts law specifies a target growth rate for overall medical spending based on the growth rate of the state’s economy. A commission has authority to obtain the information necessary to determine total health care expenditures in order to set the global growth cap.

1. How does this bill work? This bill regulates the rates or amounts that state-licensed health care entities may receive as payment for health care services covered by plans and insurers, as well as the premium rates health plans and insurers can charge. Generally, the rates will be set at a percentage of Medicare rates, which are already adjusted for geographical differences. The appeals process will allow providers to present evidence that demonstrates the need for higher rates. It allows, but does not require, federally regulated plans to make use of the state-established rates. It also tasks the commission with setting and maintaining a global cap on health care expenditures to align with GDP growth.
2. Support. This bill is enthusiastically supported by a large number of labor, consumer, and health advocacy groups. It is co-sponsored by California Labor Federation, Health Access California, SEIU California, and UNITE HERE International Union. Health Access states this bill helps rein in rising health care costs and protects consumer’s pocketbooks by establishing an independent commission that sets reasonable base amounts that hospitals, doctors, and health plans can collect from commercial payers. SEIU notes although this bill would not set one rate across all payers in that it only applies to the commercial market, the commission would be required to consider a provider’s reliance on Medi-Cal and to make necessary adjustments.
3. Opposition. Health plans and insurers, as well as a strikingly large array of health care providers, are unanimous in strong opposition to this bill. The California Hospital Association asserts payment reductions contained in this bill will lead to large cuts in hospital services, and force many hospitals, especially those in underserved areas, to close. Kaiser Permanente (KP) believes that this bill undermines KP’s unique integrated delivery system and argues that cost containment deserves more thoughtful discussion and that this bill does not address the underlying cost drivers and marketplace dynamics that are driving premium increases. Physician groups argue this bill will drive physicians out of the state and make it extremely difficult to recruit the next generation to practice in California.

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

Date of Hearing: April 24, 2018

ASSEMBLY COMMITTEE ON HEALTH

Jim Wood, Chair

ABPCA Bill Id:AB 3087 (

Author:Kalra) – As Amended Ver:April 17, 2018

SUBJECT: California Health Care Cost, Quality, and Equity Commission.

SUMMARY: Establishes the Health Care Cost, Quality, and Equity Commission (Commission), to among other functions, control in-state health care costs and set the amounts accepted as payment by health plans, hospitals, physicians, physician groups, and other healthcare providers. Specifically, this bill:

1. COMPOSITION/STRUCTURE OF THE COMMISSION
   
2. Establishes the Commission as a state agency that is an independent public entity that is not affiliated with an agency or department.
   
3. Establishes the membership of the Commission consisting of 11 members who are residents of California, and of which:
   1. Three are to be appointed by the Governor;
   2. Three are to be appointed by the Senate Committee on Rules;
   3. Three are to be appointed by the Speaker of the Assembly;
   4. The Secretary of California Health and Human Services or his or her designee to serve as a voting, ex officio member; and,
   5. A California Public Employees' Retirement System (CalPERS) representative to be designated by the CalPERS Board of Administration to serve at the pleasure of CalPERS Board of Administration as a voting, ex officio member.
      
4. Sets up the terms of office as follows:
   1. Members of the Commission, other than an ex officio member, are to be appointed for a term of six years;
   2. Appointments made by the Governor are subject to confirmation by the Senate;
   3. Members of the Commission are to serve until the appointment and qualification of a successor;
   4. Vacancies are to be filled by appointment for the unexpired term;
   5. The Commission is to elect a chairperson on an annual basis; and,
   6. Initial appointments are to be for staggered terms. Requires the Governor to appoint one member for two years, one member for four years, and one member for six years. Requires the Senate Committee on Rules and the Speaker of the Assembly to each appoint one member for one year and one member for three years.
      
5. Allows an individual appointed to the Commission to have more than one of the qualifications specified below, and requires that appointees to the Commission to be made as follows:
   1. One individual with demonstrated expertise in health care policy;
   2. One individual with demonstrated expertise in health care delivery;
   3. One health economist;
   4. One consumer advocate;
   5. One individual with demonstrated expertise in health care financing, including alternative payment methodologies;
   6. One representative of a labor union organization who serves as a trustee of a trust fund organized under state or federal law;
   7. One representative of an organization of employers with demonstrated expertise in health care purchasing;
   8. One physician; and,
   9. One individual with experience in hospital administration.
      
6. Requires each member of the Commission to have the responsibility and duty to meet the requirements of this bill and all applicable state and federal laws and regulations to serve the public interest of the public and private purchasers, payers, and providers of health care, and to protect the personal health information of health care consumers.
   
7. Requires the appointing authorities to consider the expertise of the current members of the Commission and make appointments to complement those members’ expertise. Requires the appointing authorities to take into consideration the racial, ethnic, gender, and geographical diversity of the state so that the Commission’s composition reflects the communities of California.
   
8. Prohibits the following:
   1. A member of the Commission or of the staff of the Commission from being employed by, a consultant to, a member of the board of directors of, affiliated with, or otherwise a representative of, a carrier or other insurer, an agent or broker, a pharmaceutical manufacturer, a health care provider, a health care facility, or a health clinic while serving on the Commission or on the staff of the Commission;
   2. A member of the Commission or of the staff of the Commission from being a member, a board member, or an employee of a trade association of carriers, pharmaceutical manufacturers, health care facilities, health clinics, or health care providers while serving on the Commission or on the staff of the Commission;
   3. A member of the Commission or of the staff of the Commission from being a health care provider unless he or she does not receive compensation for rendering services as a health care provider and does not have an ownership interest in a professional health care practice;
   4. A member of the Commission from engaging in ex parte communications with an individual or organization that may appeal to the Commission;
   5. A member of the Commission from making, participate in making, or attempting to use his or her official position to influence the making of a decision the Commissioner knows or has reason to know will have a reasonably foreseeable material financial effect, distinguishable from its effect on the public generally, on the Commissioner, on a member of his or her immediate family, or on either of the following:
      1. A source of income, other than gifts and loans by a commercial lending institution in the regular course of business on terms available to the public without regard to official status aggregating two hundred fifty dollars ($250) or more in value provided to, received by, or promised to the member within 12 months before the decision is made; or,
      2. A business entity in which the member is a director, officer, partner, trustee, or employee, or holds a position of management.
   6. The Commission, a member of the Commission, or an officer or employee of the Commission shall from being held liable in a private capacity for, or on account of, an act performed or obligation entered into in an official capacity, when done in good faith, without intent to defraud, and in connection with the administration, management, or conduct or affairs related to the provisions of this bill.
      
9. Requires a member of the Commission to receive adequate compensation for his or her service on the Commission. Allows a member of the Commission to receive a per diem and reimbursement for travel and other necessary expenses while engaged in the performance of official duties of the Commission, as specified.
   
10. Requires the Commission to hire an executive director (ED) to organize, administer, and manage the operations of the Commission. Requires the ED to be exempt from civil service and to serve at the pleasure of the Commission.
    
11. Subjects the Commission to the Bagley-Keene Open Meeting Act but allows the Commission to hold closed sessions when considering matters related to litigation, personnel, and contracting.
    
12. PURPOSE OF THE COMMISSION
    
13. Establishes the following purposes of the Commission:
    1. To set the amounts accepted as payment by health plans, hospitals, physicians, physician groups, and other health care providers;
    2. To determine methods for state government to reduce the cost of prescription drugs and medical devices paid for by private purchasers in the commercial market;
    3. To control in-state health care costs in a manner intended to improve health care quality, improve health outcomes, and reduce health disparities for all Californians;
    4. To reduce price discrimination by health care providers among health care purchasers and the variation in prices paid to providers by private purchasers in the commercial market;
    5. To ensure payments to health care providers will permit them to provide medically necessary, effective, and efficient health care services in a manner that improves health outcomes, reduces health disparities, ensures there are an adequate number of providers to provide timely access to health care services for all Californians with commercial health coverage, and ensures a fair and reasonable return on investment to providers; and,
    6. To measure and reduce total health care expenditures per capita in the state.
       
14. States that it is not the purpose of the Commission to determine rates with respect to the Medi-Cal program or any other public health program.
    
15. ADVISORY COMMITTEE
    
16. Requires the Commission to convene an advisory committee composed of a diverse set of health care stakeholders with demonstrated expertise in private, commercial, or Medicare health care payments and financing, health care delivery, health care quality, health care workforce, population health, health equity, or a combination of these.
17. Requires the appointments to the advisory committee to be for a term of at least one year.
    
18. Requires the advisory committee to be made up of 15 members as follows:
    1. A representative of a health care service plan (health plan) , as specified, an insurer offering a policy of health insurance, as specified, or an association representing health plans;
    2. A representative of a licensed health facility, as specified;
    3. A representative of a clinic, as specified;
    4. A representative of an ambulatory surgery or other outpatient setting, as specified;
    5. A representative of a laboratory, radiology, or imaging center;
    6. A physician and surgeon who is licensed in California to deliver or furnish health care services;
    7. A representative of a physician organization or medical group;
    8. A representative of an organization of the employees of hospital or medical group providers licensed or certified to deliver health care services;
    9. An expert in health information technology;
    10. Any other provider of a health care service that is licensed, certified, or otherwise regulated by the state;
    11. A representative of a self-insured or self-funded employer group health plan, multiemployer plan, or self-insured or self-funded joint labor-management trust that pays for health care services provided to beneficiaries;
    12. A representative of CalPERS;
    13. A representative of a large public sector purchaser of health care services;
    14. A representative of a large private sector purchaser of health care services; and,
    15. A representative of an organization representing health care consumers.
        
19. States that the purpose and duties of the advisory committee is to advise the Commission as follows:
    1. Provide recommendations to the Commission regarding the establishment, implementation, and ongoing administration and evaluation of the Commission;
    2. Advise the Commission on topics requested by the Commission; and,
    3. Suggest questions and agenda items to the Commission for advisory committee consideration.
       
20. Requires the advisory committee to hold public meetings at least once every quarter, and solicit input on agendas and topics set by the Commission.
    
21. Requires meetings of the advisory committee to be subject to Bagley-Keene Open Meeting Act.
    
22. Requires a member of the advisory committee to recuse himself or herself from any matter directly affecting his or her interests or the interests of the entity or organization represented by the member.
    
23. Prohibits a member of the advisory committee from receiving per diem, travel expense reimbursement, or other expense reimbursement related to his or her service on the advisory committee.
    
24. DUTIES OF THE COMMISSION
    
25. Requires the Commission to do the following:
    1. Convene at least quarterly, or more frequently as required to fulfill its purpose under this bill;
    2. Annually prepare a written report on the implementation and performance of the Commission during the preceding fiscal year, including, at a minimum, how funds were expended and the progress toward, and the achievement of, the requirements of this bill;
    3. Respond to requests for additional information from the Legislature, including providing testimony and commenting on proposed state legislation or policy issues;
    4. Maintain expenditures consistent with revenues;
    5. Exercise all powers reasonably necessary to carry out and comply with the duties, responsibilities, and requirements of this bill; and,
    6. Consult with the advisory committee stakeholders relevant to carrying out the activities of this bill.
       
26. Requires the report specified in 21) b) above to be publicly posted on the Commission’s Internet Website; and, annually transmitted to the Legislature and the Governor.
    
27. Authorizes the Commission to do the following:
    1. Enter into contracts;
    2. Sue and be sued;
    3. Receive and accept gifts, grants, or donations of moneys from an agency of the United States, an agency of the state, and a municipality, county, or other political subdivision of the state;
    4. Receive and accept gifts, grants, or donations from individuals, associations, private foundations, and corporations, in compliance with the conflict of interest provisions to be adopted by the Commission at a public meeting;
    5. Adopt rules and regulations, as necessary. Authorizes adoption of emergency regulations until January 1, 2022, as specified;
    6. Share information with relevant state departments necessary for the administration of the Commission; and,
    7. Employ necessary staff.
       
28. Requires the Commission to hire a chief fiscal officer, a chief operations officer, a chief technology and information officer, a general counsel, and other key executive positions, who are exempt from civil service.
    
29. Requires the Commission to set the salaries for the exempt positions specified in 24) above and the ED in amounts that are reasonably necessary to attract and retain individuals of superior qualifications. Requires the salaries to be published by the Commission in the Commission’s annual budget. States that the positions of the ED and those described in 24) above are not to be subject to provisions of the Government Code or the Public Contract Code and, solely for the purpose of determining the salaries for those positions, the Commission is not to be considered a state agency or public entity.
    
30. Requires the Commission’s annual budget to be posted on the Internet Website of the Commission.
    
31. Requires the Commission, in determining the salaries in 24) above, to cause to be conducted, through the use of independent outside advisors, salary surveys (surveys) of both of the following:
    1. Other state and federal health care Commissions that are most comparable to the Commission; and,
    2. Other relevant labor pools.
       
32. Requires the salaries established by the Commission in 25) above to not exceed the highest comparable salary for a position of that type, as determined by the surveys.
    
33. Requires the Department of Human Resources to review the methodology used in the surveys.
    
34. Prohibits the Commission from being subject to licensure or regulation by the Department of Insurance (CDI) or the Department of Managed Health Care (DMHC).
    
35. DEFINITION OF TERMS
    
36. Defines the following terms:
    1. Adjusted amount is the maximum amount of payment approved by the Commission after the final decision on an appeal pursuant to this bill that a health care entity may require from a purchaser as payment in full for health care services, in addition to applicable cost sharing;
    2. Applicable cost sharing is the copayments, deductibles, coinsurance, and any other share of cost for services that is permitted consistent with state law and regulations or federal law, rules, and guidance;
    3. Base amount is the amount of payment for health care services as a percentage of Medicare rates that a health care entity may require from a purchaser as payment in full for health care services, in addition to any applicable cost sharing;
    4. Commercial health coverage is coverage that is paid for by individual consumers for their own benefit, employers for the benefit of employees and dependents, employee benefit plans for the benefit of plan participants and their dependents, or another individual or group health plan. Excludes from the definition of commercial health coverage Medicare, Medi-Cal, the Indian Health Service, the Federal Employees Health Benefit Program, or TRICARE;
    5. A health care entity as the following:
       1. A health plan or an insurer offering a policy of health insurance as specified;
       2. A licensed health facility, as specified;
       3. A clinic, as specified;
       4. An ambulatory surgery or other outpatient setting, as specified;
       5. A laboratory, radiology, or imaging center that is required to be licensed or certified by the state;
       6. A physician and surgeon or other professional who is licensed in California to deliver or furnish health care services and who is a member of a health profession in which some professionals bill independently for their services;
       7. A physician organization or medical group; or,
       8. Any other provider of a health care service that is licensed, certified, or otherwise regulated by the state and that bills separately or independently for that service.
    6. A Health care provider as a health care entity as specified in e) ii) to e) viii) above;
    7. Health care services as covered benefits, including essential health benefits (EHBs), as specified, and any other covered benefits as provided in the evidence of coverage or plan documents provided by a health plan, insurer, or self-insured plan;
    8. Noncontracting physician or other noncontracting health professional as a physician or health professional who is not contracted with a state-licensed health plan or a health insurer licensed by the state; and,
    9. Purchasers as consumers who purchase health coverage as individuals and employers, plans, and trust funds that purchase health coverage or pay for health care benefits on the behalf of their employees, dependents, or plan members.
       
37. EXCEPTIONS TO THIS BILL
    
38. States that this bill does not apply to the following:
    1. A Medi-Cal managed care (MCMC) plan or an entity that enters into a contract with the State Department of Health Care Services (DHCS); nor,
    2. Individuals receiving coverage through the Medicare program or any other federal program, including the Indian Health Service, TRICARE, the Federal Employees Health Benefit Program, or any other federal program providing health care services.
       
39. States that the amounts paid for services under this bill do not constitute a health care provider’s uniform, published, prevailing, or customary charges and are not to be used for purposes of a payment limit under the federal Medicare Program, the Medi-Cal program, or any other federal or state-financed health care program.
    
40. States that this bill is not intended to act upon, govern, impose obligations upon, or otherwise regulate employee welfare benefit plans regulated by the Employee Retirement Income Security Act (ERISA) of 1974. Provides that this bill does not prohibit those plans from accessing the rates set by the Commission for regulated health care entities.
41. PURCHASER PARTICIPATION PROGRAM
    
42. Requires the Commission, on or before July 1, 2019, to adopt regulations to establish the Purchaser Participation Program, which allows for the ED to award reasonable advocacy and witness fees to a person or organization that demonstrates that the person or organization represents the interests of purchasers and has made a substantial contribution on behalf of purchasers to the adoption of a regulation or to an order or decision made by the ED if the order or decision has the potential to impact a significant number of consumers.
    
43. Includes in the regulations adopted by the Commission specifications for eligibility of participation, rates of compensation, and procedures for seeking compensation. Requires the regulations to require that the person or organization demonstrate a record of advocacy on behalf of health care consumers in administrative or legislative proceedings in order to determine whether the person or organization represents the interests of purchasers.
    
44. Applies the above provisions to all proceedings of the Commission, including individual rate cases.
    
45. Requires the fees awarded to be considered costs and expenses, and to be paid from the assessments made under this bill.
    
46. Requires the Commission to report the following information on or before March 1, 2020, and annually thereafter:
    1. The amount of reasonable advocacy and witness fees awarded each fiscal year;
    2. The individuals or organizations to whom advocacy and witness fees were awarded; and,
    3. The orders, decisions, and regulations pursuant to which the advocacy and witness fees were awarded.
       
47. Requires the report in 39) above to be publicly posted on the Commission’s Internet Website, and annually transmitted to the appropriate policy and fiscal committees of the Legislature.
    
48. FUNDING OF THE COMMISSION
    
49. Requires funding for the actual and necessary expenses of the Commission to be provided, from transfers of moneys from the Managed Care Fund and the Insurance Fund;
    
50. Requires the share of funding from the Managed Care Fund to be based on the number of covered lives in the state that are covered under plans regulated by the DMHC, including covered lives under MCMC, as determined by DMHC, in proportion to the total number of covered lives in the state.
    
51. Requires the share of funding from the Insurance Fund to be based on the number of covered lives in the state that are covered under health insurance policies and benefit plans regulated by CDI, including covered lives under Medicare supplement plans, as determined by CDI, in proportion to the total number of covered lives in the state.
    
52. Requires the allocation of the share of funding from the funds described in 41) above to be determined annually during the budget process.
    
53. BASE AMOUNT
    
54. Requires the Commission, beginning July 1, 2019, and annually thereafter, to establish base amounts that health care entities accept as payment in full for health care services, in addition to applicable cost sharing. Requires the base amount to apply to a contract with a health care entity that was issued, amended, or renewed on or after the effective date of the base amount. Requires the Commission to determine the effective date or dates of base amounts, but no earlier than July 1, 2019.
    
55. Requires the Commission, on or before July 1, 2019, to adopt regulations governing the annual determination of base amounts. Requires the Commission, in its determination of the base amounts, to allow the submission of written comments and testimony by health care entities and purchasers.
    
56. Requires the annual determination of base amounts to be exempt from the Administrative Procedure Act.
    
57. Requires the Commission to annually determine the percentage of Medicare rates used to determine the base amount, as follows:
    
    1. For health care providers, the percentage determined by the Commission to be not lower than 100% of Medicare rates, and may exceed Medicare rates; requires the base amounts to be a percentage of the rate that Medicare reimburses for the same or similar services in the general geographic region in which the services were rendered, unless those services are provided on a contractual basis to a health plan or health insurer licensed by the state; and,
    2. For a health plan contract or a policy of health insurance, the base amount to be a percentage of the capitated rate a health plan receives for Medicare Advantage for the county where the enrollee or insured resides, adjusted for all of the following:
       1. Age;
       2. Risk mix;
       3. Differences in cost sharing between the Medicare Advantage plan and the coverage offered by the health plan or health insurer; and,
       4. Other actuarial factors permissible under state and federal law.
          
58. Requires the Commission to take into account all of the following in determining the base amounts:
    1. Evidence of the financial status of hospitals, other health care providers, and Medicare Advantage plans, and the compensation of physicians and other health professionals in California. Requires the Commission to consider whether or not the health care entity is receiving a fair return on investment and avoidance of confiscatory results;
    2. Changes in state or federal laws that result in a change in costs;
    3. Reasonable increases in labor costs, including salaries and benefits, and changes in collective bargaining agreements or prevailing wage;
    4. Reasonable increases in capital investments, including those associated with compliance with state or federal law; and,
    5. Changes in the delivery of care that require adjustments in rates, such as the development of new modalities of care or new systems of care.
       
59. Authorizes the Commission to allow different percentages of Medicare rates to be used for different health care entities, including different percentages for Medicare Advantage than for the amounts paid to health care providers.
60. Allows a health plan or health insurer to negotiate contracted rates with contracting health providers that are not based on the Medicare rates as provided by this bill.
    
61. Requires the Commission to do the following:
    1. Establish a process for developing base amounts for health care services not currently reimbursed by Medicare or Medicare Advantage;
    2. Establish a process for determining reimbursement rates for health care services infrequently reimbursed by Medicare or Medicare Advantage and to include, at a minimum, pediatrics, obstetrics, and gynecology;
    3. Determine whether or not to include or alter Medicare rating factors, such as Medicare disproportionate share hospital rates, graduate medical education, readmission penalties, and other added rates as Medicare may allow. States that until the Commission makes such determination, the base amount will not include those factors.
    4. Review and adjust overall rates or specific rates to maintain the workforce necessary to deliver quality, equitable health care throughout the state, and allows the Commission make adjustments to ensure access to underserved populations throughout the state;
    5. Review the base amounts annually to ensure that the amounts are sufficient to ensure all of the following:
       1. The financial solvency requirements under state law for each of the following:
          1. Health plans;
          2. Insurers offering policies of health insurance; and,
          3. Risk-bearing organizations.
       2. A fair return on investment for the health care entity;
       3. Avoidance of confiscatory results;
       4. Improvements in health outcomes;
       5. Improvements in health disparities and reductions in health system costs consistent with this bill; and,
       6. Availability and accessibility of health care services, including compliance with state requirements regarding network adequacy, timely access, and language access.
    6. Separately consider the impact of the base amounts in underserved areas, including rural areas determined to be underserved in accordance with state and federal requirements. Allows the Commission, to mitigate the impact of the base amounts on the availability and accessibility of health care services in underserved areas, to adjust the base amounts for services provided in those areas.
       
62. Authorizes the Commission, in determining base amounts, to take into account the reliance of the category of hospital or health professional on reimbursement by the Medi-Cal program, including supplemental Medi-Cal rates, such as disproportionate share hospital payments, intergovernmental transfers, prospective payment system rates for clinics, reimbursement based on quality assurance fees, or other supplement Medi-Cal rates that the provider receives.
    
63. Authorizes the Commission, if it determines that the Medicare reimbursement system has substantially changed and no longer serves the interests of Californians, to make recommendations to the Governor and the Legislature to ensure that the Commission continues to fulfill its purpose.
    
64. NONCONTRACTING PHYSICIANS/NONCONTRACTING PROVIDERS
    
65. Requires, to develop appropriate base amounts for noncontracting physicians and other noncontracting health professionals, health plans and health insurers to provide to the Commission the average contracted amount for the same or similar services in the general geographic regions in which the services were rendered for the three calendar years before the effective date of this bill.
    
66. Defines average contracted rate as the average of the contracted commercial rates paid by the health plan, delegated health entity, or health insurer for the same or similar services in the geographic region.
    
67. Provides that until the data submitted pursuant to 55) above is available to the Commission, the Commission shall not set a base amount for noncontracting physicians and other noncontracting health professionals.
    
68. Requires the Commission, to determine the base amounts for noncontracting physicians and other noncontracting health professionals, to take into account the commercial contracted rates paid in the three prior calendar years.
    
69. Provides that the provisions relating to noncontracting physicians do not apply to physicians and other health professionals contracting with health plans or health insurers.
    
70. States that until the Commission determines the base amounts for noncontracting physicians and other noncontracting health professionals, a physician or health professional who does not contract with a health plan or health insurer is not subject to the base amount.
    
71. INTENT REGARDING THE MEDI-CAL PROGRAM
    
72. States the intent of the Legislature to better align the financing of the Medi-Cal program, including both the fee-for-service (FFS) program and MCMC, with Medicare rates.
    
73. Specifies the intent of the Legislature that savings to the General Fund (GF) from lower health care costs for public employers as a result of this bill to be directed, upon appropriation by the Legislature, to the Steven M. Thompson Physician Corps Loan Repayment Program, the Song-Brown Healthcare Workforce Training Programs, the Health Professions Education Fund, and other programs intended to recruit and retain health professionals in underserved areas.
    
74. Requires, beginning October 1, 2020, and on or before October 1 annually thereafter, the Commission to estimate the savings to the GF from lower health care costs paid by public employers, including the state and local governments, as a result of this bill, and to report the estimated savings to the Department of Finance (DOF) and the Legislature.
    
75. Requires DOF to provide an estimate of the cost to increase reimbursement rates for physicians and other health care providers to be comparable to Medicare, taking into account the differences in populations served. Requires DOF to include in its estimate an analysis of how much of the cost would be provided through federal financial participation and how much could be paid out of the estimated savings to the GF from lower health costs for public employers.
    
76. APPEAL PROCESS
    
77. Requires the Commission, on or before July 1, 2019, to establish an appeals process for the purpose of considering adjustments to the base amounts to be paid to health care providers.
    
78. Requires the Commission to establish by regulation the following:
    1. Uniform written procedures for notice and the submission, receipt, processing, and consideration of appeals; and,
    2. Criteria for considering and making decisions on appeals to the base amount.
79. Requires decisions on appeals to be rendered within six months of the filing of an appeal. Specifies that a filing is not considered complete until the entity that is appealing has produced the documentation reasonably required by the Commission.
    
80. Requires a health care entity filing an appeal to certify that it has a good faith basis for pursuing the appeal and to identify the basis of the appeal pursuant to the specific factor/s enumerated in 69) below.
    
81. Requires the Commission to consider an appeal of the base amounts, filed by a health care entity, based on the following:
    1. The overall financial condition of the health care entity;
    2. A fair return on investment by a health care entity;
    3. Avoidance of confiscatory results;
    4. Risks to the ongoing operation of the health care entity and its financial solvency, if financial solvency requirements are imposed by law;
    5. Justifiable differences in costs among health care entities, such as providing a service not available from other providers in the region, or the need for health care services in rural areas with a shortage of health professionals or medically underserved areas and populations;
    6. Factors that led to increased costs for the health care entity that can reasonably be considered to be unanticipated and out of the control of the entity. Includes, but is not limited to the following factors:
       1. Natural disasters;
       2. Outbreaks of epidemics or infectious diseases;
       3. Unanticipated facility or equipment repairs purchases;
       4. Unanticipated increases in a share of low-income, Medi-Cal, or uninsured populations; and,
       5. Significant and unanticipated increases in pharmaceutical or medical device prices.
    7. Changes in state or federal laws that result in a change in costs;
    8. Reasonable increases in labor costs, including salaries and benefits, and changes in collective bargaining agreements, prevailing wage, or local law;
    9. Reasonable increases in capital investments, including those associated with compliance with state or federal law; and,
    10. Changes in the delivery of care that require adjustments in rates, such as the development of new modalities of care or new systems of care.
        
82. Requires the base amount set by the Commission to be paid to the health care entity to stay in effect during the appeal process, subject to interim relief provisions.
    
83. Gives the Commission the power to grant interim relief based on fairness. Requires the Commission to develop regulations governing interim relief. Requires the Commission to establish uniform written procedures for the submission, processing, and consideration of an interim relief appeal by a health care entity. Requires a decision on interim relief to be granted within one month of the filing of an interim relief appeal. Requires a health care entity to certify in its interim relief appeal that the request is made on the basis that the challenged amount is arbitrary and capricious, or that the health care entity has experienced a bona fide emergency based on unanticipated costs or costs outside the control of the entity, including those in 69) f) above.
    
84. Authorizes the Commission to delegate the conduct of a hearing to an administrative law judge (ALJ), who will issue a proposed decision with findings of fact and conclusions of law.
    
85. Authorizes the ALJ to hold evidentiary hearings and requires the ALJ to issue a proposed decision with findings of fact and conclusions of law, including a recommended adjusted amount, within four months of the filing of the appeal.
    
86. Authorizes, within 30 days of receipt of the proposed decision by the ALJ, the Commission to approve, disapprove, or modify the decision, and requires the Commission to issue a final decision with an adjusted amount for the appealing health care entity.
    
87. Requires a final determination by the Commission to be subject to judicial review, as specified.
    
88. DATA COLLECTION
    
89. Grants the Commission the power to obtain information that is necessary to its deliberations.
    
90. Requires the Commission to receive the following information from the following entities:
    1. Information regarding facilities, workforce, and prescription drug prices from the Office of Statewide Health Planning and Development (OSHPD);
    2. Information regarding rate review and other information relevant to timely access to care, adequacy of network, and medical surveys from DMHC and CDI; and,
    3. Information regarding licensed health professionals from the Department of Consumer Affairs, the Medical Board of California, and other health profession licensing boards.
       
91. Requires the Commission to establish protocols to receive the information specified in 77) above.
    
92. Authorizes the Commission to require a health care entity or entities to provide information to allow the Commission to fulfill its obligations under this bill.
    
93. INFORMATION SUBMITTED TO THE COMMISSION
    
94. Requires all information submitted under this bill to be made publicly available by the Commission.
    
95. Prohibits disclosure of the following:
    1. The contracted rates between a health plan and a provider;
    2. The contracted rates between a health plan and a large group; or,
    3. Information provided to a large group purchaser, as specified.
       
96. Prohibits disclosure by the health plan of the contracted rates between a health plan and a provider to a large group purchaser, as specified.
    
97. Requires all information submitted to the Commission to be submitted electronically to facilitate review, as specified.
    
98. Requires the Commission to, at a minimum, make the following information readily available to the public on its Internet Website, in plain language and in a manner and format specified by the Commission, with the exceptions of the information specified in 81) above:
    1. Justifications for an appeal, including all supporting information and documentation;
    2. Information on pending appeals and final decisions on appeals;
    3. A plain language summary of the reasons for the determination regarding the appeal; and,
    4. Information on the base amounts determined by the Commission, including the percentages and factors taken into account to determine the base amount.
       
99. Requires the information posted to the Commission’s Internet Website under 84) above to be made public for 60 days before the hearing of an appeal.
    
100. CONSUMER PROTECTIONS
     
101. Prohibits an individual from owing a health care provider an amount other than the applicable cost sharing that is otherwise permitted by law.
     
102. Prohibits a healthcare provider, for a service subject to this bill, from billing or collecting an amount from an individual other than the applicable cost sharing.
     
103. Authorizes, if a service is not a covered benefit, the health care provider to bill the individual and to collect the base amount from that individual. States that if the Commission has not determined the base amount for a particular service that is not a covered benefit, a health care provider may determine an appropriate amount for the service and bill the individual.
     
104. Prohibits, if an individual does not have health coverage, the individual from paying more than the base or adjusted amount determined under this bill.
     
105. GLOBAL CAP
     
106. Requires the Commission to obtain the information necessary to determine total health care expenditures and to set a global cap for total health care expenditures based on gross state product.
     
107. Requires the Commission to use existing data sources to determine total health care expenditures to the extent publicly available. Specifies that if appropriate data sources do not exist, the Commission to require sufficient data to be collected to allow it to measure the cost of health care, as well as impacts on quality, equity, and workforce adequacy.
     
108. Requires the Commission to identify the reasons why there has been a failure to achieve the global cap and may order corrective action in order to reduce expenditures to stay above the global growth cap.
     
109. Requires the Commission to report at least annually on the total health care expenditures and the global growth cap. Requires the Commission to vote on that report at a regularly scheduled meeting of the Commission; and requires the report to:
     1. Be publicly posted on the Commission’s Internet Website; and,
     2. Be annually transmitted to the Legislature and the Governor.
        
110. Requires the Commission, in determining the global growth cap for total health care expenditures, to take into account the adequacy of funding for the Medi-Cal program, including both the FFS program and the MCMC program. Requires the Commission to consider the impact on quality and equity of the adequacy of funding the Medi-Cal program.
     

XIV. SEVERABILITY

1. Includes a severability clause and states that if a section, subdivision, sentence, clause, or phrase of this bill, or its application to a person or circumstances, is held invalid, the validity of the remainder of bill, or the application of that provision to other persons or circumstances, is not to be affected.
   

EXISTING LAW:

1. Establishes the federal ERISA, to among other provisions, prohibits state from enforcing laws related to private-sector employee health benefit plans.
   
2. Establishes the federal Patient Protection and Affordable Care Act (ACA), which enacts various health care coverage market reforms including the availability of health insurance exchanges (exchanges) and new individual and small group products offered on and off the exchanges beginning 2014.
3. Requires health plans and health insurers providing health coverage in the individual and small group markets to cover, at a minimum, EHBs, including the ten EHB benefit categories in the ACA, as specified.
   
4. Establishes, in state government, the California Health Benefits Exchange, referred to as Covered California, as an independent public entity not affiliated with an agency or department, and requires the Exchange to compare and make available through selective contracting health insurance for individual and small business purchasers as authorized under the ACA. Specifies the powers and duties of the board governing the Exchange, and requires the board to facilitate the purchase of qualified health plans though the Exchange by qualified individuals and small employers.
   
5. Establishes the DMHC to regulate health plans and the CDI to regulate health insurers.
   
6. Requires contracts between providers and health plans to be in writing and prohibits, except for applicable copayments and deductibles, a contracted provider from invoicing or balance billing a health plan’s enrollee for the difference between the provider’s billed charges and the reimbursement paid by the health plan or the health plan’s capitated provider for any covered benefit.
7. Prohibits a provider, in the event that a contract has not been reduced to writing, or does not contain the prohibition above, from collecting or attempting to collect from the subscriber or enrollee sums owed by the health plan. Prohibits a contracting provider, agent, trustee or assignee from taking action at law against a subscriber or enrollee to collect sums owed by the health plan.
   
8. Requires health plans and health insurers to file specified rate information with DMHC or CDI, as applicable, for health plan contracts or health insurance policies in the individual or small group markets and in the large group market.
9. Requires, for large group health plan contracts and health insurance policies, carriers to file with DMHC or CDI the weighted average rate increase for all large group benefit designs during the 12-month period ending January 1 of the following calendar year, and to also disclose specified information for the aggregate rate information for the large group market.
10. Requires DMHC to develop and adopt regulations to ensure that enrollees have access to health care services in a timely manner and consider specified indicators of timeliness of access to care.
11. Requires CDI to promulgate regulations to ensure that insureds have the opportunity to access needed health care services in a timely manner and ensure adequacy of the number and locations of facilities and providers and consider the regulations adopted by DMHC.
12. Requires DMHC to oversee the fiscal solvency of health plans and the risk-bearing organizations that contract with those plans. Requires health plans to have and maintain a tangible net equity, as specified.
    
13. Requires clinics such as primary care clinics, specialty clinics, chronic dialysis clinics and alternative birth centers to be licensed by the Department of Public Health (DPH).
14. Requires hospitals such as general acute care hospitals (GACHs), and clinical laboratories to be licensed by DPH.
15. Establishes OSHPD as the single state agency responsible for collecting specified health facility and clinic data for use by all agencies. Requires hospitals to make and file with OSHPD certain specified reports, including annual financial reports that includes a detailed income statement, balance sheet, statements of revenue and expenses, and supporting schedules.
16. 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.
17. Makes, under federal law, Medicare data available for the evaluation of the performance of providers of services and suppliers, to qualified entities, defined as a public or private entity that is qualified as determined by the Secretary of the federal Department of Health and Human Services (HHS), to use to evaluate the performance of providers of services and suppliers on measures of quality, efficiency, effectiveness, and resource use, and applies other requirements to qualified entities as the HHS Secretary may specify, such as ensuring security of data.
18. Provides for the licensure and regulation of various healing arts professions, including, but not limited to, physicians and surgeons, by various boards within the Department of Consumer Affairs.

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

COMMENTS:

1. PURPOSE OF THIS BILL. According to the author, while California has made major strides in providing access to health care and promoting quality care, the cost of health care remains unaffordable for many working Californians and is a significant burden among public and private employers. In California, health insurance premiums have continued to rise way past inflation, and the cost of which is putting a strain on state public funds being used to cover the cost of health care. Numerous reports have demonstrated that the costs health care in the U.S. are out-of-control, and hospital costs and physician services represent an overwhelming proportion of the projected premium dollar – 75% of the projected 2018 premium dollar.
   
   The author notes that the reason the U.S. spends far more on health care than other nations is because of the prices. One thing all countries with universal health care have in common is that the government sets and regulates health care prices and controls overall costs throughout the system, including the commercial market. This bill addresses skyrocketing costs in California by establishing an independent Health Care Cost, Quality and Equity Commission to set reasonable base amounts that hospitals, doctors, and other providers of health care services can collect from public and private payers. For health plans, the Commission will also determine appropriate base amounts for premiums using an adjusted Medicare Advantage rate as the benchmark. Doing so will provide needed relief as all payers will be paying less for health care through lower premiums and cost-sharing without compromising on quality.
   
   The author concludes that the high cost of health care is unsustainable and the state must take meaningful action to contain these costs. This bill gets California along a path towards more equitable health care for all, not just the providers, and there are many facets of the Commission to ensure providers can still provide quality care to millions of Californians and also address serious health disparities that are allowed to unaddressed under our current system. As California continues to lead the nation in building toward a system that provides quality, affordable health care to all, prices must be controlled now.
2. BACKGROUND.
   1. Overview of California’s healthcare landscape. Californians obtain their health care in an array of settings. Sources of coverage impact where Californians obtain health care, as do plan contracting requirements and provider payment arrangements.
      1. Private insurance (employer and individual) is the largest source of coverage. Employer-sponsored coverage insures nearly 43% or about 17.5 million Californians. About 2. 3 million Californians are enrolled in the individual market. Six million Californians with employer-sponsored coverage are in self-insured arrangements subject to ERISA where states have limited regulatory oversight. Under ERISA, states cannot directly regulate private employer health insurance arrangements nor impose a requirement that private employers offer or pay for health insurance.
      2. Medi-Cal is the next source of coverage insuring about 14 million residents, at a cost of $100 billion in total funds ($19.6 billion GF). Medi-Cal is the fastest growing source of coverage, and is administered by DHCS through two types of delivery systems: managed care and FFS. Approximately 79% of the 14 million Medi-Cal beneficiaries receive care through MCMC plans. There are six models of managed care: (1) The county organized health systems (COHS) is available in 22 counties and as of December 2016 there were 2.2 million Medi-Cal beneficiaries enrolled in COHS plans; (2) Under the two-plan model, 14 counties have one commercial and one county-organized local initiative covering 6.9 million beneficiaries; (3) Two counties operate in a geographic managed care (GMC) models (San Diego and Sacramento) where four or five plans participate. As of December 2016, 1.2 million Medi-Cal beneficiaries where enrolled in GMC models; (4) In 18 more rural counties, there are two commercial plans serving over 300,000 beneficiaries; (5) In Imperial county, there are two commercial plans serving over 75,000 Medi-Cal beneficiaries; and, (6) In San Benito, there is one commercial plan and beneficiaries can choose either the plan or Medi-Cal FFS, and almost 84,000 enrollees are enrolled in the commercial plan. California embraced the Medicaid expansion available under the ACA. In 2016, the state expanded Medi-Cal to all children, regardless of immigration status, using only state funds.
      3. Medicare covers about six million Californians. In 2016, 3.4 million Californians were enrolled in traditional Medicare (FFS) and 2.5 million were enrolled in Medicare Advantage plans, where beneficiaries have the option to receive their Medicare benefits through private health plans, mainly health maintenance organizations (HMOs). Under Medicare Advantage, plans are paid a capitated (per enrollee) amount to provide Part A and Part B benefits (collectively hospital inpatient services, skilled nursing, home health, physician payments, and hospital outpatient services). Medicare Advantage makes a separate payment to plans for providing prescription drug benefits (Part D).
         
         California’s implementation of the ACA cut the uninsured rate in half to 7.1% or about 3 million today. The majority of the remaining uninsured, about 1.8 million, are not eligible for coverage programs due to immigration status.
   2. Delivery system. California has a long history of heavy reliance on managed care arrangements, including incentives or restrictions related to provider network, in both public and private health plans. More than 60 % of insured Californians are enrolled in HMO plans, a higher share than most other states. Among California Medicare enrollees, 41% are in Medicare Advantage managed care plans, and approximately 80% of Medi-Cal enrollees are in managed care plans.
      1. Health plans/health insurers. Health plans are responsible for health care provider contracting and payment and, to varying extents these plan contracts can establish rules and incentives for providers to meet quality standards and achieve positive health outcomes. The state’s three largest insurance carriers by total enrollment are Kaiser, Anthem and Blue Shield of California. Other plans, including MCMC plans in many California counties, also provide coverage for millions of Californians. The share of enrollment by market segment (individual, small group, large group, Medi-Cal and Medicare and administrative services only for self-insured arrangements) varies considerably across insurers.
         
         Health insurers collect premiums from purchasers and establish contracts with providers to deliver care to enrollees. Plans differ in the composition of provider networks: Kaiser contracts exclusively with Permanente physicians and offers the same providers to all enrollees. Other plans develop networks that vary by product and market segment. Health insurers perform a variety of functions, and the functions vary significantly across channels of coverage – that is, health plan functions in the individual and small group market are different from their functions in the large group market, and different again from their functions in the Medicare and Medi-Cal markets. For individuals and small groups, a key function is the aggregation of risk. For large groups, the main functions of health plans are provider contracting and payment, member services, and working with (and sometimes against) providers to reduce the provision of low value care and increase quality and efficiency. Some California health insurance carriers reimburse providers via full or partial capitation arrangements that reduce or eliminate provider incentives to increase the volume of services. Although FFS remains the most common method of paying providers, California health plans are increasingly tying providers’ financial risk more explicitly to accountability for quality and outcomes.
      2. Physicians. At the frontline of health care delivery are health care providers, which include physicians and surgeons, and other allied healing arts practitioners. Given the size, population and geographic diversity of the state, most areas in California are experiencing provider shortages, both in primary care and specialty care, but the severity varies by region. Additionally, many areas of California are also designated as dental shortage areas. Currently, there are about 131,000 physicians and surgeons licensed by the Medical Board of California. However, only 80% of physicians with active licenses provided patient care for 20 or more hours per week. Physician supply varied by region. The Greater Bay Area was the only region that met the recommended supply of primary care physicians. The Inland Empire, San Joaquin Valley, and Northern and Sierra Counties all fell short of the recommended supply of specialists. While the recommended supply is 60 to 80 per 100,000 population, California’s statewide average is 50 per 100,000. For specialists, the recommended supply is 85 to 105 per 100,000 but California’s statewide average is 104 physicians per 100,000 population.
      3. Hospitals. Hospitals serve an important role in the delivery of healthcare services. There are approximately 386 hospitals throughout the state. Urban areas generally have a higher concentration of facilities, while residents in rural areas of the state may have to travel for hours to reach the closest hospital. Most hospitals are GACHs which provide eight basic services: medical; nursing; surgical; anesthesia; laboratory; radiology; pharmacy; and, dietary services. In addition to the eight basic services, GACHs can be approved by the DPH to offer special services, including but not limited to the following: radiation therapy department; burn center; emergency center; hemodialysis center; psychiatric; intensive care newborn nursery; cardiac surgery; cardiac catheterization laboratory; renal transplant; and, other special services. More rural areas of the state lack access to specialty services.

California also has 21 public health care systems, which include county-affiliated systems and five University of California academic medical centers. Public health care systems operate in 15 counties and also operate more than 200 outpatient clinics. Additionally, there are 79 healthcare districts in California that operate hospitals, and skilled nursing facilities among other facilities.

• • 1. Clinics. Community clinics and health centers also play a critical role in assuring access to health care for Californians, especially those who are uninsured or who experience other barriers to care. Community clinics and health centers are nonprofit, tax-exempt clinics that are licensed as community or free clinics, and provide services to patients on a sliding fee scale basis or, in the case of free clinics, at no charge to the patients. These include federally designated community health centers, migrant health centers, rural health centers, and frontier health centers. California is home to nearly 1,000 community clinics serving more than 5.6 million patients (or one in seven Californians) annually through over 17 million patient encounters. More than 50% of these patients are Hispanic and 43% speak a primary language other than English.
  1. Healthcare Spending. According to the Centers for Medicare and Medicaid Services (CMS) National Health Expenditures Highlights, in 2016, U.S. health care spending increased 4.3% or 1.5 percentage points faster than the growth in the gross domestic product (GDP) and reached $3.3 trillion, or $10,348 per person. According to the Commonwealth Fund, the United States spends far more on health care than other high-income countries, with spending levels that rose continuously over the past three decades. However, the U.S. population has poorer health than other countries. The Commonwealth Fund study points out that the U.S. ranks last in access, equity, and health care outcomes, and next to last in administrative efficiency, as reported by patients and providers. Only in care process does the U.S. perform better, ranking fifth among 11 industrialized countries.
     
     Total health care spending across the state of California, from all sources, totals about $400 billion. Of this total, more than half comes from public sources of which the largest shares are Medicare ($75 billion); Medi-Cal (more than $100 billion); and federal ACA subsidies through Covered California ($6 billion). Private spending is primarily through employer-sponsored insurance premiums (ESI) ($100 billion to $150 billion). In addition to the portion of the $100 billion to $150 billion in ESI premiums that is paid by employees, consumers pay $10 billion for premiums for individual insurance and $25 billion to $35 billion in out-of-pocket spending.  Federal and state tax law allows payments toward ESI to be excluded from employees’ taxable income. In California, this exclusion accounts for foregone revenues between $40 billion and $50 billion. About 75% of this indirect tax benefit comes from the federal government.
     
     According to the California Health Care Foundation (CHCF) the healthcare per capita spending in California is $7,549 and reached $292 billion in 2016. From 2009 to 2014, spending growth averaged 4.9% per year in total and 4.0% per capita. This was faster than average US spending growth (3.9% total health spending, 3.1% per capita) during the same period. It also exceeded California’s average annual five-year growth in GDP (4.2%), consumer price index (1.9%), and median wages (1.0%). CHCF points out that overall per capita spending for California was about $500 per person lower than the U.S. average. Medicaid spending differences per enrollee were the most dramatic, with annual California spending per enrollee nearly $1,500 (21%) less than the U.S. In contrast, California Medicare and private health insurance spending per enrollee were both higher than the US average ($847, or 8% higher, for Medicare; $184, or 4% higher, for private health insurance).
     
     CHCF points out that overall, hospital care accounts for the largest source of healthcare spending (36%); followed by physician and clinical services (26%); prescription drugs (13%); and, nursing home care (5%).
  2. Variation in Provider Payments.  At an informational hearing conducted by the Select Committee on Health Care Delivery Systems and Universal Coverage (Select Committee) on January 17, 2018, a description of the variation in provider payments by public and private payers was presented. The federal government sets the provider rates for Medicare and states sets physician payment rates and negotiates rates with hospitals for Medicaid.  In the commercial market, payers and providers negotiate contracts to determine rates and network inclusion.  According to the presentation, private insurers reimburse hospitals about 75% more than Medicare and Medicaid and can vary both within and across markets.  Additionally, the basis for hospital payment varies across payers as Medicare utilizes diagnosis related groups (DRGs), Medi-Cal switched from per diem to DRG-based payments in 2013, and in the commercial market, while the basis may vary, per diem is common in Los Angeles and San Francisco.  Medi-Cal hospital payment rates are similar to the national Medicaid average.
     
     For physician services, private insurers pay physicians higher rates than Medicare; for example, the US average payment for a primary care checkup is 118% of Medicare. Specialists command higher mark-ups over Medicare rates from private insurers; for example, a knee replacement is 128% of Medicare and an emergency visit is 257% of Medicare.  The presentation noted that commercial physician rates are lower than average in California; for example, 92% of Medicare in Los Angeles, and 108% of Medicare in San Francisco.  For Medi-Cal, these rates are even lower as the national average in 2016 was 72% of Medicare while in California it is 52% of Medicare.  In California, 77% of physicians would accept a new Medicare or privately insured patient, while only 54% would accept a new Medi-Cal patient. 
  3. Maryland All-Payer Model. This bill regulates the rates or amounts that health care entities receive as payment for health care services. Rate regulation is not a new concept and Maryland is a state that has established a global-payer system for hospital services.
     
     Maryland’s hospital rate regulation was created in 1971 and under this payment system, hospitals receive a rate for each of their services from the state, and all payers, including Medicare, Medicaid, private and uninsured pay off the same rate. It should be noted that under the Maryland model, Medicare and Medicaid pay higher than other states and private payers and uninsured pay less. Rates are updated annually on a prospective basis and differ for each hospital. Higher cost hospitals such as academic medical centers have higher rates and claim processing and benefit coverage are determined by each payer. It should be noted that Maryland has 47 acute general hospitals that are all non-profit; 54% of the population have employer coverage, 16% are on Medicaid, and 14% are on Medicare, and according to the Kaiser Family Foundation, has a 34% HMO penetration rate.
     
     Maryland obtained a waiver (Section 1814(b) of the Social Security Act) for Medicare and Medicaid to pay 94% of the state regulated rates. The Health Services Cost Review Commission (HSCRC) oversees hospital rate regulation for all payers. HSCRC is an independent quasi-public commission, consisting of 7 volunteer Commissioners who are stakeholder representatives appointed by the Governor. The HSCRC has the authority to set the rates for inpatient and outpatient services but not physician services.
     
     According to CMS, under this model, Maryland’s hospitals have committed to achieving significant quality improvements, including reductions in Maryland hospitals’ 30-day hospital readmissions rate and hospital acquired conditions rate. Maryland has agreed to limit all-payer per capita hospital growth, including inpatient and outpatient care, to 3.58 percent. Maryland has also agreed to limit annual Medicare per capita hospital cost growth to a rate lower than the national annual per capita growth rate per year for 2015-2018.
  4. Rate setting under this bill. This bill defines base amount as the amount of payment for health care services as a percentage of Medicare rates that a health care entity may require from a purchaser as payment in full for health care services, in addition to applicable cost sharing. The base amount that the Commission will annually determine is a percentage of Medicare rates. This bill proposes the following:
     1. Health Care Providers (such as physicians and hospitals). The percentage determined by the Commission cannot be lower than 100% of Medicare rates, and may exceed Medicare rates. The base amount must be a percentage of the rate that Medicare reimburses for the same or similar services in the general geographic region in which the services were rendered, unless those services are provided on a contractual basis to a health plan or health insurer licensed by the state. This bill specifies that in determining the base amount for noncontracting physicians and other noncontracting health professionals, the Commission will use the average contracted amount in the general geographic regions for the three calendar years.
     2. Health Plan Contract or Health Insurance Policy. The base amount is a percentage of the capitated rate a health plan receives for Medicare Advantage for the county where an enrollee or insured resides, adjusted according to several factors including age, risk mix, and differences in cost sharing between the Medicare Advantage plan and the coverage offered by the health plan or health insurer. This bill includes factors that must be considered when setting the base amounts for health plans/health insurers, including financial solvency requirements, as specified.
        
        A health plan or health insurer is permitted to negotiate contracted rates with contracting health providers that are not based on the Medicare rates as provided in i) above. Thus, the provisions in i) above apply to services provided where there is not a contract with a state-licensed health plan or insurer.
        
        In determining the base amounts, the Commission will also consider the financial status of health care providers, including the compensation of physicians and other health professionals and whether the providers and plans/insurers are receiving a fair return on investment and avoidance of confiscatory results as well as changes in state or federal laws, reasonable increases in labor costs (including salaries and benefits), increases in capital investments, and changes in the delivery of care.
        
        The Commission also has the authority to allow different percentages of Medicare rates to be used for different health care entities. Additionally, the Commission will have to establish a process for developing base amounts for health care services not currently reimbursed by Medicare or Medicare Advantage; for services infrequently reimbursed by Medicare/Medicare Advantage. The Commission shall also determine or not to include or alter Medicare rating factors, such as Medicare disproportionate share hospital rates, graduate medical education, readmission penalties, and other added rates as Medicare allows; adjust the rates to maintain the workforce necessary to deliver quality and equitable care, availability and accessibility of health care services (such as compliance with network adequacy, timely access and language access requirements); the impact of the base amounts in underserved areas, including rural and underserved areas; and may take into account other factors such as supplemental Medi-Cal rates, quality assurance fees, and other payment arrangements that exists for hospitals, clinics and other providers.
     3. Appeal Process. This bill also includes an appeal process to consider adjustments to the base amounts to be paid to health care entities. Decisions on appeals are to be rendered within six months of the appeal filing with complete documentation. The appeal must take into account several factors including the overall financial condition of the entity, fair return on investment, differences in costs among health care entities, factors such as natural disasters, outbreaks of epidemics or infectious diseases, labor costs, and changes in state or federal laws or in the delivery of care.
        
        The Commission has authority to grant interim relief based on fairness and a decision on interim relief must be granted within one month of the filing of the interim relief appeal.
  5. Massachusetts Global Cap. To contain growing health care costs, Massachusetts created a statewide global cap on public and private health care costs. The Massachusetts law specifies a target growth rate for overall medical spending based on the growth rate of the state’s economy. This growth rate is a target for controlling growth of total health care expenditures across all payers.
     
     Similarly, this bill requires the Commission to determine a global growth cap for total health expenditures, but not to exceed the annual growth of the gross state product. In fulfilling this function, the Commission has authority to obtain the information necessary to determine total health care expenditures in order to set the global growth cap.
  6. DMHC Consumer Participation Program (CCP). This bill also establishes the Purchaser Participation Program to award reasonable advocacy and witness fees to a person or organization that represents the interests of purchasers and has made a substantial contribution on behalf of purchasers to the adoption of a regulation or to an order or decision that has a potential to impact a significant number of consumers. This program is similar to the CCP within DMHC. Existing law allows the DMHC Director to award reasonable advocacy and witness fees to any person or organization that demonstrates that the person or organization represents the interests of consumers and has made a substantial contribution on behalf of consumers to the adoption of any regulation or to an order or decision made by the DMHC Director if the order or decision has the potential to impact a significant number of enrollees.  CCP caps the fees awarded at $350,000 each fiscal year.  SB 97 (Committee on Budget and Fiscal Review), Chapter 52, Statutes of 2017, extended until January 1, 2024, the sunset date for the DMHC CPP.  The statutory authority for the CPP was scheduled to sunset on January 1, 2018.
  7. ERISA Plans. As specified above, under ERISA, states cannot impose requirements on self-insured plans. As specified above, about 6 million Californians obtain their coverage from self-insured plans. Under this bill, ERISA plans are permitted to access the rates set by the Commission for regulated health care entities.
  8. Cost-shifting. According to an article posted in the National Institutes of Health (NIH) Internet Website entitled, “How much do hospitals cost shift: a review of evidence,” hospital cost-shifting has long been part of the debate over health care policy. Under cost shifting, when government reimbursements under Medicare or Medicaid are insufficient to cover the costs of services, hospitals/facilities charge private insurance enough not only to cover the cost of their services but the shortfall created by government program reimbursements.
     
     The NIH article examined literature on cost shifting since 1996 and the author found that “most of the analyses and commentary based on descriptive, industrywide hospital payment-to-cost margins by payer provide a false impression that cost shifting is a large and pervasive phenomenon. More careful theoretical and empirical examinations suggest that cost shifting can and has occurred, but usually at a relatively low rate. Margin changes also are strongly influenced by the evolution of hospital and health plan market structures and changes in underlying costs.”
     
     During testimony at a December 2017 informational hearing conducted by the Select Committee, a speaker from Maryland indicated that Maryland’s all payer system limits cost shifting since all payers pay their share, including uncompensated care and graduate medical education.

1. SUPPORT. The California Labor Federation (CLF), Health Access California (HAC), and SEIU California (SEIU) are the sponsors of this bill. HAC states that this bill helps rein in rising health care costs and protects consumer’s pocketbooks by establishing an independent Commission that would set reasonable base amounts that hospitals, doctors, and health plans can collect from commercial payers. While preventing inflated and unjustified rates, providers are guaranteed rates higher than Medicare, which these providers generally accept as payment in full for much of their business, and can seek higher rates based on a variety of factors. SEIU California adds that this bill provides urgently needed relief to consumers, businesses, and governments, all of whom are currently straining under the weight of high health care costs. SEIU notes that although this bill would not set one rate across all payers in that it only applies to the commercial market, the Commission would be required to consider a provider’s reliance on Medi-Cal and to make adjustments for lower Medi-Cal rates. Lastly, CLF indicates this bill is about fairness and will bring much-needed relief from the high price of health care to Californians and start to address the inequities in the health care system and that no Californian should have to go into debt to pay for basic health care. The sponsors conclude that this bill establishes a transparent process by which increases in health care costs can be kept reasonable.
   
   The League of California Cities supports this bill in concept but has concerns about the lack of city employer representatives on the Commission, and the process by which some members of the Commission are appointed and/or confirmed.
2. CONCERNS. The California Nurses Association has concerns with the concepts in this bill and among other concerns, indicates that this bill must be amended to include clear controls, such as caps on individual cost-sharing and rising healthcare premiums, providing the Commission both a mechanism and the authority to establish and enforce such limits. Additionally, language requiring consideration of profit of healthcare entities when establishing the base amount must be removed.
3. OPPOSITION. Numerous hospitals and providers are opposed to this bill. According to the California Hospital Association (CHA), among other arguments, under this bill hospitals stand to lose an estimated $18 billion annually in revenue. The payment reductions contained in this bill will lead to large cuts in hospital services, and force many hospitals, especially those in underserved areas, to close. Additionally, CHA estimates that the payment reductions in this bill will lead to an estimated 175,000 health care workers losing their jobs. CHA notes that this bill focuses exclusively on commercial insurance payments and ignores the significant shortfall in hospital payments from the Medicare and Medi-Cal programs, and the uncompensated care hospitals provide to patients.
   
   Kaiser Permanente (KP) believes that this bill undermines KP’s unique integrated delivery system and argues that cost containment deserves more thoughtful discussion and that this bill does not address the underlying cost drivers and marketplace dynamics that are driving premium increases.

The California Medical Association (CMA) and the California Academy of Family Physicians points out that this bill would lower commercial rates while doing nothing to improve access within Medi-Cal. CMA opines that this bill does nothing to addres the existing inefficiencies within the system that drive health care spending growth nor does it provide any incentives to improve health care access and quality. This bill will force solo and small group practices into extinction as the only way to deal with administrative burdens and to use the appeals process successfully is to consolidate into large group practices. This could create an access crisis for patients living in rural and underserved areas in which there are no large group practices. CMA concludes that its biggest fear is that this bill will drive physicians out of the state and make it extremely difficult to recruit the next generation to come and practice in California.

1. RELATED LEGISLATION.
   1. AB 2502 (Wood) requires the Secretary of the California Health and Human Services Agency (CHHSA) to establish, implement, and administer the California Health Care Payments Database. AB 2502 is pending in Assembly Health Committee.
   2. AB 2517 (Wood and Arambula) establishes the Advisory Panel on Health Care Delivery Systems and Universal Coverage, within CHHSA, as an independent body, to develop a plan to achieve universal coverage and a unified publicly financed health care system. AB 2517 is pending in Assembly Health Committee.
   3. SB 562 (Lara and Atkins) enacts the Healthy California program, which is required to provide comprehensive universal single-payer health care coverage system for all California residents. SB 562 is pending in Assembly Rules Committee.
2. AUTHOR’S AMENDMENTS.
   1. Purpose of the Commission. To address concerns raised by the Committee that the Commission must consider the Medi-Cal rates in setting the base amount, the author proposes to clarify that the Commission will take into account the rates set by the Medi-Cal program in setting the amounts accepted as payment by health care providers, both for those health care providers who serve a disproportionate share of Medi-Cal beneficiaries and for those who provider highly specialized services.
   2. Advisory Committee. The author proposes to increase the membership of the advisory committee to include a primary care physician; behavioral health provider; a representative of health professionals who are solo practitioners, as specified; and, a representative of Medicare access hospitals or other small or rural hospitals.
   3. Clarifying amendments. The author proposes to clarify the definitions of adjusted amount and noncontracting provider; and clarify that the appeals process applies to all healthcare entities and not just providers.
   4. ERISA. The author proposes to allow an employee welfare benefit plan to elect to pay the base and adjusted amounts set by the Commission for regulated health care providers.
   5. Purchaser Participation Program (PPP). To address concerns raised by the Committee that the PPP should be narrowed, the author proposes to delete the ability of persons to participate in PPP and makes other conforming changes; to clarify that proceedings for purposes of the PPP to include: determination of the base amounts, appeals, overall cost, quality and equity goals, and other matters as determined by the Commission.
   6. Base amounts. To address concerns raised by the Committee regarding additional factors that must be considered when determining the base amount, the author proposes to amend this bill to require the Commission, on an annual basis, to review Medi-Cal reimbursement, including both FFS and managed care rates, review information regarding adequacy of networks and timely access to care, and consider Medi-Cal reimbursement in determining base amounts.
      
      The author also proposes to consider changes in Medicare rate or Medicare methodology in determining the base amount.
   7. Technical and conforming changes. The author also proposes to fix drafting errors.
3. POLICY COMMENTS.
   1. PPP. This bill establishes the PPP to award advocacy and witness fees to individuals or organizations that represent the interests of consumers, as specified. Consistent with the DMHC’s CPP which imposes a limitation on the amount of fees awarded, and includes a sunset date, the Committee may wish to amend this bill to apply the same limitations to the PPP.
   2. Medi-Cal exception. As drafted, this bill excludes Medicare and Medi-Cal programs. As stated above, about 14 million beneficiaries or one-third of California’s population are enrolled in Medi-Cal. Excluding Medi-Cal from this bill could have serious consequences, especially to providers who disproportionately serve high Medi-Cal beneficiaries. Although under this bill, the Commission may take into account the reliance of a healthcare provider on Medi-Cal reimbursement and pursuant to amendments being proposed by the author to require the Commission to review Medi-Cal reimbursement, an additional accommodation for providers who have a disproportionate share of Medi-Cal beneficiaries may be appropriate. For example, the Committee may wish to consider allowing the Commission to provide incentives to providers to accept Medi-Cal patients. Additionally, providers who have a high percentage of Medi-Cal enrollments should be allowed to have a higher base amount to ensure access for Medi-Cal beneficiaries.
   3. Prescription Drugs. According to a July 2017 Commonwealth Fund report, historic increases in prescription drug spending and prices are contributing to unsustainable health care costs in the United States. A 2016 CHCF issue brief points out that pharmaceutical prices in the U.S. are among the highest worldwide. For example, spending on just 10 medications alone is estimated to cost the federal government (Medicare, Medicaid, and health exchange subsidies) nearly $50 billion over a decade, and these drugs represent a small subset of the more than 5,400 medications in the drug pipeline. As the author and sponsors point out the high cost of health care is becoming unaffordable for many Californians. Although this bill gives the Commission the authority to determine methods for state government to reduce the cost of prescription drugs and medical devices paid for by private purchasers in the commercial market, the Committee may wish broaden these duties in recognition of the overall impact of escalating drug costs. For example, the Commission’s purpose or duties could include gathering information about drug prices, reviewing the impact of prescription drugs on rates, determining whether the state should pursue value-based prescription drug purchasing for state programs, and evaluate whether there is a mechanism for the state to set rates for high cost drugs.
   4. Funding. As drafted, this bill would be funded by the existing Managed Care Fund and the Insurance Fund which are supported by assessments/fees from health plans and health insurers. The Committee may wish to explore the viability of using GF to support the Commission.

REGISTERED SUPPORT / OPPOSITION:

Support

California Labor Federation (cosponsor)

Health Access California (cosponsor)

SEIU California (cosponsor)

UNITE HERE International Union (cosponsor)

Americans for Democratic Action Southern California

Business Alliance for a Healthy California

CA Conference Board of the Amalgamated Transit Union

CA Conference of Machinists

California Immigrant Policy Center

California Pan-Ethnic Health Network

California School Employees Association

California State Council of the Service Employees International Union

California Teachers Association

California Teamsters

Communications Workers of America District 9

Congress of California Seniors

Consumers Union

Engineers & Scientists of CA, IFPTE Local 20, AFL-CIO

International Longshore and Warehouse Union

JGlynn & Co

Jockeys' Guild

Professional and Technical Engineers, IFPTE Local 21, AFL-CIO

San Francisco AIDS Foundation

Service Employees International Union Local 1000

UDW/AFSME Local 3930

United Food and Commercial Workers Western States Council

University Professional and Technical Employees-CWA Local 9119

Utility Workers Union of America

Western Center on Law and Poverty

Opposition

Adventist Health - Feather River

Adventist Health – Lodi Memorial

Adventist Health - Simi Valley

Adventist Health - White Memorial

Adventist Health Hanford

Adventist Health Howard Memorial

Adventist Health Sonora

Adventist Health St. Helena

Adventist Health St. Helena Hospital Clear Lake

Adventist Health Ukiah Valley

Alliance of Catholic Health Care

American Academy of Pediatrics, California

American Association of Nurse Anesthetists

American College of Obstetricians and Gynecologists District IX

American College of Physicians – California Chapter

American College of Surgeons

America's Physician Groups

Association of California Healthcare Districts
Association of Northern California Oncologists

Barton Health - Barton Memorial Hospital

Brea Chamber of Commerce

Building Owners and Managers Association

California Academy of Eye Physicians & Surgeons

California Academy of Family Physicians

California Ambulance Association

California Association of Health Facilities

California Association of Health Plans

California Association of Nurse Anesthetists

California Building Industry Association

California Business Properties Association

California Chamber of Commerce

California Chapter of the American College of Cardiology

California Chapter of the American College of Emergency Physicians

California Chapters of the American College of Physicians

California Children's Hospital Association

California Dental Association

California Dental Hygienists Association

California Hospital Association

California Medical Association

California Neurology Society

California Optometric Association

California Podiatric Medical Association

California Psychiatric Association

California Radiological Society

California Retailers Association

California Rheumatology Alliance

California Society of Allergy, Asthma and Immunology

California Society of Dermatology & Dermatologic Surgery

California Society of Pathologists

California Society of Plastic Surgeons

California Society for Respiratory Care

Camarillo Chamber of Commerce

CAPA

Carlsbad Chamber of Commerce

Carson Chamber of Commerce

Cedars-Sinai Medical Center

Centinela Hospital Medical Center

Cerritos Chamber of Commerce

Chinese Hospital

City of Hope

Coast Plaza Hospital

Community Hospital of Huntington Park

Community Medical Centers

Community Memorial Health System, Ventura

Corona Regional Medical Center

Dignity Health - Sacramento Area

Dignity Health Dominican Hospital

Dignity Health French Hospital Medical Center

Dignity Health Saint Francis Memorial Hospital

District Hospital Leadership Forum

Doctors Hospital of Manteca

Doctors on Duty Urgent Care Clinics

East Bay Leadership Council

East Los Angeles Doctors Hospital

Eastern Plumas Health Care District

El Camino Hospital

El Centro Regional Medical Center

Fairchild Medical Center

Folsom Chamber of Commerce

Fresno Chamber of Commerce

Gateway Chambers Alliance

Greater Bakersfield Chamber of Commerce

Greater Coachella Valley Chamber of Commerce

Greater Conejo Valley Chamber of Commerce

Greater West Covina Business Association

Hazel Hawkins Memorial Hospital

HealthSouth Bakersfield Rehabilitation Hospital

Henry Mayo Newhall Hospital

Hospital Corporation of America

International Council of Shopping Centers

Irwindale Chamber of Commerce

John C. Fremont Healthcare District

John Muir Health

Kaiser Permanente

Kaweah Delta Health Care District

Keck Medicine of University of Southern California

Kern Medical

Kern Valley Healthcare District

Kindred Healthcare - San Francisco Bay

Kindred Hospital - Baldwin Park

Kindred Hospital - Brea

Kindred Hospital - Los Angeles

Kindred Hospital - San Diego

Kindred Hospital - San Gabriel Valley

Kindred Hospital - Santa Ana

Kindred Hospital - La Mirada

Kindred Hospitals - Rancho Cucamonga

Kindred Hospitals - Riverside

Kindred Hospitals of Southern California

Loma Linda University Health

Loma Linda University Medical Center - Murrieta

Lompoc Valley Medical Center

Los Angeles Area Chamber of Commerce

Los Robles Hospital and Medical Center

Mad River Community Hospital

Madera Community Hospital

Marshall Medical Center

Mayers Memorial Hospital District

Memorial Hospital of Gardena

MemorialCare

Mendocino Coast District Hospital

Methodist Hospital of Southern California

Mission Community Hospital

Modoc Medical Center

Molina Healthcare

Monterey Peninsula Chamber of Commerce

Mountain Communities Healthcare District (Trinity Hospital)

Mountain View Chamber of Commerce

Mountains Community Hospital

Murrieta/Wildomar Chamber of Commerce

National Association of Chain Drug Stores

National Association of Industrial and Office Properties of California

National Federation of Independent Business

North Orange County Chamber of Commerce

NorthBay Healthcare

Northern Inyo Hospital

Orange County Business Council

Osteopathic Physicians & Surgeons of California

Oxnard Chamber of Commerce

Palmdale Regional Medical Center

Palo Verde Hospital

Paradise Valley Hospital

Petaluma Area Chamber of Commerce

Physical Medicine and Rehabilitation

Physicians for Healthy Hospitals

PIH Health

Plumas District Hospital

Prime Healthcare

Providence Little Company of Mary Medical Center San Pedro

Providence Little Company of Mary Medical Center Torrance

Providence Saint John's Health Center

Providence Saint Joseph Medical Center

Queen of the Valley Medical Center

Rady Children's Hospital San Diego

Rancho Cordova Chamber of Commerce

Redlands Community Hospital

Redondo Beach Chamber of Commerce

Salinas Valley Memorial Healthcare System

San Diego Regional Chamber of Commerce

San Gabriel Valley Economic Partnership

San Joaquin General Hospital

Santa Maria Valley Chamber of Commerce

San Mateo County Economic Development Association

Scripps Health

Seneca Healthcare District

Sharp Healthcare

Shasta Regional Medical Center

Sierra View Medical Center

Silicon Valley Leadership Group

Sonoma Valley Hospital

South Bay Association of Chambers of Commerce

Southern Humboldt Community Healthcare District

Southwest California Legislative Council

Southwest Healthcare System

Southwest Healthcare System – Inland Valley

Southwest Healthcare System – Rancho Springs Medical Center

St. Joseph Health (Redwood Memorial and St. Joseph Hospital, Eureka)

St. Joseph Health (Santa Rosa Memorial and Petaluma Valley)

St. Joseph Health (Humboldt County and Sonoma County)

St. Joseph Hospital of Orange

St. Joseph's Behavioral Health Center

St. Mary Medical Center (Apple Valley)

Stanford Health Care

Stanford Hospital

STAT MED Urgent Care

Sutter Health - Mills-Peninsula Medical Center

Sutter Health - Sutter Lakeside Hospital

Sutter Health California Pacific Medical Center

Sutter Health Eden Medical Center

Sutter Health Novato Community Hospital

Sutter Health Sutter Delta Medical Center

Sutter Health Sutter Maternity & Surgery Center of Santa Cruz

Sutter Health Sutter Santa Rosa Regional Hospital

Sutter Health Tracy Community Hospital

Tahoe Forest Health System

Temecula Valley Hospital

Tenet Healthcare

Torrance Area Chamber of Commerce

Torrance Memorial Medical Center

Tulare Chamber of Commerce

United Chamber Advocacy Network

United Hospital Association

Universal Health Services

Valley Children's Healthcare

Valley Industry and Commerce Association

VIBRA Hospital of Sacramento

VICA

VISTA Chamber of Commerce

VSP Vision Care

Watsonville Community Hospital

Western Manufactured Housing Communities

Yubadocs Urgent Care Center

Analysis Prepared by: Rosielyn Pulmano / HEALTH / (916) 319-2097