Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance. These provisions govern, among other things, procedures by health care service plans and insurers with respect to premium payments.

This bill would require a health care service plan or an insurer that provides a policy of health insurance to accept payments from specified 3rd-party entities, including an Indian tribe or a local, state, or federal government program. The bill would also require a financially interested entity, as defined, other than those entities, that is making a 3rd-party premium payment to provide that assistance in a specified manner and to perform other related duties, including requiring the entity to disclose to the plan or the insurer the name of the enrollee or insured, as applicable, for each plan or policy on whose behalf a 3rd-party premium payment will be made. The bill would require each plan or insurer to provide to the department information regarding premium payments by financially interested entities and reimbursement for services to providers, and would set forth standards governing the reimbursement of financially interested 3rd parties.

Because a willful violation of these requirements by a health care service plan would be a crime, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance. These provisions govern, among other things, procedures by health care service plans and insurers with respect to premium payments.

This bill would require a health care service plan or an insurer that provides a policy of health insurance to accept payments from specified 3rd-party entities, including an Indian tribe or a local, state, or federal government program. The bill would also require a financially interested entity, as defined, other than those entities, that is making a 3rd-party premium payment to provide that assistance in a specified manner and to perform other related duties, including requiring the entity to disclose to the plan or the insurer the name of the enrollee or insured, as applicable, for each plan or policy on whose behalf a 3rd-party premium payment will be made. The bill would require each plan or insurer to provide to the department information regarding premium payments by financially interested entities and reimbursement for services to providers, and would set forth standards governing the reimbursement of financially interested 3rd parties.

Because a willful violation of these requirements by a health care service plan would be a crime, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance. These provisions govern, among other things, procedures by health care service plans and insurers with respect to premium payments.

This bill would require a health care service plan or an insurer that provides a policy of disability insurance that provides coverage for hospital, medical, or surgical expenses health insurance to accept payments from specified 3rd-party entities, including an Indian tribe or a local, state, or federal government program. The bill would also require an entity, a financially interested entity, as defined, other than those entities, that is making a 3rd-party premium payment to provide that assistance in a specified manner and to perform other related duties, including annually providing a statement to the health care service plan or insurer and the applicable department from the recipient of the financial assistance confirming that the recipient has completed and submitted an application for Medi-Cal and is not eligible for financial assistance from Medi-Cal and requiring the entity to disclose to the applicable department the name of the enrollee or insured, as applicable, for each plan or policy on whose behalf a 3rd-party premium payment will be made. The bill would require the Department of Managed Health Care or the Department of Insurance, as applicable, to establish a process to make a determination regarding eligibility within 30 days of receiving that disclosure. requiring the entity to disclose to the plan or the insurer the name of the enrollee or insured, as applicable, for each plan or policy on whose behalf a 3rd-party premium payment will be made. The bill would require each plan or insurer to provide to the department information regarding premium payments by financially interested entities and reimbursement for services to providers, and would set forth standards governing the reimbursement of financially interested 3rd parties.

Because a willful violation of these requirements by a health care service plan would be a crime, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance. These provisions govern, among other things, procedures by health care service plans and insurers with respect to premium payments.

This bill would require a health care service plan or an insurer that provides a policy of disability insurance that provides coverage for hospital, medical, or surgical expenses to accept payments from specified 3rd-party entities, including an Indian tribe or a local, state, or federal government program. The bill would also require an entity, other than those entities, that is making a 3rd-party premium payment to provide that assistance in a specified manner and to perform other related duties, including annually providing a statement to the health care service plan or insurer and the applicable department from the recipient of the financial assistance confirming that the recipient has completed and submitted an application for Medi-Cal and is not eligible for financial assistance from Medi-Cal and requiring the entity to disclose to the applicable department the name of the enrollee or insured, as applicable, for each plan or policy on whose behalf a 3rd-party premium payment will be made. The bill would require the Department of Managed Health Care or the Department of Insurance, as applicable, to establish a process to make a determination regarding eligibility within 30 days of receiving that disclosure in those cases in which a question about eligibility for a 3rd-party premium payment results from the disclosure.

Because a willful violation of these requirements by a health care service plan would be a crime, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance. These provisions govern, among other things, procedures by health care service plans and insurers with respect to premium payments.

This bill would require a health care service plan or an insurer that provides a policy of disability insurance that provides coverage for hospital, medical, or surgical expenses to accept payments from specified 3rd-party entities, including an Indian tribe or a local, state, or federal government program. The bill would also require an entity, other than those entities, that is making a 3rd-party premium and cost-sharing payments, payment to provide that assistance in a specified manner and to perform other related duties, including annually providing a statement to the health care service plan or insurer and the applicable department from the recipient of the financial assistance confirming that the recipient has completed and submitted an application for Covered California or Medi-Cal and is not eligible for financial help from either program, assistance from Medi-Cal and requiring the entity to disclose to the applicable department the name of the enrollee or insured, as applicable, for each plan or policy on whose behalf a 3rd-party premium or cost-sharing payment, or both, payment will be made. The bill would require the Department of Managed Health Care or the Department of Insurance, as applicable, to establish a process to make a determination regarding eligibility within 30 days of receiving that disclosure in those cases in which a question about eligibility for a 3rd-party premium or cost-sharing payment, or both, payment results from the disclosure.

Because a willful violation of these requirements by a health care service plan would be a crime, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance. Existing law requires a health care service plan or a health insurer to notify the Director of the Department of Managed Health Care or the Insurance Commissioner, as applicable, if the plan or insurer decides to cease providing new or existing health benefits in this state, and prohibits the plan or insurer from canceling the plan or policy for 180 days after providing that notice to the director or commissioner.

This bill would prohibit a plan or insurer from canceling the plan or policy for 270 days after providing that notice. The bill would make conforming changes.

Because a willful violation of these requirements by a health care service plan would be a crime, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

 VETO  

Bill No: SB 1156

Author:

:

Vote:

SENATE HEALTH COMMITTEE: 8-0, 4/18/18

AYES: Hernandez, Nguyen, Leyva, Mitchell, Monning, Newman, Nielsen, Pan

NO VOTE RECORDED: Roth

SENATE APPROPRIATIONS COMMITTEE: 6-0, 5/25/18

AYES: Lara, Beall, Bradford, Hill, Nielsen, Wiener

NO VOTE RECORDED: Bates

SENATE FLOOR: 34-1, 5/30/18

AYES: Allen, Atkins, Beall, Berryhill, Bradford, Cannella, Dodd, Fuller, Galgiani, Glazer, Hernandez, Hertzberg, Hill, Hueso, Jackson, Lara, Leyva, McGuire, Mitchell, Monning, Moorlach, Newman, Nguyen, Nielsen, Pan, Portantino, Roth, Skinner, Stern, Stone, Vidak, Wieckowski, Wiener, Wilk

NOES: Anderson

NO VOTE RECORDED: Bates, De León, Gaines, Morrell

SENATE FLOOR: 26-8, 8/30/18

AYES: Allen, Atkins, Beall, Bradford, Cannella, De León, Dodd, Galgiani, Hernandez, Hertzberg, Hill, Hueso, Jackson, Lara, Leyva, McGuire, Mitchell, Monning, Nguyen, Pan, Portantino, Skinner, Stern, Wieckowski, Wiener, Wilk

NOES: Anderson, Bates, Chang, Gaines, Moorlach, Morrell, Nielsen, Stone

NO VOTE RECORDED: Berryhill, Delgado, Fuller, Glazer, Roth, Vidak

ASSEMBLY FLOOR: 50-21, 8/29/18 - See last page for vote

SUBJECT: Health care service plans and health insurance: 3rd-party payments

SOURCE: Author

DIGEST

:

This bill establishes requirements for any financially interested entity making third-party premium payments for health plan enrollees or insureds.

ANALYSIS: Existing law establishes the Department of Managed Health Care (DMHC) to regulate health plans and the California Department of Insurance (CDI) to regulate health insurance. A health plan or insurer is referred to as “issuer”. [HSC §1340, et seq. and IC §106, et seq.]

This bill:

1. Requires an issuer to accept premium payment from the following third-party entities without the need for the entity to seek a determination from DMHC or CDI as described in 5) below:
   1. A Ryan White HIV/AIDS Program;
   2. An Indian Tribe, tribal organization, or urban Indian organization;
   3. A local, state, or federal government program, including a grantee directed by a government program to make payments on its behalf; and,
   4. Any member of the individual’s family, defined for purposes of this bill to include the individual’s spouse, domestic partner, child, parent, grandparent and siblings, unless the true source of funds used to make the premium payment originates with a financially interested entity.
2. Requires any financially interested entity that is not specified in 1) above that is making third-party premium payments, to comply with all of the following requirements:
   1. Provide assistance for a full plan or policy year and notify the recipient prior to any open enrollment periods, if applicable, if financial assistance will be discontinued;
   2. Require an entity that provides coverage for an enrollee with end state renal disease (ESRD) to agree not to condition assistance on eligibility for, or receipt of, any surgery, transplant, procedure, drug, or device;
   3. Inform an applicant of financial assistance, and requires the entity to inform a recipient annually, of all available health coverage options, including, but not limited to, Medicare, Medicaid, individual market plans, and employer plans, if applicable;
   4. Agree not to steer, direct, or advise the patient into or away from a specific coverage option or health insurance plan; and,
   5. Agree that financial assistance is not conditioned on the use of a specific facility or health care provider.
3. Requires an entity described in 2) above to comply prior to making a payment with the following:
   1. Provide annually a statement to the issuer that it complies with 2) above; and,
   2. Disclose to the issuer, prior to making the initial payment, the name of the enrollee or insured.
4. Limits reimbursement for covered services to the amount of reimbursement of covered services governed by the terms and conditions of the enrollee or insureds contract or the Medicare reimbursement rate, whichever is lower. Prohibits balance billing the enrollee or insured except for applicable cost sharing or coinsurance.
5. Allows a claim submitted by a noncontracting financially interested provider to be considered an incomplete claim and contested by the issuer.
6. Requires the issuer to be entitled to recover 120% of the difference between any payment made to a provider and the payment to which the provider would have been entitled, including interest on that difference if the issuer discovers that a financially interested entity fails to provide required disclosures.
7. Requires the issuer to notify the regulator of the amount by which the provider was overpaid and remit to the regulator any amount exceeding the difference between the payment made and the payment to which the provider would have been entitled, including interest on that difference.
8. Defines “financially interested” as any entity or provider that is a provider of health care services that receives a direct or indirect financial benefit from a third-party premium payment; or an entity that receives the majority of its funding from one or more financially interested providers of health care service, parent companies of providers of health care services, subsidiaries of health care service providers, or related entities.

Comments

1. Author’s statement. According to the author, health insurance rates in California are driven up every year when providers seek profit by exploiting loopholes created by the Affordable Care Act (ACA). Financially-interested providers who steer patients away from Medicare and Medi-Cal by directly or indirectly paying their commercial insurance premiums raise prices for Californians who purchase their own insurance, businesses purchasing insurance on behalf of their employees, and state/local governments purchasing insurance on behalf of their employees. Financially-interested providers steering patients onto commercial insurance plans can also expose patients to unnecessary coverage disruptions, higher out-of-pocket costs, and other harms. SB 1156 regulates financially-interested third parties that boost their own profits by directly or indirectly purchasing health insurance for vulnerable patients. SB 1156 requires financially-interested providers or provider-funded entities to disclose that relationship to regulators and comply with disclosure requirements, including showing that patients are not otherwise eligible for Medicare or Medi-Cal. This bill sets an alternative payment rate tied to the lower of Medicare rates or contracted rates for financially-interested providers when the requirements are not met.
2. Dialysis centers. On December 14, 2016, Centers for Medicare and Medicaid Services (CMS) issued an interim final rule that would have implemented new requirements for Medicare-certified dialysis facilities that make payments of premiums on behalf of their patients for individual market health plans. The federal Department of Health and Human Services (HHS) had become concerned about the inappropriate steering of individuals eligible for or entitled to Medicare or Medicaid into individual market plans by providers and suppliers because of significantly higher reimbursement. One insurance company indicated that commercial coverage could pay more than ten times more than public coverage ($4,000 per treatment rather than $300 per treatment). A preliminary injunction was issued by a judge in the U.S. District in Eastern Texas to block implementation of the rule. The plaintiffs successfully argued that HHS/CMS violated the Administrative Procedures Act and the Medicare Act because the rule was unlawfully promulgated without notice and comment, and the rule’s disclosure requirements were arbitrary, capricious, and contrary to law.
3. Support in concept. Anthem Blue Cross writes that from 2014-2016, Anthem saw a significant spike of ESRD active members in the individual marketplace. The on-Exchange ESRD incidence rate in 2016 was over three times as high as in 2014, and for non-Exchange ESRD members in 2016 was nearly three times the rate in 2014. At the same time the ESRD incidence rate for Anthem’s Medicaid members remained relatively flat. Anthem indicates that they do not accept payments from third-party payors other than those required by law or those made by a family member or legal guardian on behalf of an applicant or member. Anthem believes this bill relies on self-reporting from bad actors and does not include a process for registering third-party payers and verifying the information that is self-reported. Also, Anthem questions how would the requirement that an entity pay a full year’s worth of premiums be enforced.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Assembly Appropriations Committee:

1. Costs to the DMHC to oversee and enforce the new disclosure requirements of approximately $140,000-$200,000 for the first three years and $65,000 annually thereafter (Managed Care Fund).
2. Costs to the CDI to oversee and enforce the new disclosure requirements of approximately $200,000 for the first year-and-a-half, and $90,000 annually thereafter (Insurance Fund).
3. Potential, likely minor, GF revenues, as this bill is likely to discourage non-compliance with its requirements.
4. To the extent this bill restricts or removes the incentive for third-party payments to maintain commercial insurance or Medicare wraparound insurance plans, this bill could result in unknown, potentially significant Medi-Cal costs associated with higher enrollment than under the status quo. The effect of this bill's restriction, as it pertains to how many patients would continue to be able to maintain their coverage via third-party payments, is unknown. Medi-Cal costs could exceed $1 million for increased enrollment if patients seek Medi-Cal coverage due to the unavailability of premium assistance to maintain commercial coverage (GF/federal).

SUPPORT: (Verified 10/3/18)

America’s Health Insurance Plans

Association of California Life and Health Insurance Companies

Blue Shield of California

California Association of Health Plans

California Association of Health Underwriters

California Labor Federation

California Rural Legal Assistance Foundation

California School Employees Association

County Behavioral Health Directors Association of California

Health Access California

Health Net

Kaiser Permanente

Latino Coalition for a Healthy California

SEIU California

OPPOSITION: (Verified 10/3/18)

American Academy of Pediatrics

American Kidney Fund

California Dialysis Council

California Hepatitis C Task Force

California Hospital Association

California Medical Association

California State Association of Electrical Workers

California State Pipe Trades Council

Chronic Disease Coalition

DaVita

Dialysis Patient Citizens

Fresenius Medical Care North America

Patient Services Incorporated

Renal Support Network

US Renal Care

Western States Council of Sheet Metal Workers

ARGUMENTS IN SUPPORT: The California Labor Federation writes that steering patients onto commercial insurance plans can hurt patients who may now have higher out-of-pocket costs than if they stayed on public programs and can expose them to disruptions in coverage. The practice also shifts costs onto commercial plans, driving up health care spending and increasing premiums for Californians already struggling with rising costs. This bill will protect legitimate groups that help Californians afford health coverage. Blue Shield of California writes that a foundational tenet of the ACA is that no person can be turned down for coverage because of a preexisting condition. This fundamental provision is now being used for financial gain by some providers. Over the past four years, Blue Shield has seen the creation of a cottage industry by bad actors who have figured out how to manipulate the market for financial gain, driving up the cost of coverage and unduly putting consumers at risk. Blue Shield indicates that providers identify patients who are otherwise Medicare or Med-Cal eligible, and pay the premiums for commercial coverage so they can receive higher reimbursement rates. They either do this directly or indirectly, through financial interested third parties and/or charities. While the biggest abuses are occurring in the dialysis industry, Blue Shield is seeing this market manipulation in substance use treatment, fertility treatment and others.

The SEIU California writes that this practice has been most common among substance use disorder treatment facilities and outpatient dialysis clinics – two types of providers serving particularly vulnerable patients. Unscrupulous treatment facilities aggressively bill insurance companies for care including daily drug tests and detox monitoring and patients are kicked out of the facility as soon as their insurance rehab benefit is exhausted, and the premium payments for insurance are cut off.

ARGUMENTS IN OPPOSITION: The California Dialysis Council (CDC) believes this bill will harm patients and cause patients to spend down their financial resources and will result in more ESRD patients on Medi-Cal increasing state costs. CDC writes that dialysis providers are required to educate patients on available community resources, including AKF, and that patients weigh numerous factors when determining what coverage best suits their individual circumstances. In California, where Medigap coverage is not guaranteed for ESRD patients under 65, the 20% uncapped co-insurance requirement under Medicare can make Medicare less attractive than private coverage. For financially needy patients, premiums for such coverage may be difficult to afford without charitable premium support from organizations like AKF. Dialysis Patient Citizens (DPC) writes that dialysis patients prefer private insurance because the actuarial value is often higher 88.9 to 91.8% compared to Medicare’s 80%. DPC also believes if a patient can lose coverage when his or her chronic kidney disease progresses to ESRD it will create a perverse financial incentive for the insurer not to take all possible measures to preserve the patient’s kidney function. The California Hospital Association (CHA) is concerned that this bill would undermine programs that pay for health insurance for patients who cannot afford it, but who do not qualify for Medicare, Medi-Cal or Covered California. CHA understands that some restrictions on the current practice of third-party payments may be called for. However, the restrictions and conditions currently proposed would be extraordinarily burdensome and costly to the health care system and would not improve care.

GOVERNOR'S VETO MESSAGE:

I am returning Senate Bill 1156 without my signature.

This bill attempts to prohibit the questionable practice of financially interested entities providing premium assistance payments to patients for the purpose of obtaining higher fees for medical services.

I believe, however, that this bill goes too far as it would permit health plans and insurers to refuse premium assistance payments and to choose which patients they will cover. I encourage all stakeholders to continue to work to together to find a more narrowly tailored solution that ensures patients' access to coverage.

ASSEMBLY FLOOR: 50-21, 8/29/18

AYES: Aguiar-Curry, Berman, Bloom, Bonta, Burke, Caballero, Calderon, Carrillo, Cervantes, Chau, Chiu, Chu, Cooley, Cooper, Dahle, Eggman, Friedman, Gabriel, Cristina Garcia, Eduardo Garcia, Gloria, Gonzalez Fletcher, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Levine, Limón, Low, Mayes, McCarty, Mullin, Muratsuchi, Nazarian, O'Donnell, Quirk, Reyes, Rivas, Rodriguez, Rubio, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Weber, Wood, Rendon

NOES: Acosta, Travis Allen, Baker, Bigelow, Brough, Chávez, Chen, Choi, Cunningham, Fong, Frazier, Gray, Harper, Kiley, Lackey, Medina, Melendez, Obernolte, Quirk-Silva, Voepel, Waldron

NO VOTE RECORDED: Arambula, Daly, Flora, Gallagher, Gipson, Kamlager-Dove, Maienschein, Mathis, Patterson

Prepared by:

10/9/18 10:57:35

**** END ****

 UNFINISHED BUSINESS  

Bill No: SB 1156

Author:

:

Vote:

SENATE HEALTH COMMITTEE: 8-0, 4/18/18

AYES: Hernandez, Nguyen, Leyva, Mitchell, Monning, Newman, Nielsen, Pan

NO VOTE RECORDED: Roth

SENATE APPROPRIATIONS COMMITTEE: 6-0, 5/25/18

AYES: Lara, Beall, Bradford, Hill, Nielsen, Wiener

NO VOTE RECORDED: Bates

SENATE FLOOR: 34-1, 5/30/18

AYES: Allen, Atkins, Beall, Berryhill, Bradford, Cannella, Dodd, Fuller, Galgiani, Glazer, Hernandez, Hertzberg, Hill, Hueso, Jackson, Lara, Leyva, McGuire, Mitchell, Monning, Moorlach, Newman, Nguyen, Nielsen, Pan, Portantino, Roth, Skinner, Stern, Stone, Vidak, Wieckowski, Wiener, Wilk

NOES: Anderson

NO VOTE RECORDED: Bates, De León, Gaines, Morrell

ASSEMBLY FLOOR: 50-21, 8/29/18 - See last page for vote

SUBJECT: Health care service plans and health insurance: 3rd-party payments

SOURCE: Author

DIGEST:

This bill establishes requirements for any financially interested entity making third-party premium payments for health plan enrollees or insureds.

Assembly Amendments (1) clarify that a health plan or insurer is not required to accept a premium payment from a family member if the true source of the funds used to make the premium payment originates with a financially interested entity; (2) delete a requirement that a financially interested entity agree that eligibility for financial assistance be conditioned solely on income and financial need; (3) delete a requirement that a financially interested entity provide a specified statement to regulators; and confirm that the recipient has completed and submitted an application for Medi-Cal and is not eligible for financial assistance from Medi-Cal or Medicare; (4) delete a requirement for disclosures to regulators and requirements on regulators to establish an eligibility process for financially interested entities, as specified; (5) revise the reimbursement amount to be based on the lower of the terms and conditions of the recipient’s policy or Medicare if a financially interested entity makes a third-party payment for an enrollee. Ban financially interested providers from balance billing other than cost sharing as outlined in the recipient’s policy; (6) permit a claim submitted to a health plan or insurer to be considered an incomplete claim and contested by the plan or insurer pursuant to existing law, as specified; (7) require a health plan or insurer to be entitled to recover 120% of the difference, including interest, if the financially interested entity fails to provide the required disclosures, and require the health plan/insurer to notify the regulator of the amount overpaid and remit to the regulator any amount exceeding the difference plus interest; (8) require each health plan or insurer to provide regulators information regarding premium payments by financially interested entities and reimbursement for services to providers. Require the information to be provided at least annually at the discretion of the regulator and to include, to the best of the health plan or insurer ability the number of enrollees or insureds whose premiums were paid by financially interested entities, disclosures provided to the plan or insurer, and the identities of any provider whose reimbursement rate was based on this bill; (9) state that this bill does not limit the authority of the Attorney General to take any action to enforce this bill; and (10) state that this bill does not affect a contracted payment rate for a provider who is not financially interested.

ANALYSIS: Existing law establishes the Department of Managed Health Care (DMHC) to regulate health plans and the California Department of Insurance (CDI) to regulate health insurance. A health plan or insurer is referred to as “issuer” [HSC §1340, et seq. and IC §106, et seq.]

This bill:

1. Requires an issuer to accept premium payment from the following third-party entities without the need for the entity to seek a determination from DMHC or CDI as described in 5) below:
   1. A Ryan White HIV/AIDS Program;
   2. An Indian Tribe, tribal organization, or urban Indian organization;
   3. A local, state, or federal government program, including a grantee directed by a government program to make payments on its behalf; and,
   4. Any member of the individual’s family, defined for purposes of this bill to include the individual’s spouse, domestic partner, child, parent, grandparent and siblings, unless the true source of funds used to make the premium payment originates with a financially interested entity.
2. Requires any financially interested entity that is not specified in 1) above that is making third-party premium payments, to comply with all of the following requirements:
   1. Provide assistance for a full plan or policy year and notify the recipient prior to any open enrollment periods, if applicable, if financial assistance will be discontinued;
   2. Require an entity that provides coverage for an enrollee with end state renal disease (ESRD) to agree not to condition assistance on eligibility for, or receipt of, any surgery, transplant, procedure, drug, or device;
   3. Inform an applicant of financial assistance, and requires the entity to inform a recipient annually, of all available health coverage options, including, but not limited to, Medicare, Medicaid, individual market plans, and employer plans, if applicable;
   4. Agree not to steer, direct, or advise the patient into or away from a specific coverage option or health insurance plan; and,
   5. Agree that financial assistance is not conditioned on the use of a specific facility or health care provider.
3. Requires an entity described in 2) above to comply prior to making a payment with the following:
   1. Provide annually a statement to the issuer that it complies with 2) above; and,
   2. Disclose to the issuer, prior to making the initial payment, the name of the enrollee or insured.
4. Limits reimbursement for covered services to the amount of reimbursement of covered services governed by the terms and conditions of the enrollee or insureds contract or the Medicare reimbursement rate, whichever is lower. Prohibits balance billing the enrollee or insured except for applicable cost sharing or coinsurance.
5. Allows a claim submitted by a noncontracting financially interested provider to be considered an incomplete claim and contested by the issuer.
6. Requires the issuer to be entitled to recover 120% of the difference between any payment made to a provider and the payment to which the provider would have been entitled, including interest on that difference if the issuer discovers that a financially interested entity fails to provide required disclosures.
7. Requires the issuer to notify the regulator of the amount by which the provider was overpaid and remit to the regulator any amount exceeding the difference between the payment made and the payment to which the provider would have been entitled, including interest on that difference.
8. Defines “financially interested” as any entity or provider that is a provider of health care services that receives a direct or indirect financial benefit from a third-party premium payment; or an entity that receives the majority of its funding from one or more financially interested providers of health care service, parent companies of providers of health care services, subsidiaries of health care service providers, or related entities.

Comments

1. Author’s statement. According to the author, health insurance rates in California are driven up every year when providers seek profit by exploiting loopholes created by the Affordable Care Act (ACA). Financially-interested providers who steer patients away from Medicare and Medi-Cal by directly or indirectly paying their commercial insurance premiums raise prices for Californians who purchase their own insurance, businesses purchasing insurance on behalf of their employees, and state/local governments purchasing insurance on behalf of their employees. Financially-interested providers steering patients onto commercial insurance plans can also expose patients to unnecessary coverage disruptions, higher out-of-pocket costs, and other harms. SB 1156 regulates financially-interested third parties that boost their own profits by directly or indirectly purchasing health insurance for vulnerable patients. SB 1156 requires financially-interested providers or provider-funded entities to disclose that relationship to regulators and comply with disclosure requirements, including showing that patients are not otherwise eligible for Medicare or Medi-Cal. This bill sets an alternative payment rate tied to the lower of Medicare rates or contracted rates for financially-interested providers when the requirements are not met.
2. Dialysis centers. On December 14, 2016, CMS issued an interim final rule that would have implemented new requirements for Medicare-certified dialysis facilities that make payments of premiums on behalf of their patients for individual market health plans. The federal Department of Health and Human Services (HHS) had become concerned about the inappropriate steering of individuals eligible for or entitled to Medicare or Medicaid into individual market plans by providers and suppliers because of significantly higher reimbursement. One insurance company indicated that commercial coverage could pay more than ten times more than public coverage ($4,000 per treatment rather than $300 per treatment). A preliminary injunction was issued by a judge in the U.S. District in Eastern Texas to block implementation of the rule. The plaintiffs successfully argued that HHS/CMS violated the Administrative Procedures Act and the Medicare Act because the rule was unlawfully promulgated without notice and comment, and the rule’s disclosure requirements were arbitrary, capricious, and contrary to law.
3. Support in concept. Anthem Blue Cross writes that from 2014-2016, Anthem saw a significant spike of ESRD active members in the individual marketplace. The on-Exchange ESRD incidence rate in 2016 was over three times as high as in 2014, and for non-Exchange ESRD members in 2016 was nearly three times the rate in 2014. At the same time the ESRD incidence rate for Anthem’s Medicaid members remained relatively flat. Anthem indicates that they do not accept payments from third-party payors other than those required by law or those made by a family member or legal guardian on behalf of an applicant or member. Anthem believes this bill relies on self-reporting from bad actors and does not include a process for registering third-party payers and verifying the information that is self-reported. Also, Anthem questions how would the requirement that an entity pay a full year’s worth of premiums be enforced.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Assembly Appropriations Committee:

1. Costs to the DMHC to oversee and enforce the new disclosure requirements of approximately $140,000-$200,000 for the first three years and $65,000 annually thereafter (Managed Care Fund).
2. Costs to the CDI to oversee and enforce the new disclosure requirements of approximately $200,000 for the first year-and-a-half, and $90,000 annually thereafter (Insurance Fund).
3. Potential, likely minor, GF revenues, as this bill is likely to discourage non-compliance with its requirements.
4. To the extent this bill restricts or removes the incentive for third-party payments to maintain commercial insurance or Medicare wraparound insurance plans, this bill could result in unknown, potentially significant Medi-Cal costs associated with higher enrollment than under the status quo. The effect of this bill's restriction, as it pertains to how many patients would continue to be able to maintain their coverage via third-party payments, is unknown. Medi-Cal costs could exceed $1 million for increased enrollment if patients seek Medi-Cal coverage due to the unavailability of premium assistance to maintain commercial coverage (GF/federal).

SUPPORT: (Verified 8/29/18)

America’s Health Insurance Plans

Association of California Life and Health Insurance Companies

Blue Shield of California

California Association of Health Plans

California Association of Health Underwriters

California Labor Federation

California Rural Legal Assistance Foundation

California School Employees Association

County Behavioral Health Directors Association of California

Health Access California

Health Net

Kaiser Permanente

Latino Coalition for a Healthy California

SEIU California

OPPOSITION: (Verified 8/29/18)

American Academy of Pediatrics

American Kidney Fund

California Dialysis Council

California Hepatitis C Task Force

California Hospital Association

California State Association of Electrical Workers

California State Pipe Trades Council

Chronic Disease Coalition

DaVita

Dialysis Patient Citizens

Fresenius Medical Care North America

Patient Services Incorporated

Renal Support Network

US Renal Care

Western States Council of Sheet Metal Workers

ARGUMENTS IN SUPPORT: The California Labor Federation writes that steering patients onto commercial insurance plans can hurt patients who may now have higher out-of-pocket costs than if they stayed on public programs and can expose them to disruptions in coverage. The practice also shifts costs onto commercial plans, driving up health care spending and increasing premiums for Californians already struggling with rising costs. This bill will protect legitimate groups that help Californians afford health coverage. Blue Shield of California writes that a foundational tenet of the ACA is that no person can be turned down for coverage because of a preexisting condition. This fundamental provision is now being used for financial gain by some providers. Over the past four years, Blue Shield has seen the creation of a cottage industry by bad actors who have figured out how to manipulate the market for financial gain, driving up the cost of coverage and unduly putting consumers at risk. Blue Shield indicates that providers identify patients who are otherwise Medicare or Med-Cal eligible, and pay the premiums for commercial coverage so they can receive higher reimbursement rates. They either do this directly or indirectly, through financial interested third parties and/or charities. While the biggest abuses are occurring in the dialysis industry, Blue Shield is seeing this market manipulation in substance use treatment, fertility treatment and others.

The SEIU California writes that this practice has been most common among substance use disorder treatment facilities and outpatient dialysis clinics – two types of providers serving particularly vulnerable patients. Unscrupulous treatment facilities aggressively bill insurance companies for care including daily drug tests and detox monitoring and patients are kicked out of the facility as soon as their insurance rehab benefit is exhausted, and the premium payments for insurance are cut off.

ARGUMENTS IN OPPOSITION: The California Dialysis Council (CDC) believes this bill will harm patients and cause patients to spend down their financial resources and will result in more ESRD patients on Medi-Cal increasing state costs. CDC writes that dialysis providers are required to educate patients on available community resources, including AKF, and that patients weigh numerous factors when determining what coverage best suits their individual circumstances. In California, where Medigap coverage is not guaranteed for ESRD patients under 65, the 20% uncapped co-insurance requirement under Medicare can make Medicare less attractive than private coverage. For financially needy patients, premiums for such coverage may be difficult to afford without charitable premium support from organizations like AKF. Dialysis Patient Citizens (DPC) writes that dialysis patients prefer private insurance because the actuarial value is often higher 88.9 to 91.8% compared to Medicare’s 80%. DPC also believes if a patient can lose coverage when his or her chronic kidney disease progresses to ESRD it will create a perverse financial incentive for the insurer not to take all possible measures to preserve the patient’s kidney function. The California Hospital Association (CHA) is concerned that this bill would undermine programs that pay for health insurance for patients who cannot afford it, but who do not qualify for Medicare, Medi-Cal or Covered California. CHA understands that some restrictions on the current practice of third-party payments may be called for. However, the restrictions and conditions currently proposed would be extraordinarily burdensome and costly to the health care system and would not improve care.

ASSEMBLY FLOOR: 50-21, 8/29/18

AYES: Aguiar-Curry, Berman, Bloom, Bonta, Burke, Caballero, Calderon, Carrillo, Cervantes, Chau, Chiu, Chu, Cooley, Cooper, Dahle, Eggman, Friedman, Gabriel, Cristina Garcia, Eduardo Garcia, Gloria, Gonzalez Fletcher, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Levine, Limón, Low, Mayes, McCarty, Mullin, Muratsuchi, Nazarian, O'Donnell, Quirk, Reyes, Rivas, Rodriguez, Rubio, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Weber, Wood, Rendon

NOES: Acosta, Travis Allen, Baker, Bigelow, Brough, Chávez, Chen, Choi, Cunningham, Fong, Frazier, Gray, Harper, Kiley, Lackey, Medina, Melendez, Obernolte, Quirk-Silva, Voepel, Waldron

NO VOTE RECORDED: Arambula, Daly, Flora, Gallagher, Gipson, Kamlager-Dove, Maienschein, Mathis, Patterson

Prepared by:

8/30/18 9:22:32

**** END ****

SENATE THIRD READING

STR Bill Id:SB 1156

Author:(Leyva)

As Amended Ver:August 24, 2018

Majority vote

SENATE VOTE: 34-1

SUMMARY: Establishes requirements related to third-party premium payments to health plans and insurers made on behalf of patients by financially interested entities or providers. Specifically, this bill:

1. Requires a health care service plan (health plan) or health insurer to accept premium payment from specified third-party entities without the need to comply with 3), below.
2. Requires any financially interested entity that is not specified in 1), above, that is making third-party premium payments, to comply with all of the following requirements:
   1. Provide assistance for a full plan or policy year and notify the enrollee or insured prior to any open enrollment periods, if applicable, if financial assistance will be discontinued. Allows assistance to be discontinued at the request of the enrollee or insured, as specified;
   2. Requires an entity that provides coverage for an enrollee with end stage renal disease to agree not to condition assistance on eligibility for, or receipt of, any surgery, transplant, procedure, drug, or device;
   3. Inform an applicant of financial assistance, and requires the entity to inform a recipient annually, of all available health coverage options, including, but not limited to, Medicare, Medicaid, individual market plans, and employer plans, if applicable;
   4. Agree not to steer, direct, or advise the patient into or away from a specific coverage option or health plan or health coverage; and,
   5. Agree that financial assistance is not conditioned on the use of a specific facility or health care provider.
3. Prohibits an entity described in 2), above, from making third-party premium payments unless the entity complies with both of the following requirements:
   1. Annually provide a statement to the health plan or health insurer that it complies with 2), above;
   2. Requires an entity described in 2), above, to disclose to the health plan or health insurer prior to making the initial payment, the name of the enrollee or insured for each issuer on whose behalf a third-party premium payment will be made.
4. Requires reimbursement to a provider who is also a financially interested entity for covered services provided, if a financially interested entity makes a third party premium payment to a health plan or health insurer on behalf of an enrollee or insured, to be determined by the following:
   1. For a contracted financially interested provider that makes a third party premium payment or has a financial relationship with the entity making the third part premium payment, the amount of reimbursement for covered services that is paid to the financially interested provider on behalf of the enrollee or insured be governed by the terms and conditions of the enrollee or insured's contract or the Medicare reimbursement rate, whichever is lower. Prohibits financially interested providers from billing the enrollee or insured or seek reimbursement from the enrollee or insured for any services provided, except for cost sharing pursuant to the terms and conditions of the enrollee or insured's contract. Requires the coinsurance payment to be based on the amount paid by the health plan or health insurer if an enrollee or insured's contract imposes a coinsurance payment for a claim that is subject to this bill.
   2. For a noncontracting financially interested provider that makes a third party premium payment or has a financial relationship with the entity making the third part premium payment, the amount of reimbursement for covered services that is paid to the financially interested provider on behalf of the enrollee or insured be governed by the terms and conditions of the enrollee or insured's contract or the Medicare reimbursement rate, whichever is lower. Prohibits financially interested providers from billing the enrollee or insured or seek reimbursement from the enrollee or insured for any services provided, except for cost sharing pursuant to the terms and conditions of the enrollee or insured's contract. Requires the coinsurance payment to be based on the amount paid by the health plan or health insurer if an enrollee or insured's contract imposes a coinsurance payment for a claim that is subject to this bill. Allows a claim submitted to a health plan or health insurer by a noncontracting financially interested provider to be considered an incomplete claim and contested by the health plan or health insurer pursuant to existing law if the financially interested provider has not provided information, as specified.
5. Specifies that third-party premium payments only include health plan or health insurance premium payments made directly by a provider or other third party, made indirectly through payments to the individual for the purpose of making health plan or health insurance premium payments, or provided to one or more intermediaries, as specified.
6. Defines health plan as any individual or group insurance policy or health plan contract that provides medical, hospital, and surgical benefits, except a specialized health plan contract. Provides for exemptions including coverage of Medicare services pursuant to contracts with the United States government, Medicare supplement coverage, long-term care insurance, coverage issued as a supplement to liability insurance, insurance arising out of workers' compensation law or similar law, automobile medical payment insurance, or insurance under which benefits are payable with or without regard to fault and that is statutorily required to be contained in any liability insurance policy or equivalent self-insurance.
7. Defines health insurance as any individual or group health insurance policy, as defined in existing law. States that the term does not include coverage of Medicare services, Medicare supplement coverage, or specialized health insurance coverage, as described.
8. Provides for the following to occur if a health plan or health insurer subsequently discovers that a financially interested entity fails to provide disclosure pursuant to 3) above:
   1. Entitle the health plan or health insurer to recover 120% of the difference between any payment made to a provider and the payment to which the provider would have been entitled pursuant to 5) above, including interest on that difference.
   2. Requires the health plan or health insurer to notify the Department of Managed Health Care (DMHC) or the California Department of Insurance (CDI) of the amount by which the provider was overpaid and remit to the specified departments any amount exceeding the difference between the payment made to the provider and the payment to which the provider would have been entitled to, as specified, including interest on that difference that was recovered pursuant to 8)a) above.
   3. Requires each health plan or health insurer to provide to the DMHC or CDI information regarding premium payments by financially interested entities and reimbursement for services to providers under 4) above. Requires the information to be provided at least annually at the discretion of the DMHC or CDI and include, to the best of the health plan or health insurer's knowledge, the number of enrollees or insureds whose premiums were paid by financially interested entities, disclosures provided to the insurer pursuant to 2) above, the identities of any providers whose reimbursement rate was governed by 4) above, the identities of any providers who failed to provide disclosure as described in 3) above, and, at the discretion of the department, additional information necessary for the implementation of this bill.
9. Defines the following:
   1. Provider as any professional person, organization, health facility, or other person or institution that delivers or furnishes health care services;
   2. Financially interested as any entity or provider described by either of the following criteria:
      1. A provider of health care services that receives a direct or indirect financial benefit from a third-party premium payment; or,
      2. An entity that receives the majority of its funding from one or more financially interested providers of health care services, parent companies of providers of health care services, subsidiaries of health care service providers, or related entities.
   3. Define "enrollee" or "insured" as an individual whose health plan or health insurance premiums are paid by a financially interested entity.
10. Specify that this bill does not affect a contracted payment rate for a provider who is not financially interested.
11. Specifies that this bill does not limit the authority of the Attorney General to take any action to enforce these provisions.

FISCAL EFFECT: According to the Assembly Appropriations Committee:

1. Costs to the DMHC to oversee and enforce the new disclosure requirements of approximately $140,000-$200,000 for the first three years and $65,000 annually thereafter (Managed Care Fund).
2. Costs to the CDI to oversee and enforce the new disclosure requirements of approximately $200,000 for the first year-and-a-half, and $90,000 annually thereafter (Insurance Fund).
3. Potential, likely minor, general fund revenues, as this bill is likely to discourage non-compliance with its requirements.
4. To the extent this bill restricts or removes the incentive for third-party payments to maintain commercial insurance or Medicare wraparound insurance plans, this bill could result in unknown, potentially significant Medi-Cal costs associated with higher enrollment than under the status quo. The effect of this bill's restriction, as it pertains to how many patients would continue to be able to maintain their coverage via third-party payments, is unknown. Medi-Cal costs could exceed $1 million for increased enrollment if patients seek Medi-Cal coverage due to the unavailability of premium assistance to maintain commercial coverage (General Fund/federal funds).

COMMENTS: According to the author, health insurance rates in California rise every year when unscrupulous providers seek extraordinary profit by exploiting loopholes created by the federal Patient Protection and Affordable Care Act (ACA). Financially-interested providers who steer patients away from Medicare and Medi-Cal by directly or indirectly paying their commercial insurance premiums raise prices for Californians who purchase their own insurance, businesses purchasing insurance on behalf of their employees, and state/local governments purchasing insurance on behalf of their employees. Financially-interested providers steering patients onto commercial insurance plans can also expose patients to unnecessary coverage disruptions, higher out-of-pocket costs, and other harms. The author states that this bill will protect third parties that purchase insurance altruistically, while regulating financially-interested third parties that boost their own profits by directly or indirectly purchasing health insurance for vulnerable patients.

1. Dialysis centers. In 2016, the federal Department of Health and Human Services (HHS) became concerned about the inappropriate steering of individuals eligible for or entitled to Medicare or Medicaid into individual market plans by providers and suppliers because of significantly higher reimbursement. In August 2016, Centers for Medicare and
   Medicaid Services (CMS) issued a request for information seeking public comment on concerns that some health care providers and provider-affiliated organizations may be steering people eligible for, or receiving, Medicare and/or Medicaid benefits into ACA-compliant individual market plans, including Health Insurance Marketplace plans, for the purpose of obtaining higher reimbursement rates. CMS also sent letters to all Medicare-enrolled dialysis facilities and centers informing them of this announcement. The request for information and letters to providers focus on situations where patients may be steered away from Medicare or Medicaid benefits, which can among other concerns, result in beneficiaries experiencing a disruption in the continuity and coordination of their care as a result of changes to their network of providers. These actions reflect ongoing efforts by CMS to address possible issues in the Marketplace that could affect the integrity of the programs for both consumers and issuers, and the costs of the individual insurance market, while at the same time help ensure patients are enrolled in the right plan for them.

On December 14, 2016, CMS issued an interim final rule that would have implemented new requirements for Medicare-certified dialysis facilities that make payments of premiums on behalf of their patients for individual market health plans. These requirements apply to dialysis facilities that make such payments directly, through a parent organization, or through a third party. These requirements were intended to protect patient health and safety; improve patient disclosure and transparency; ensure that health insurance coverage decisions are not inappropriately influenced by the financial interests of dialysis facilities rather than the health and financial interests of patients; and protect patients from mid-year interruptions in coverage.

The rule would have required dialysis facilities that made payments of premiums for individual market health plans, whether directly, through a parent organization, or through another entity, to inform patients annually of all available health coverage options, including but not limited to Medicare, Medicaid, the Children's Health Insurance Program and individual market plans. A preliminary injunction was issued to block implementation of the rule. The plaintiffs (Dialysis Patient Citizens, US Renal Care, Inc., Davita Inc., Fresenius Medical Care Holdings, Inc.) successfully argued that HHS/CMS violated the Administrative Procedures Act and the Medicare Act because the rule was unlawfully promulgated without notice and comment, and the rule's disclosure requirements were arbitrary, capricious, and contrary to law. It is unclear whether CMS will move forward with this rule.

1. Office of Inspector General (OIG). Many third-party payers have sought advisory opinions from the federal OIG to determine if donations by providers to independent 501(c)(3) charitable organizations for the purpose of funding insurance premiums is in violation of specific federal laws. The American Kidney Fund (AKF) is a 501(c)(3) that receives a majority of its revenue from donations by dialysis providers. AKF operates under OIG guidance issued in 1997, which indicates that, as described by AKF, the arrangement does not constitute a violation of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). HIPAA imposes civil penalties against any person who offers or transfers remuneration to any individual eligible for benefits under federal health care programs such as Medicare or Medicaid, that is likely to influence an individual to order or receive from a particular provider, practitioner, or supplier any item or service funded by the federal health care program. OIG indicated that the AKF arrangement is not in violation of HIPAA because the contributions to AKF from dialysis providers are not made to or on behalf of beneficiaries. Moreover, while the premium payments by AKF may constitute remuneration to beneficiaries, they are not likely to influence patients to order or receive services from particular providers. According to the AKF, in 2017, there were 3,867 grantees in California. There were 1,740 individuals in Medicare, including Medigap and Medicare Advantage, and 1,353 individuals on employer paid plans, including the Consolidated Omnibus Budget Reconciliation Act, and 773 individuals on private commercial coverage.

The California State Council of the Service Employees International Union (SEIU) supports this bill which would curtail a scheme in which certain providers of specialty treatments drive up health insurance rates and put patients in jeopardy. SEUI notes that in addition to exposing patients to potential mid-year coverage loss and higher out-of-pocket costs, CMS noted that third parties purchasing insurance for dialysis patients who would otherwise be eligible for Medicare or Medicaid could harm those patients by making it more difficult for them to get a kidney transplant. The California Association of Health Plans states that the practice of third party payments drive up overall health care costs resulting in higher premiums for all Californians.

Davita, in opposition, contends that as a compromise for removing language in this bill that impedes patient access to payment assistance and care, DaVita agrees to the following amendment concepts: 1) A prohibition and/or limitation on healthcare providers paying insurance premiums, due to abuse in residential drug treatment center settings; 2) A prohibition and/or limitation on insurance upgrading, third-party payments should not be used to move an individual from government insurance (Medicare or Medi-Cal) to commercial coverage; and, 3) A retention of third-party payments for individuals to maintain commercial coverage they had before they got sick (and unable to continue working).

The California Dialysis Council, also in opposition, contends that this bill imposes new hurdles on premium assistance programs which will allow plans and insurers to drop patients from coverage because patients miss the deadline for premium payments. Fresenius Medical Care states that the practical effect of this bill would deprive Californians with kidney failure access to community resources to help them pay for the health coverage they want. The AKF believes this bill contains loopholes and creates perverse incentives for insurers that could adversely affect low-income kidney disease patients' access to services and coverage of medications in California.

Analysis Prepared by: Kristene Mapile / HEALTH / (916) 319-2097 FN: 0004798

SENATE THIRD READING

STR Bill Id:SB 1156

Author:(Leyva)

As Amended Ver:July 3, 2018

Majority vote

SENATE VOTE: 34-1

SUMMARY: Establishes requirements related to third-party premium payments to health plans and insurers made on behalf of patients by providers or other intermediaries. Specifically, this bill:

1. Requires a health care service plan (health plan) or health insurer to accept premium payment from specified third-party entities without the need to comply with 3) below.
2. Requires any financially interested entity that is not specified in 1) above that is making third-party premium payments, to comply with all of the following requirements:
   1. Provide assistance solely based on financial need;
   2. Provide assistance for a full plan or policy year and notify the recipient prior to any open enrollment periods, if applicable, if financial assistance will be discontinued. Allows assistance to be discontinued at the request of the recipient, as specified;
   3. Requires an entity that provides coverage for an enrollee with end stage renal disease to agree not to condition assistance on eligibility for, or receipt of, any surgery, transplant, procedure, drug, or device;
   4. Inform an applicant of financial assistance, and requires the entity to inform a recipient annually, of all available health coverage options, including, but not limited to, Medicare, Medicaid, individual market plans, and employer plans, if applicable;
   5. Agree not to steer, direct, or advise the patient into or away from a specific coverage option or health insurance plan; and,
   6. Agree that financial assistance is not conditioned on the use of a specific facility or health care provider.
3. Prohibits an entity described in 2) above from making third-party premium payments unless it complies with both of the following requirements:
   1. Annually provide a statement to the health plan or health insurer that it complies with 2) above;
   2. Requires an entity described in 2) above to disclose to the health plan or health insurer prior to making the initial payment, the name of the enrollee or insured for each issuer on whose behalf a third-party premium payment will be made.
4. Requires, if a financially interested entity makes a third party payment for an enrollee or insured, reimbursement to be determined by the following:
   1. The terms and conditions of the recipient's policy or the Medicare rate, whichever is lower, for a contracted provider that makes a third party premium payment or has a financial relationship with the entity making the third party premium payment. Prohibits providers from billing the enrollee or insured any difference between the policy rate or the Medicare rate other than any cost sharing as outlined in the policy; and,
   2. The terms and conditions of the recipient's policy or the Medicare rate, whichever is lower, for a non-contracted provider that makes a third party premium payment or has a financial relationship with the entity making the third party premium payment. Prohibits providers from billing the enrollee or insured any difference between the policy rate or the Medicare rate other than any cost sharing as outlined in the policy.
5. Specifies that third-party premium payments only include health benefit plan premium payments made directly by a provider or other third party, made indirectly through payments to the individual for the purpose of making health benefit plan premium payments, or provided to one or more intermediaries, as specified.
6. Defines health benefit plan as any individual or group insurance policy or health plan contract that provides medical, hospital, and surgical benefits, as specified. Provides for exemptions including accident only, credit, or disability income coverage, coverage of Medicare services pursuant to contracts with the United States government, Medicare supplement coverage, long-term care insurance, dental or vision coverage, coverage issued as a supplement to liability insurance, insurance arising out of workers' compensation law or similar law, automobile medical payment insurance, or insurance under which benefits are payable with or without regard to fault and that is statutorily required to be contained in any liability insurance policy or equivalent self-insurance.
7. Provides for the following to occur if a health plan or health insurer subsequently discovers that a financially interested entity fails to provide disclosure pursuant to 3) above:
   1. Entitle the health plan or health insurer to recover the difference between any payment made to a provider and the payment to which the provider would have been entitled pursuant to 5) above, including interest on that difference.
   2. Requires the health plan or health insurer to notify the Department of Managed Health Care (DMHC) or the California Department of Insurance (CDI) of the amount by which the provider was overpaid. Allows the DMHC or CDI Commissioner the ability to impose on the provider a fine equal to 20% of the overpayment.
   3. Requires each health plan or health insurer to provide to the DMHC or CDI information regarding premium payments by financially interested entities and reimbursement for services to providers under 4) above. Requires the information to be provided at least annually at the discretion of the DMHC or CDI and include, to the best of the health plan or health insurer's knowledge, the number of enrollees or insureds whose premiums were paid by financially interested entities, disclosures provided to the insurer pursuant to 2) above, the identities of any providers whose reimbursement rate was governed by 4) above, the identities of any providers who failed to provide disclosure as described in 3) above, and, at the discretion of the department, additional information necessary for the implementation of this bill.
8. Defines the following:
   1. Provider as any professional person, organization, health facility, or other person or institution that delivers or furnishes health care services;
   2. Financially interested as any entity described by either of the following criteria:
      1. A provider of health care services that receives a direct or indirect financial benefit from a third-party premium payment; or,
      2. An entity that receives the majority of its funding from one or more financially interested providers of health care services, parent companies of providers of health care services, subsidiaries of health care service providers, or related entities.
9. Specifies that this bill does not limit the authority of the Attorney General to take any action to enforce these provisions.

FISCAL EFFECT: According to the Assembly Appropriations Committee:

1. Costs to the DMHC to oversee and enforce the new disclosure requirements of approximately $140,000-$200,000 for the first three years and $65,000 annually thereafter (Managed Care Fund).
2. Costs to the CDI to oversee and enforce the new disclosure requirements of approximately $200,000 for the first year-and-a-half, and $90,000 annually thereafter (Insurance Fund).
3. Potential, likely minor, general fund revenues, as this bill is likely to discourage non-compliance with its requirements.
4. To the extent this bill restricts or removes the incentive for third-party payments to maintain commercial insurance or Medicare wraparound insurance plans, this bill could result in unknown, potentially significant Medi-Cal costs associated with higher enrollment than under the status quo. The effect of this bill's restriction, as it pertains to how many patients would continue to be able to maintain their coverage via third-party payments, is unknown. Medi-Cal costs could exceed $1 million for increased enrollment if patients seek Medi-Cal coverage due to the unavailability of premium assistance to maintain commercial coverage (General Fund/federal funds).  

COMMENTS: According to the author, health insurance rates in California rise every year when unscrupulous providers seek extraordinary profit by exploiting loopholes created by the federal Patient Protection and Affordable Care Act (ACA). Financially-interested providers who steer patients away from Medicare and Medi-Cal by directly or indirectly paying their commercial insurance premiums raise prices for Californians who purchase their own insurance, businesses purchasing insurance on behalf of their employees, and state/local governments purchasing insurance on behalf of their employees. Financially-interested providers steering patients onto commercial insurance plans can also expose patients to unnecessary coverage disruptions, higher out-of-pocket costs, and other harms. The author states that this bill will protect third parties that purchase insurance altruistically, while regulating financially-interested third parties that boost their own profits by directly or indirectly purchasing health insurance for vulnerable patients.

1. Dialysis centers. In 2016, the federal Department of Health and Human Services (HHS) became concerned about the inappropriate steering of individuals eligible for or entitled to Medicare or Medicaid into individual market plans by providers and suppliers because of significantly higher reimbursement. In August 2016, Centers for Medicare and Medicaid Services (CMS) issued a request for information seeking public comment on concerns that some health care providers and provider-affiliated organizations may be steering people eligible for, or receiving, Medicare and/or Medicaid benefits into ACA-compliant individual market plans, including Health Insurance Marketplace plans, for the purpose of obtaining higher reimbursement rates. CMS also sent letters to all Medicare-enrolled dialysis facilities and centers informing them of this announcement. The request for information and letters to providers focus on situations where patients may be steered away from Medicare or Medicaid benefits, which can among other concerns, result in beneficiaries experiencing a disruption in the continuity and coordination of their care as a result of changes to their network of providers. These actions reflect ongoing efforts by CMS to address possible issues in the Marketplace that could affect the integrity of the programs for both consumers and issuers, and the costs of the individual insurance market, while at the same time help ensure patients are enrolled in the right plan for them.

On December 14, 2016, CMS issued an interim final rule that would have implemented new requirements for Medicare-certified dialysis facilities that make payments of premiums on behalf of their patients for individual market health plans. These requirements apply to dialysis facilities that make such payments directly, through a parent organization, or through a third party. These requirements were intended to protect patient health and safety; improve patient disclosure and transparency; ensure that health insurance coverage decisions are not inappropriately influenced by the financial interests of dialysis facilities rather than the health and financial interests of patients; and protect patients from mid-year interruptions in coverage.

The rule would have required dialysis facilities that made payments of premiums for individual market health plans, whether directly, through a parent organization, or through another entity, to inform patients annually of all available health coverage options, including but not limited to Medicare, Medicaid, the Children's Health Insurance Program and individual market plans. A preliminary injunction was issued to block implementation of the rule. The plaintiffs (Dialysis Patient Citizens, US Renal Care, Inc., Davita Inc., Fresenius Medical Care Holdings, Inc.) successfully argued that HHS/CMS violated the Administrative Procedures Act and the Medicare Act because the rule was unlawfully promulgated without notice and comment, and the rule's disclosure requirements were arbitrary, capricious, and contrary to law. It is unclear whether CMS will move forward with this rule.

1. Office of Inspector General (OIG). Many third-party payers have sought advisory opinions from the federal OIG to determine if donations by providers to independent 501(c)(3) charitable organizations for the purpose of funding insurance premiums is in violation of specific federal laws. The American Kidney Fund (AKF) is a 501(c)(3) that receives a majority of its revenue from donations by dialysis providers. AKF operates under OIG guidance issued in 1997, which indicates that, as described by AKF, the arrangement does not constitute a violation of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). HIPAA imposes civil penalties against any person who offers or transfers remuneration to any individual eligible for benefits under federal health care programs such as Medicare or Medicaid, that is likely to influence an individual to order or receive from a particular provider, practitioner, or supplier any item or service funded by the federal health care program. OIG indicated that the AKF arrangement is not in violation of HIPAA because the contributions to AKF from dialysis providers are not made to or on behalf of beneficiaries. Moreover, while the premium payments by AKF may constitute remuneration to beneficiaries, they are not likely to influence patients to order or receive services from particular providers. According to the AKF, in 2017, there were 3,867 grantees in California. There were 1,740 individuals in Medicare, including Medigap and Medicare Advantage, and 1,353 individuals on employer paid plans, including the Consolidated Omnibus Budget Reconciliation Act, and 773 individuals on private commercial coverage.

The California State Council of the Service Employees International Union (SEIU) supports this bill which would curtail a scheme in which certain providers of specialty treatments drive up health insurance rates and put patients in jeopardy. SEUI notes that in addition to exposing patients to potential mid-year coverage loss and higher out-of-pocket costs, CMS noted that third parties purchasing insurance for dialysis patients who would otherwise be eligible for Medicare or Medicaid could harm those patients by making it more difficult for them to get a kidney transplant. The California Association of Health Plans states that the practice of third party payments drive up overall health care costs resulting in higher premiums for all Californians.

Davita, in opposition, states that the provisions of this bill jeopardize dialysis patients' access to the timely care they need to stay alive and cause an estimated 4,000 patients needing dialysis to stay alive to lose charitable premium assistance resulting in costs of approximately $10 million to the State of California.

The California Dialysis Council, also in opposition, contends that this bill imposes new hurdles on premium assistance programs which will allow plans and insurers to drop patients from coverage because patients miss the deadline for premium payments. Fresenius Medical Care states that the practical effect of this bill would deprive Californians with kidney failure access to community resources to help them pay for the health coverage they want. The AKF believes this bill contains loopholes and creates perverse incentives for insurers that could adversely affect low-income kidney disease patients' access to services and coverage of medications in California.

Analysis Prepared by: Kristene Mapile / HEALTH / (916) 319-2097 FN: 0004183

Date of Hearing: August 8, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

SBPCA Bill Id:SB 1156

Author:(Leyva) – As Amended Ver:July 3, 2018

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

SUMMARY:

This bill establishes a number of rules related to third-party payments to health plans and insurers made on behalf of patients by providers or other intermediaries. Specifically, this bill:

1. Institutes requirements for allowable third-party payments of health insurance premiums, including provision of assistance based solely on financial need, anti-steering provisions that prohibit directing patient toward certain plan types, and a requirement to provide coverage for a full plan year and to inform a recipient about all their health insurance options, among other provisions.
2. Requires third-party payers to disclose payments to health plans and insurers, and requires health plans and insurers to report this information to Department of Managed Health Care (DMHC) or California Department of Insurance (CDI).
3. Exempts from its requirements tribal and other governmental programs and family members paying premiums on behalf of a patient.
4. Limits reimbursement to providers that make or have a financial relationship with an entity making a third-party payment to the rate specified in the terms and conditions of the health insurance policy or the Medicare rate, whichever is lower.
5. Specifies, if a health plan or insurer discovers an entity fails to disclose required information:
   1. The provider shall reimburse the plan or insurer the difference between the provider payment and the reimbursement to which they would be entitled under this bill.
   2. The plan or insurer shall notify DMHC or CDI of the amount by which the provider was overpaid, and authorizes the departments to impose on the provider a fine equal to 20% of the overpayment.

FISCAL EFFECT:

1. Costs to the DMHC to oversee and enforce the new disclosure requirements of approximately $140,000-$200,000 for the first three years and $65,000 annually thereafter (Managed Care Fund).
2. Costs to the CDI to oversee and enforce the new disclosure requirements of approximately $200,000 for the first year-and-a-half, and $90,000 annually thereafter (Insurance Fund).
3. Potential, likely minor, GF revenues, as this bill is likely to discourage non-compliance with its requirements.
4. To the extent this bill restricts or removes the incentive for third-party payments to maintain commercial insurance or Medicare wraparound insurance plans, this bill could result in unknown, potentially significant Medi-Cal costs associated with higher enrollment than under the status quo. The effect of the bill's restriction, as it pertains to how many patients would continue to be able to maintain their coverage via third-party payments, is unknown. Medi-Cal costs could exceed $1 million for increased enrollment if patients seek Medi-Cal coverage due to the unavailability of premium assistance to maintain commercial coverage (GF/federal).

COMMENTS:

1. Purpose. This bill is intended to remove the financial incentives for third parties to make premium payments on behalf of patients. The author indicates this is often done to raise reimbursement rates higher than what a provider would otherwise receive. The author contends this can expose patients to unnecessary coverage disruptions, higher out-of-pocket costs, and other harms, as well as raise commercial prices for everyone else buying coverage.
2. Federal concern about dialysis providers. In 2016, the federal Department of Health and Human Services (HHS) became concerned about the inappropriate steering of individuals eligible for or entitled to federal health programs into individual market plans by providers and suppliers because of significantly higher reimbursement. Paying premiums on behalf of an individual who would otherwise be enrolled in a public program can be financially beneficial to providers if it the increased reimbursement outweighs the premium costs.

On December 14, 2016, the federal Centers for Medicaid and Medicare Services (CMS) issued an interim final rule that would have implemented new requirements for Medicare-certified dialysis facilities that make payments of premiums on behalf of their patients for individual market health plans. The rule would have required dialysis facilities that made payments of premiums for individual market health plans, whether directly, through a parent organization, or through another entity, to inform patients annually of all available health coverage options and make related disclosures. A preliminary injunction blocked implementation of the federal rule, and it is unclear whether it will move forward. This bill implements similar disclosures about health insurance options.

1. Third-party payments in dialysis care. Providers may sometimes pay patient's premiums, but some providers also contribute money to a charitable foundation that pays premiums. For instance, according to the American Kidney Foundation, which provides third-party premium payments for dialysis patients, there were 3,867 grantees in California in 2017. There were 1,740 individuals in Medicare, including Medigap and Medicare Advantage, and 1,353 individuals on employer paid plans, including COBRA, and 773 individuals on private commercial coverage.
2. Support. The California State Council of the Service Employees International Union (SEIU) supports this bill, arguing it will curtail a scheme in which certain providers of specialty treatments drive up health insurance rates and put patients in jeopardy. SEUI notes that in addition to exposing patients to potential mid-year coverage loss and higher out-of-pocket costs, CMS noted that third parties purchasing insurance for dialysis patients who would otherwise be eligible for Medicare or Medicaid could harm those patients by making it more difficult for them to get a kidney transplant. The California Association of Health Plans states that the practice of third-party payments drive up overall health care costs resulting in higher premiums for all Californians.
3. Opposed unless amended. DaVita, a dialysis provider, contends that as a compromise for removing language in this bill that impedes patient access to payment assistance and care, DaVita agrees to the following amendment concepts: a) A prohibition and/or limitation on healthcare providers paying insurance premiums, due to abuse in residential drug treatment center settings; b) A prohibition and/or limitation on insurance upgrading, third-party payments should not be used to move an individual from government insurance (Medicare or Medi-Cal) to commercial coverage; and, c) A retention of third-party payments for individuals to maintain commercial coverage they had before they got sick (and become unable to continue working).
4. Opposition. The California Dialysis Council contends that this bill imposes new hurdles on premium assistance programs which will allow plans and insurers to drop patients from coverage because patients miss the deadline for premium payments. Dialysis providers question the ability to maintain patient assistance programs whatsoever under these new rules.

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

Date of Hearing: June 26, 2018

ASSEMBLY COMMITTEE ON HEALTH

Jim Wood, Chair

SBPCA Bill Id:SB 1156

Author:(Leyva) – As Amended Ver:May 25, 2018

SENATE VOTE: 34-1

SUBJECT: Health care service plans: 3rd-party payments.

SUMMARY: Establishes requirements for any entity making third-party premium payments if the entity is a provider of services that receives a direct or indirect financial benefit from the third-party payments, or, is an entity that receives the majority of its funding from one or more financially interested health care providers. Specifically, this bill:

1. Requires a health care service plan (health plan) or health insurer to accept premium payment from the following third-party entities without the need for the entity to seek a determination from the Department of Managed Health Care (DMHC) or California Department of Insurance (CDI) as described in 5) below:
   1. A Ryan White HIV/AIDS Program, as specified;
   2. An Indian Tribe, tribal organization, or urban Indian organization;
   3. A local, state, or federal government program, including a grantee directed by a government program to make payments on its behalf; and,
   4. Any member of the individual’s family, defined for purposes of this bill to include the individual’s spouse, domestic partner, child, parent, grandparent and siblings.
2. Requires any entity that is not specified in 1) above that is making third-party premium payments, to comply with all of the following requirements if: a) the entity is a provider of services that receives a direct or indirect financial benefit from the third-party premium payments; or, b) is an entity that receives the majority of its funding from one or more financially interested health care providers:
   1. Provide assistance based on financial need;
   2. Provide assistance for a full plan or policy year and notify the recipient prior to any open enrollment periods, if applicable, if financial assistance will be discontinued;
   3. Requires an entity that provides coverage for an enrollee with end stage renal disease (ESRD) to agree not to condition assistance on eligibility for, or receipt of, any surgery, transplant, procedure, drug, or device;
   4. Agree that eligibility for financial assistance is conditioned solely on income;
   5. Inform an applicant of financial assistance, and requires the entity to inform a recipient annually, of all available health coverage options, including, but not limited to, Medicare, Medicaid, individual market plans, and employer plans, if applicable;
   6. Agree not to steer, direct, or advise the patient into or away from a specific coverage option or health insurance plan; and,
   7. Agree that financial assistance is not conditioned on the use of a specific facility or health care provider.
3. Prohibits an entity described in 2) above from making third-party premium payments unless it complies with all of the following requirements:
   1. Annually provide a statement to the health plan or health insurer and DMHC or CDI that it complies with 2) above;
   2. Annually provide a statement to the health plan or health insurer and DMHC or CDI from the recipient of the assistance confirming that the recipient of the assistance has completed and submitted an application for Medi-Cal and is not eligible for financial assistance from Medi-Cal; and,
   3. Annually provide a statement informing the health plan or health insurer regarding whether the recipient of the financial assistance would be eligible for Medicare.
4. Requires an entity described in 2) above to disclose to the health plan or health insurer and DMHC or CDI, at least 60 days prior to making the initial payment, the name of the enrollee or insured for each issuer on whose behalf a third-party premium payment will be made and the information necessary for DMHC or CDI to determine compliance with 2) and 3) above.
5. Requires DMHC or CDI to establish a process to make a determination regarding eligibility within 30 days of receiving a disclosure pursuant to 4) above. Requires DMHC or CDI to accept as accurate the information provided in the disclosure from an entity and base the determination regarding eligibility on the information provided, and if there is subsequent discovery that information provided was inaccurate this constitutes a violation of this bill.
6. Limits reimbursement for covered services to the currently prevailing Medicare reimbursement rate, if an entity violates any provision of this bill relating to third-party payments. Requires, if the entity is a noncontracted provider, reimbursement to be governed by the terms and conditions of the policy or the Medicare rate, whichever is lower.
7. Specifies that third-party premium payments include health benefit plan premium payments made directly by a third party, made indirectly through payments to the individual for the purpose of making health benefit plan premium payments, or provided to one or more intermediaries, as specified.
8. Defines health benefit plan as any individual or group insurance policy or health plan contract that provides medical, hospital, and surgical benefits, as specified. Provides for exemptions including accident only, credit, or disability income coverage, coverage of Medicare services pursuant to contracts with the United States government, Medicare supplement coverage, long-term care insurance, dental or vision coverage, coverage issued as a supplement to liability insurance, insurance arising out of workers’ compensation law or similar law, automobile medical payment insurance, or insurance under which benefits are payable with or without regard to fault and that is statutorily required to be contained in any liability insurance policy or equivalent self-insurance.

EXISTING LAW:

1. Establishes DMHC to regulate health plans and CDI to regulate health insurance.
2. Establishes the Medi-Cal program, administered by the Department of Health Care Services, under which qualified low-income individuals receive health care services.
3. 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, in California known as Covered California.
4. Establishes, under federal law, the Medicare Program, which is administered by the Centers for Medicare and Medicaid Services (CMS), under which qualified individuals over 65 years old or individuals under aged 65 years old with qualifying disabilities receive health care, after applicable deductibles, coinsurance, or other required cost sharing.
5. Prohibits a health plan or health insurer from denying or conditioning the offering or effectiveness of any Medicare supplement contract available for sale in California, nor discriminating in the pricing of a contract because of the health status, claims experience, receipt of health care, or medical condition of an applicant in the case of an application for a contract that is submitted prior to or during the six-month period beginning with the first day of the first month in which an individual is both 65 years of age or older and is enrolled for benefits under Medicare Part B.
6. Requires each Medicare supplement contract currently available from a health plan or health insurer to be made available to all applicants who qualify and who are 65 years of age or older.
7. Requires a health plan or health insurer to make available specified Medicare supplement standardized benefit plans, if currently available, to a qualifying applicant who is 64 years of age or younger and does not have ESRD.
8. Requires, if a health plan or health insurer rejects an applicant for a Medicare supplement policy due to the applicant having ESRD, the health plan or health insurer must inform the applicant about the California Major Risk Medical Insurance Program (MRMIP) and about the new coverage options and the potential for subsidized coverage through Covered California. Requires the insurer to direct persons seeking more information to MRMIP, Covered California, plan or policy representatives, insurance agents, or an entity paid by Covered California to assist with health coverage enrollment, such as a navigator or an assister.
9. Prohibits, under federal anti-kickback law, the knowing and willful offer or payment of remuneration to induce a person to buy an item or service that will be reimbursed by a federal health care program.

FISCAL EFFECT: According to Senate Appropriations Committee, the fiscal analysis includes a level of uncertainty due to the unknown number of eligibility determinations the DMHC or CDI will need to conduct, the to-be-developed review process for specified disclosures, and the unknown number responses to public questions and provision of technical assistance. Senate Appropriations Committee estimates a range of possible costs from the low millions up to approximately $11.7 million (special fund) to the DMHC and CDI.

COMMENTS:

1. PURPOSE OF THIS BILL. According to the author, health insurance rates in California rise every year when unscrupulous providers seek extraordinary profit by exploiting loopholes created by the ACA. Financially-interested providers who steer patients away from Medicare and Medi-Cal by directly or indirectly paying their commercial insurance premiums raise prices for Californians who purchase their own insurance, businesses purchasing insurance on behalf of their employees, and state/local governments purchasing insurance on behalf of their employees. Financially-interested providers steering patients onto commercial insurance plans can also expose patients to unnecessary coverage disruptions, higher out-of-pocket costs, and other harms.
   The author states that this bill will protect third parties that purchase insurance altruistically, while regulating financially-interested third parties that boost their own profits by directly or indirectly purchasing health insurance for vulnerable patients. According to the author, this bill will require financially-interested providers or provider-funded entities to disclose that relationship to regulators and comply with disclosure requirements, including showing that patients are not otherwise eligible for Medicare or Medi-Cal. This bill would set an alternative payment rate tied to the lower of Medicare rates or contracted rates for financially-interested providers when the requirements are not met.
2. BACKGROUND.
   1. Dialysis centers. In 2016, the federal Department of Health and Human Services (HHS) became concerned about the inappropriate steering of individuals eligible for or entitled to Medicare or Medicaid into individual market plans by providers and suppliers because of significantly higher reimbursement. In August 2016, CMS issued a request for information seeking public comment on concerns that some health care providers and provider-affiliated organizations may be steering people eligible for, or receiving, Medicare and/or Medicaid benefits into ACA-compliant individual market plans, including Health Insurance Marketplace plans, for the purpose of obtaining higher reimbursement rates. CMS also sent letters to all Medicare-enrolled dialysis facilities and centers informing them of this announcement. The request for information and letters to providers focus on situations where patients may be steered away from Medicare or Medicaid benefits, which can among other concerns, result in beneficiaries experiencing a disruption in the continuity and coordination of their care as a result of changes to their network of providers. These actions reflect ongoing efforts by CMS to address possible issues in the Marketplace that could affect the integrity of the programs for both consumers and issuers, and the costs of the individual insurance market, while at the same time help ensure patients are enrolled in the right plan for them.
      
      On December 14, 2016, CMS issued an interim final rule that would have implemented new requirements for Medicare-certified dialysis facilities that make payments of premiums on behalf of their patients for individual market health plans. These requirements apply to dialysis facilities that make such payments directly, through a parent organization, or through a third party. These requirements were intended to protect patient health and safety; improve patient disclosure and transparency; ensure that health insurance coverage decisions are not inappropriately influenced by the financial interests of dialysis facilities rather than the health and financial interests of patients; and protect patients from mid-year interruptions in coverage.
      
      The rule would have required dialysis facilities that made payments of premiums for individual market health plans, whether directly, through a parent organization, or through another entity, to inform patients annually of all available health coverage options, including but not limited to Medicare, Medicaid, the Children’s Health Insurance Program (CHIP) and individual market plans. This disclosure would have included information on:
      
      1. How plans in the individual market, Medicare, and Medicaid/CHIP coverage, including Medicare Savings Programs, would affect the patient’s access to, and costs for the providers and suppliers, services, and prescription drugs in the individual’s ESRD plan of care;
      2. Costs likely to result from other documented health care needs;
      3. An overview of the health related and financial risks and benefits of the plans offered through and outside the Exchange; and,
      4. Each option’s coverage and anticipated costs associated with transplantation, including patient and living donor costs for pre-and post- transplant care.
         

A preliminary injunction was issued to block implementation of the rule. The plaintiffs (Dialysis Patient Citizens, US Renal Care, Inc., Davita Inc., Fresenius Medical Care Holdings, Inc.) successfully argued that HHS/CMS violated the Administrative Procedures Act and the Medicare Act because the rule was unlawfully promulgated without notice and comment, and the rule’s disclosure requirements were arbitrary, capricious, and contrary to law. It is unclear whether CMS will move forward with this rule.

• 1. End Stage Renal Disease. According to CMS, ESRD is a medical condition in which a person's kidneys cease functioning on a permanent basis leading to the need for a regular course of long-term dialysis or a kidney transplant to maintain life. Beneficiaries may become entitled to Medicare based on ESRD. Benefits on the basis of ESRD are for all covered services, not only those related to the kidney failure condition. Medicare is the secondary payer to group health plans (GHPs) for individuals entitled to Medicare based on ESRD for a coordination period of 30 months regardless of the number of employees and whether the coverage is based on current employment status.  Medicare is secondary to GHP coverage provided through the Consolidated Omnibus Budget Reconciliation Act (COBRA), or a retirement plan.  Medicare is secondary during the coordination period even if the employer policy or plan contains a provision stating that its benefits are secondary to Medicare. The GHP may not differentiate in the benefits it provides to individuals who have ESRD.  Specifically, GHPs are prohibited from terminating coverage, imposing benefit limitations, or charging higher premiums on the basis of the existence of the individual's ESRD.
     1. When a beneficiary first enrolls in Medicare based on ESRD, Medicare coverage usually starts:
     2. On the fourth month of dialysis when the beneficiary participates in dialysis treatment in a dialysis facility.
     3. Medicare coverage can start as early as the first month of dialysis if:
        1. The beneficiary takes part in a home dialysis training program in a Medicare-approved training facility to learn how to do self-dialysis treatment at home;
        2. The beneficiary begins home dialysis training before the third month of dialysis; and,
        3. The beneficiary expects to finish home dialysis training and give self-dialysis treatments.
     4. Medicare coverage can start the month the beneficiary is admitted to a Medicare-approved hospital for kidney transplant or for health care services that are needed before the transplant if the transplant takes place in the same month or within the two following months.
     5. Medicare coverage can start two months before the month of the transplant if the transplant is delayed more than two months after the beneficiary is admitted to the hospital for that transplant or for health care services that are needed before the transplant.
     6. Medicare coverage can start two months before the month of the transplant if the transplant is delayed more than two months after the beneficiary is admitted to the hospital for that transplant or for health care services that are needed before the transplant.

If the beneficiary has Medicare only because of ESRD, Medicare coverage will end when one of the following conditions is met: 12 months after the month the beneficiary stops dialysis treatments; or, 36 months after the month the beneficiary had a kidney transplant. There is a separate 30-month coordination period each time the beneficiary enrolls in Medicare based on kidney failure. For example, if the beneficiary gets a kidney transplant that continues to work for 36 months, Medicare coverage will end. If after 36 months the beneficiary enrolls in Medicare again because they start dialysis or get another transplant, the Medicare coverage will start right away. There will be no 3-month waiting period before Medicare begins to pay.

• 1. Office of Inspector General (OIG). Many third-party payers have sought advisory opinions from the federal OIG to determine if donations by providers to independent 501(c)(3) charitable organizations for the purpose of funding insurance premiums is in violation of specific federal laws. The American Kidney Fund (AKF) is a 501(c)(3) that receives a majority of its revenue from donations by dialysis providers. AKF operates under OIG guidance issued in 1997, which indicates that, as described by AKF, the arrangement does not constitute a violation of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). HIPAA imposes civil penalties against any person who offers or transfers remuneration to any individual eligible for benefits under federal health care programs such as Medicare or Medicaid, that is likely to influence an individual to order or receive from a particular provider, practitioner, or supplier any item or service funded by the federal health care program. OIG indicated that the AKF arrangement is not in violation of HIPAA because the contributions to AKF from dialysis providers are not made to or on behalf of beneficiaries. Moreover, while the premium payments by AKF may constitute remuneration to beneficiaries, they are not likely to influence patients to order or receive services from particular providers. According to the AKF, in 2017, there were 3,867 grantees in California. There were 1,740 individuals in Medicare, including Medigap and Medicare Advantage, and 1,353 individuals on employer paid plans, including COBRA, and 773 individuals on private commercial coverage.
  2. Substance Abuse Disorder (SUD). Another example of financially interested providers steering patients may be occurring with SUD providers. On January 31, 2018, the Senate Health Committee held an informational hearing to examine the SUD treatment system with a focus on treatment and services provided in residential facilities; insurance coverage; patient referrals; and the state’s regulation and oversight of the system. The Committee heard testimony similar to issues raised in a series published in the Orange County Register, about one of the industry’s biggest players, Community Recovery of Los Angeles (CRLA). According to the Orange County Register, one of the industry’s biggest players was the operator of CRLA. On November 10, 2016, CDI issued a press release about an investigation that resulted in the arrest of the operator of CRLA, who owned sober living homes throughout Southern California. The operators were arrested on several felony counts of grand theft and identity theft for allegedly conspiring to defraud clients and insurers out of more than $176 million. Affected insurers included Anthem Blue Cross, Blue Shield, Cigna, Health Net, and Humana, which paid nearly $44 million before discovering the suspected fraud and stopping payments to CRLA. CRLA is accused of luring people with treatment marketing schemes and stealing patient identities to buy health insurance policies for people without their knowledge, as well as committing such acts as submitting claims for services not provided, falsely representing CRLA as a licensed facility while not being licensed as such, and filing fraudulent health insurance policy applications.

1. SUPPORT. The California State Council of the Service Employees International Union (SEIU) supports this bill which would curtail a scheme in which certain providers of specialty treatments drive up health insurance rates and put patients in jeopardy. SEUI notes that in addition to exposing patients to potential mid-year coverage loss and higher out-of-pocket costs, CMS noted that third parties purchasing insurance for dialysis patients who would otherwise be eligible for Medicare or Medicaid could harm those patients by making it more difficult for them to get a kidney transplant. The California Association of Health Plans states that the practice of third party payments drive up overall health care costs resulting in higher premiums for all Californians. America’s Health Insurance Plans states that this bill promotes transparency in our health care system by requiring providers (and entities funded by providers) to disclose financial relationships with third party payers to insurers and state regulators and avoids conflicts of interest and creates a more accountable billing process.
2. OPPOSE UNLESS AMENDED. Various organizations write to request further explanation of which entities constitute a health care provider in the clearest terms; to include diagnosis-based programs or removing that income be the sole consideration; and, to allow that the state verify recipients eligible for Medi-Cal and Medicare. Davita contends that as a compromise for removing language in this bill that impedes patient access to payment assistance and care, DaVita agrees to the following amendment concepts: a) A prohibition and/or limitation on healthcare providers paying insurance premiums, due to abuse in residential drug treatment center settings; b) A prohibition and/or limitation on insurance upgrading, third-party payments should not be used to move an individual from government insurance (Medicare or Medi-Cal) to commercial coverage; and, c) A retention of third-party payments for individuals to maintain commercial coverage they had before they got sick (and unable to continue working).
3. OPPOSITION. The California Dialysis Council contends that this bill imposes new hurdles on premium assistance programs which will allow plans and insurers to drop patients from coverage because patients miss the deadline for premium payments. Fresenius Medical Care believes that patients should be free to weigh their individual circumstances and choose the health coverage that best suits those circumstances. Patient Services Incorporated (PSI) contends that there is no explicit language in this bill that would require health insurers to accept assistance from bona-fide charities, creating a situation where those most in need could be left without coverage or treatment options. PSI also states that the annual statement regarding whether a recipient has applied for Medi-Cal or Medicare would place a massive and undue burden on patient assistance programs to annually verify that hundreds of recipients do not qualify.
4. PREVIOUS LEGISLATION. AB 265 (Wood), Chapter 611, Statutes of 2017, generally prohibits a person who manufactures a prescription drug from offering in California any discount, repayment, product voucher, or other reduction in an individual’s out-of-pocket expenses associated with his or her health insurance, health plan, or other health coverage, including, but not limited to, cost sharing, for any prescription drug if a lower cost generic drug is covered under the individual’s health insurance, health plan, or other health coverage on a lower cost-sharing tier that is designated as therapeutically equivalent to the prescription drug manufactured by that person or if the active ingredients of the drug are contained in products regulated by the federal Food and Drug Administration, are available without prescription at a lower cost, and are not otherwise contraindicated for the condition for which the prescription drug is approved. AB 265 specifies exceptions to these prohibitions, as specified. AB 265 does not prohibit an entity, including a manufacturer of prescription drugs, from offering a pharmaceutical product free of any cost, if the product is free of cost to both the patient and his or her health insurer, health care service plan, or other health coverage, that it does not affect a pharmacist’s ability to substitute a prescription drug, and that it does not prohibit or limit assistance to a patient provided by an independent charity patient assistance program, as defined.
5. POLICY COMMENT. This bill establishes requirements for specified entities making third-party premium payments, including a requirement to submit annual statements to the health plan or health insurer and regulating authority to ensure compliance with this bill. If the entity violates any provision of this bill relating to third-party payments, then the provider is limited to reimbursement for covered services at the currently prevailing Medicare reimbursement rate. However, it is unclear how the DMHC or CDI determines a violation under bill, and more importantly how these entities would enforce the penalty provisions of this bill. Consistent with the authority vested with the Attorney General (AG) to enforce California’s anti-kickback statutes and AB 265, the Committee may wish to amend this bill to authorize the AG to take action against entities that violate the provisions of this bill.

REGISTERED SUPPORT / OPPOSITION:

Support

America’s Health Insurance Plans

Association of California Life and Health Insurance Companies

Blue Shield of California

California Association of Health Plans

California Association of Health Underwriters

California Labor Federation

California State Council of the Service Employees International

Kaiser Permanente

Latino Coalition for a Healthy California

SEIU California

Opposition

California Dialysis Council

California State Association of Electrical Workers

California State Pipe Trades Council

Chronic Disease Coalition

Dialysis Patient Citizens

Fresenius Medical Care

National Renal Administrators Association

Patient Services Incorporated

Renal Support Network

Western States Council of Sheet Metal Workers

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

 THIRD READING  

Bill No: SB 1156

Author: Leyva (D)

Amended: 5/25/18

Vote: 21

SENATE HEALTH COMMITTEE: 8-0, 4/18/18

AYES: Hernandez, Nguyen, Leyva, Mitchell, Monning, Newman, Nielsen, Pan

NO VOTE RECORDED: Roth

SENATE APPROPRIATIONS COMMITTEE: 6-0, 5/25/18

AYES: Lara, Beall, Bradford, Hill, Nielsen, Wiener

NO VOTE RECORDED: Bates

SUBJECT: Health care service plans: 3rd-party payments

SOURCE: Author

DIGEST:

This bill establishes requirements for any entity making third-party premium payments if the entity is a provider of services that receives a direct or indirect financial benefit from the third-party payments, or, is an entity that receives the majority of its funding from one or more financially interested health care providers.

ANALYSIS:

Existing law:

1. Establishes the Department of Managed Health Care (DMHC) to regulate health plans and the California Department of Insurance (CDI) to regulate health insurance (issuer). [HSC §1340, et seq. and IC §106, et seq.]
2. Establishes the Medi-Cal program, administered by the Department of Health Care Services (DHCS), under which qualified low-income individuals receive health care services. [WIC §14000, et seq.]
3. Establishes, under federal law, the Medicare Program, which is administered by the Centers for Medicare and Medicaid Services (CMS), under which qualified individuals over 65 years old or individuals under aged 65 years old with qualifying disabilities receive health care, after applicable deductibles, coinsurance, or other required cost sharing. [42 USC §1395, et seq.]
4. Prohibits an issuer from denying or conditioning the offering or effectiveness of any Medicare supplement contract available for sale in California, nor discriminating in the pricing of a contract because of the health status, claims experience, receipt of health care, or medical condition of an applicant in the case of an application for a contract that is submitted prior to or during the six-month period beginning with the first day of the first month in which an individual is both 65 years of age or older and is enrolled for benefits under Medicare Part B. [HSC §1358 and INS §10192.11]
5. Requires each Medicare supplement contract currently available from an issuer to be made available to all applicants who qualify and who are 65 years of age or older. [HSC §1358 and INS §10192.11]
6. Requires an issuer to make available specified Medicare supplement standardized benefit plans, if currently available, to a qualifying applicant who is 64 years of age or younger and does not have end-stage-renal disease (ESRD). [HSC §1358 and INS §10192.11]
7. Requires, if an issuer rejects an applicant for a Medicare supplement policy due to the applicant having ESRD, the issuer to inform the applicant about the California Major Risk Medical Insurance Program (MRMIP) and about the new coverage options and the potential for subsidized coverage through Covered California. Requires the insurer to direct persons seeking more information to MRMIP, Covered California, plan or policy representatives, insurance agents, or an entity paid by Covered California to assist with health coverage enrollment, such as a navigator or an assister. [HSC §1389.25 and INS §10113.9]

This bill:

1. Requires an issuer to accept premium payment from the following third-party entities without the need for the entity to seek a determination from DMHC or CDI as described in 5) below:
   1. A Ryan White HIV/AIDS Program;
   2. An Indian Tribe, tribal organization, or urban Indian organization;
   3. A local, state, or federal government program, including a grantee directed by a government program to make payments on its behalf; and,
   4. Any member of the individual’s family, defined for purposes of this bill to include the individual’s spouse, domestic partner, child, parent, grandparent and siblings.
2. Requires any entity that is not specified in 1) above that is making third-party premium payments, to comply with all of the following requirements if the entity is a provider of services that receives a direct or indirect financial benefit from the third-party premium payments or is an entity that receives the majority of its funding from one or more financially interested health care providers:
   1. Provide assistance based on financial need;
   2. Provide assistance for a full plan or policy year and notify the recipient prior to any open enrollment periods, if applicable, if financial assistance will be discontinued;
   3. Requires an entity that provides coverage for an enrollee with ESRD to agree not to condition assistance on eligibility for, or receipt of, any surgery, transplant, procedure, drug, or device;
   4. Agree that eligibility for financial assistance is conditioned solely on income;
   5. Inform an applicant of financial assistance, and requires the entity to inform a recipient annually, of all available health coverage options, including, but not limited to, Medicare, Medicaid, individual market plans, and employer plans, if applicable;
   6. Agree not to steer, direct, or advise the patient into or away from a specific coverage option or health insurance plan; and,
   7. Agree that financial assistance is not conditioned on the use of a specific facility or health care provider.
3. Requires an entity described in 2) above to comply with the following:
   1. Annually provide a statement to the issuer and DMHC or CDI that it complies with 2) above;
   2. Annually provide a statement to the issuer and DMHC or CDI from the recipient of the assistance confirming that he or she has completed and submitted an application for Medi-Cal and is not eligible for financial assistance from Medi-Cal; and,
   3. Annually provide a statement informing the issuer regarding whether the recipient of the financial assistance would be eligible for Medicare.
4. Requires an entity described in 2) above to disclose to the issuer and DMHC or CDI, at least 60 days prior to making the initial payment, the name of the enrollee or insured for each issuer on whose behalf a third-party premium payment will be made and the information necessary for DMHC or CDI to determine compliance with 2) and 3) above.
5. Requires DMHC or CDI to establish a process to make a determination regarding eligibility within 30 days of receiving a disclosure pursuant to 4) above. Requires DMHC or CDI to accept as accurate the information provided in the disclosure from an entity and base the determination regarding eligibility on the information provided, and subsequent discovery that information provided was inaccurate constitutes a violation of this bill.
6. Limits reimbursement for covered services to the currently prevailing Medicare reimbursement rate, if an entity violates any provision of this bill relating to third-party payments. Requires, if the entity is a noncontracted provider, reimbursement to be governed by the terms and conditions of the policy or the Medicare rate, whichever is lower.

Comments

1. Author’s statement. According to the author, health insurance rates in California are driven up every year when providers seek profit by exploiting loopholes created by the Affordable Care Act (ACA). Financially-interested providers who steer patients away from Medicare and Medi-Cal by directly or indirectly paying their commercial insurance premiums raise prices for Californians who purchase their own insurance, businesses purchasing insurance on behalf of their employees, and state/local governments purchasing insurance on behalf of their employees. Financially-interested providers steering patients onto commercial insurance plans can also expose patients to unnecessary coverage disruptions, higher out-of-pocket costs, and other harms. SB 1156 regulates financially-interested third parties that boost their own profits by directly or indirectly purchasing health insurance for vulnerable patients. SB 1156 requires financially-interested providers or provider-funded entities to disclose that relationship to regulators and comply with disclosure requirements, including showing that patients are not otherwise eligible for Medicare or Medi-Cal. This bill sets an alternative payment rate tied to the lower of Medicare rates or contracted rates for financially-interested providers when the requirements are not met.
2. Dialysis centers. On December 14, 2016, CMS issued an interim final rule that would have implemented new requirements for Medicare-certified dialysis facilities that make payments of premiums on behalf of their patients for individual market health plans. The federal Department of Health and Human Services (HHS) had become concerned about the inappropriate steering of individuals eligible for or entitled to Medicare or Medicaid into individual market plans by providers and suppliers because of significantly higher reimbursement. One insurance company indicated that commercial coverage could pay more than ten times more than public coverage ($4,000 per treatment rather than $300 per treatment). A preliminary injunction was issued by a judge in the U.S. District in Eastern Texas to block implementation of the rule. The plaintiffs successfully argued that HHS/CMS violated the Administrative Procedures Act and the Medicare Act because the rule was unlawfully promulgated without notice and comment, and the rule’s disclosure requirements were arbitrary, capricious, and contrary to law.
3. Office of Inspector General (OIG). Many third-party payers have sought advisory opinions from the federal OIG to determine if donations by providers to independent 501(c)(3) charitable organizations for the purpose of funding insurance premiums is in violation of specific federal laws. The American Kidney Fund (AKF) is a 501(c)(3) that receives a majority of its revenue from donations by dialysis providers. AKF operates under OIG guidance issued in 1997, which indicates that, as described by AKF, the arrangement does not constitute a violation of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). HIPAA imposes civil penalties against any person who offers or transfers remuneration to any individual eligible for benefits under federal health care programs such as Medicare or Medicaid, that is likely to influence an individual to order or receive from a particular provider, practitioner, or supplier any item or service funded by the federal health care program. OIG indicated that the AKF arrangement is not in violation of HIPAA because the contributions to AKF from dialysis providers are not made to or on behalf of beneficiaries. Moreover, while the premium payments by AKF may constitute remuneration to beneficiaries, they are not likely to influence patients to order or receive services from particular providers.
4. Support in concept. Anthem Blue Cross writes that from 2014-2016, Anthem saw a significant spike of ESRD active members in the individual marketplace. The on-Exchange ESRD incidence rate in 2016 was over three times as high as in 2014, and for non-Exchange ESRD members in 2016 was nearly three times the rate in 2014. At the same time the ESRD incidence rate for Anthem’s Medicaid members remained relatively flat. Anthem indicates that they do not accept payments from third-party payors other than those required by law or those made by a family member or legal guardian on behalf of an applicant or member. Anthem believes this bill relies on self-reporting from bad actors and does not include a process for registering third-party payers and verifying the information that is self-reported. Also, Anthem questions how would the requirement that an entity pay a full year’s worth of premiums be enforced. Health Net does not accept third-party payments unless those payments are from the Ryan White Program, federal, state and local governments, or from Indian tribal organizations. Health Net opposes expanding the number of entities that can make third-party payments, especially those entities that have a clear motive for doing so.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Senate Appropriations Committee, Senate Appropriations staff notes the fiscal analysis includes a level of uncertainty due to the unknown number of eligibility determinations DMHC or CDI will need to conduct, the to-be-developed review process for specified disclosures, and the unknown number responses to public questions and provision of technical assistance. Staff estimates a range of possible costs from the low millions up to approximately $11.7 million (special fund) to the DMHC and CDI.

SUPPORT: (Verified 5/24/18)

America’s Health Insurance Plans

Association of California Life and Health Insurance Companies

Blue Shield of California

California Association of Health Plans

California Association of Health Underwriters

California Labor Federation

California Rural Legal Assistance Foundation

Health Net

Kaiser Permanente

Latino Coalition for a Healthy California

SEIU California

OPPOSITION: (Verified 5/24/18)

American Kidney Fund

California Dialysis Council

California Hepatitis C Task Force

California Hospital Association

Chronic Disease Coalition

DaVita

Dialysis Patient Citizens

Fresenius Medical Care North America

Patient Services Incorporated

Renal Support Network

US Renal Care

ARGUMENTS IN SUPPORT: The California Labor Federation writes that steering patients onto commercial insurance plans can hurt patients who may now have higher out-of-pocket costs than if they stayed on public programs and can expose them to disruptions in coverage. The practice also shifts costs onto commercial plans, driving up health care spending and increasing premiums for Californians already struggling with rising costs. This bill will protect legitimate groups that help Californians afford health coverage, while placing reasonable disclosure and compliance requirements on providers and provider-funded entities that benefit financially from shifting patients to commercial coverage. Blue Shield of California writes that a foundational tenet of the ACA is that no person can be turned down for coverage because of a preexisting condition. This fundamental provision is now being used for financial gain by some providers. Over the past four years, Blue Shield has seen the creation of a cottage industry by bad actors who have figured out how to manipulate the market for financial gain, driving up the cost of coverage and unduly putting consumers at risk. Blue Shield indicates that providers identify patients who are otherwise Medicare or Med-Cal eligible, and pay the premiums for commercial coverage so they can receive higher reimbursement rates. They either do this directly or indirectly, through financial interested third parties and/or charities. While the biggest abuses are occurring in the dialysis industry, Blue Shield is seeing this market manipulation in substance use treatment, fertility treatment and others.

The SEIU California writes that this practice has been most common among substance use disorder treatment facilities and outpatient dialysis clinics – two types of providers serving particularly vulnerable patients. Unscrupulous treatment facilities aggressively bill insurance companies for care including daily drug tests and detox monitoring and patients are kicked out of the facility as soon as their insurance rehab benefit is exhausted, and the premium payments for insurance are cut off. This bill will protect legitimate groups that altruistically help Californians afford health insurance, while placing reasonable disclosure and compliance requirements on providers and provider funded entities that benefit financially from the current practice of purchasing health insurance for certain patients.

ARGUMENTS IN OPPOSITION: The California Dialysis Council (CDC) believes this bill will harm patients and cause patients to spend down their financial resources and will result in more ESRD patients on Medi-Cal increasing state costs. CDC writes that dialysis providers are required to educate patients on available community resources, including AKF, and that patients weigh numerous factors when determining what coverage best suits their individual circumstances. In California, where Medigap coverage is not guaranteed for ESRD patients under 65, the 20% uncapped co-insurance requirement under Medicare can make Medicare less attractive than private coverage. For financially needy patients, premiums for such coverage may be difficult to afford without charitable premium support from organizations like AKF. Dialysis Patient Citizens (DPC) writes that dialysis patients prefer private insurance because the actuarial value is often higher 88.9 to 91.8% compared to Medicare’s 80%. DPC also believes if a patient can lose coverage when his or her chronic kidney disease progresses to ESRD it will create a perverse financial incentive for the insurer not to take all possible measures to preserve the patient’s kidney function. US Renal Care writes that the effect of this bill is in direct conflict with the guidance provided by CMS regarding individuals and their eligibility for Medicare, that eligible individuals are not required to sign up for Medicare. The impact of this bill will be to limit premium care assistance for needed dialysis care, this is driven by the requirement in the bill that a provider of premium assistance and the department perform specified and new duties before a premium payment is allowed. Not only will this create a burden on the entity and the department, but most importantly will cause delays and loss of valuable coverage to the patient or their family.

The California Hospital Association is concerned that this bill would undermine programs that pay for health insurance for patients who cannot afford it, but who do not qualify for Medicare, Medi-Cal or Covered California. CHA writes that this bill imposes significant administrative burdens that would adversely affect timely patient care. CHA understands that some restrictions on the current practice of third-party payments may be called for. However, the restrictions and conditions currently proposed would be extraordinarily burdensome and costly to the health care system and would not improve care.

Prepared by:

5/29/18 9:08:33**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2017 - 2018 Regular Session

SB 1156 (Leyva) - Health care service plans: 3rd-party payments

Bill Summary:

Senate Bill 1156 establishes requirements for any entity making third-party premium and cost-sharing payments if the entity is a provider of services that receives a direct or indirect financial benefit from the third-party payments, or, is an entity that receives the majority of its funding from one or more financially interested health care providers.

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on May 25, 2018

Fiscal Impact:

Staff notes the fiscal analysis includes a level of uncertainty due to the unknown number of eligibility determinations the Department of Managed Health Care (DMHC) or the Department of Insurance (CDI) will need to conduct, the to-be-developed review process for specified disclosures, and the unknown number responses to public questions and provision of technical assistance. Staff estimates a range of possible costs from the low millions up to approximately $11.7 million (special fund) to the DMHC and CDI.

Author Amendments:

The amendments:

• Require DMHC to accept as accurate the information an entity provides in its disclosure form and to base its eligibility determination on that provided information.
• Provide that if the submitted information was inaccurate, the disclosure of inaccurate information constitutes a violation of the bill; and if the inaccurate information was submitted related to third-party premium payments, reimbursement for covered services must be limited to the prevailing Medicare reimbursement rate, or if related to a noncontracted provider, payments must be governed by the terms and conditions of the enrollee’s policy or the Medicare rate, whichever is lower.
• Clarify “health benefit plan” to mean any individual or group insurance policy or health care service plan contract that provides medical, hospital, and surgical benefits. The amendments provide that the term does not include accident only, credit, or disability income coverage, coverage of Medicare services, Medicare supplement coverage, long-term care insurance, dental or vision coverage, coverage issued as a supplement to liability insurance, insurance arising out of workers’ compensation law or similar, automobile medical insurance, or other insurance, as specified.

-- END --

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2017 - 2018 Regular Session

SB 1156 (Leyva) - Health care service plans: 3rd-party payments

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

Bill Summary:

Senate Bill 1156 establishes requirements for any entity making third-party premium and cost-sharing payments if the entity is a provider of services that receives a direct or indirect financial benefit from the third-party payments, or, is an entity that receives the majority of its funding from one or more financially interested health care providers.

Fiscal Impact:

• Staff notes the following fiscal analysis includes a level of uncertainty due to: the unknown number of eligibility determinations DMHC or CDI will need to conduct, the to-be-developed review process for specified disclosures, and the unknown number responses to public questions and provision of technical assistance.

Although there is some data for dialysis clinics about the number of patients that have received assistance through third-party payments (over 3,800), there is no known information, at this time, regarding the number of third-party premium payments made for substance abuse treatment. Given the indeterminate number of disclosures to be received by DMHC or CDI, as well as the unknown process for how departments plan to determine eligibility, staff notes the bill provides for major cost pressures, ranging likely in the low millions to approximately $11.7 million (special fund), as noted below.

The following departments shared their anticipated costs to implement the bill. Additional detail, including workload analysis and assumptions, are included in staff comments section.

• The Department of Managed Health Care (DMHC) estimates the total costs of to be approximately $11,345,000 MCF and 88.1 PYs in FY 2018-19; $24,077,000 MCF and 176.0 PYs in FY 2019-20; $22,603,000 MCF and 175.6 PYs in FY 2020-21; and $22,406,000 MCF and 175.20 in FY 2021-22 and ongoing.
• The Department of Insurance (CDI) estimates total costs of $391,000 in FY 2018-19; $529,000 in FY 2019-20, and $462,000 ongoing costs. 

Background:

1. The Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance.

Proposed Law:

The bill requires an insurer or health care plan to accept premium payments from the following third-party entities:

• Ryan White HIV/AIDS Program, pursuant to the federal Public Health Services Act;
• An Indian tribe, tribal organization, or urban Indian organization;
• A local, state, or federal government program; or
• Any member of the individual’s family, defined for purposes of this section to include the individual’s spouse, domestic partner, child, parent, grandparent, and siblings.

The bill specifies that any entity not specified above, which makes third-party premium and cost-sharing payments, must comply with all of the following requirements if the entity is a provider of services that receives a direct or indirect financial benefit from the third-party payments or is an entity that receives the majority of its funding from one or more financially interested health care providers:

• Provide assistance based on financial need; and,
• Provide assistance for a full plan or policy year.
  

The bill prohibits the entity from agreeing to condition financial assistance on eligibility for, or receipt of, a transplant, for patients with ESRD, and requires conditioning assistance on income and presence of a qualifying condition without regard to the severity of the condition or the treatment choice.

In addition, the entity must annually provide a statement to the issuer and DMHC or CDI from the recipient of the assistance confirming that he or she has completed and submitted an application for Covered California or Medi-Cal, and is not eligible for financial help from either program; and, annually provide a statement informing the issuer that the recipient of the financial assistance has applied for Medicare and been denied coverage or is in a waiting period for coverage.

The entity must disclose to the issuer and DMHC or CDI, at least 60 days prior to making the initial payment, the name of the enrollee or insured for each issuer on whose behalf a third-party premium or cost-sharing payment, or both, will be made.

The bill requires DMHC or CDI to establish a process to make a determination regarding eligibility within 30 days of receiving a disclosure pursuant to 5) above in those cases in which a question about eligibility for a third-party premium or cost-sharing payment, or both, results from that disclosure.

The bill limits reimbursement for covered services to the currently prevailing Medicare reimbursement rate, if an entity violates any provision of this bill relating to third-party payments; and requires, if the entity is a noncontracted provider, reimbursement to be governed by the terms and conditions of the policy or the Medicare rate, whichever is lower.

The bill defines third-party premium payment to include payment of premiums, copayments, deductibles, or coinsurance on behalf of an enrollee or insured.

Staff Comments:

Staff notes the fiscal estimate reflects broad uncertainty as to the number of determinations the DMHC will need to conduct (from the low-thousands to several tens of thousands), inclusive of all entities that provide third-party payments, from dialysis clinics to substance abuse treatment centers. The following section provides detail regarding department’s assumptions and workload analysis.

Department of Managed Health Care. According to DMHC, this bill requires the DMHC to establish a process to make eligibility determinations, within 30 days, to determine whether an entity may make a permissible third-party premium payment on behalf of the enrollee. Given that this process has not yet been created, the DMHC estimates that it would resolve these determinations in a similar manner as it currently resolves consumer complaints (i.e., the DMHC will need to gather information from the enrollee, review documentation and make a determination.)  In order to determine how many eligibility determinations would be required pursuant to this bill, the DMHC relied on CMS data. 

• CMS estimates that 90% of dialysis facilities make premium payments to individual market commercial health plans and that on average 73 individuals enrolled in Medicare receive services at these facilities.  Therefore, the DMHC estimates that the 639 dialysis facilities (or 90% of the 710 dialysis licensed facilities in the state) provide third-party premium payments to enrollees.
• If the 73 Medicare enrollees at each facility receive third-party premium payments, this could result in 46,647 eligibility determinations by the DMHC. 
• The DMHC does not have reliable data regarding the number of third-party premium payments made for substance abuse treatment, and instead relied solely on the CMS data related to dialysis facilities for this fiscal impact. 

According to the DMHC, the bill’s costs would be incurred by different units within the DMHC as described below. All costs would be incurred by the Managed Care Fund (MCF) and covered through fees assessed on health plans.

• Help Center anticipates additional workload to address 46,647 third-party premium payment eligibility determinations. Eligibility determinations will be processed similarly to standard complaints. The DMHC estimates costs for the Help Center to be $9,384,000 and 73.5 PYs in FY 2018-19, $19,966,000 and 147.0 PYs in FY 2019-20, $18,791,000 and 147.0 PYs in FY 2020-21, $18,667,000 and 147.0 PYs in FY 2021-22 and the same amount annually thereafter. These amounts include $50,000 in FY 2018-19, $125,000 in FY 2019-20, and $125,000 in FY 2020-21 for consultant funding to develop and maintain an online portal for submission of data outlined in the bill. 
• Office of Plan Licensing (OPL) anticipates additional workload to review and summarize approximately 120 plan documents per year for compliance with SB 1156, including preparation of responsive comments for plan filings and subsequent plan filings. The DMHC estimates OPL costs to be $37,000 MCF and 0.2 PY in 2018-19, $39,000 and 0.2 PY in FY 2019-20, $37,000 and 0.2 PY in FY 2020-21 and the same amount annually thereafter.
• Office of Legal Services (OLS) anticipates short-term workload to promulgate a regulation package to provide additional guidance on the requirements set forth in this bill and prepare legal memoranda each year for three years beginning in FY 2018-19. The DMHC estimates costs for OLS to be $73,000 and 0.4 PY in FY 2018-19, $146,000 and 0.8 PY in FY 2019-20, and $73,000 and 0.4 PY in FY 2020-21 only.
• Office of Administrative Services (OAS) anticipates additional workload to provide administrative support for an array of personnel (i.e., recruitment, retention, training, benefits, leave, reasonable accommodation, discipline issues); fiscal services (i.e., travel expense claims, payroll warrants and checks, and budgeting); and facility (i.e., ergonomic evaluations, telecom and repair requests) services.  The DMHC estimates costs for OAS to be $917,000 and 7.0 PYs in FY 2018-19, $1,947,000 and 14.0 PYs in FY 2019-20, $1,835,000 and 14.0 PYs in FY 2020-21 and the same amount annually thereafter.
• Office of Technology and Innovation (OTI) anticipates additional workload to provide all IT-related services to employees such as information security training, desktop computer and peripherals support, mobile device support, and network support.  In addition to the employee support services, OTI anticipates additional workload to support and maintain business systems and application needs for the anticipated new staff, maintain the various network and server configurations required by the Help Center and Enforcement, asset management, IT project management and reporting, and managing the DMHC’s information security policies and procedures. The DMHC estimates costs for OTI to be $934,000 and 7.0 PYs in FY 2018-19, $1,979,000 and 14.0 PYs in FY 2019-20, $1,867,000 and 14.0 PYs in FY 2020-21 and the same amount annually thereafter.

Department of Insurance. According to CDI, the CDI assumes the additional workload to assist in form filing (e.g. review health policy forms to ensure compliant language on third party payments); in rulemaking (e.g., implement filing of annual reports and initial payment notices, develop the criteria and process for making eligibility determinations of third-party premium payments. The rulemaking will likely be developed in consultation with DMHC to ensure consistency between regulators); in the initial implementation of the eligibility determination process (e.g., establishing the filing procedure, staff training and change management in consumer services division for proper handling of anticipated complaints involving health policy cancellations due to rejection of third-party premium payments, communication plan in insurers and third-party payors, stakeholder outreach).

In addition, the CDI assumes ongoing workload for eligibility determinations regarding initial disclosures of third-party premium payment within 30 days of receiving notice (e.g., reviews of documents regarding the third party payor’s identity, business interests, and funding sources; the eligibility criteria and operation of the entity’s financial assistance program; and the recipient’s application).

-- END --

SENATE COMMITTEE ON HEALTH

Senator Ed Hernandez, O.D., Chair

BILL NO: SB 1156

SUBJECT: Health care service plans: 3rd-party payments.

SUMMARY:

Establishes requirements for any entity making third-party premium and cost-sharing payments if the entity is a provider of services that receives a direct or indirect financial benefit from the third-party payments, or, is an entity that receives the majority of its funding from one or more financially interested health care providers.

Existing law:

1. Establishes the Department of Managed Health Care (DMHC) to regulate health plans and the California Department of Insurance (CDI) to regulate health insurance (issuers). [HSC §1340 et seq. and IC §106 et seq.]
   
2. Prohibits the cancellation or non-renewal of health plan contracts and health insurance policies with exceptions, such as nonpayment of premiums by the individual, employer, or contract/policy holder after at least a 30-day grace period, or fraud, as specified. [HSC §1365 and IC §10273.5]
   
3. Establishes the Medi-Cal program, administered by the Department of Health Care Services (DHCS), under which qualified low-income individuals receive health care services. [WIC §14000 et seq.]
   
4. Establishes Covered California as an independent entity in state government and requires the Covered California Executive Board to establish and use a competitive process to select participating issuers and other contractors. [GC §100500 et seq.]
5. Authorizes the Covered California Executive Board, with respect to individual coverage made available through Covered California, to collect premiums and assist in administration of subsidies. [GC§ 100504]
6. Establishes, under federal law, the Medicare Program, which is administered by the Centers for Medicare and Medicaid Services (CMS), under which qualified individuals over 65 years old or individuals under aged 65 years old with qualifying disabilities receive health care, after applicable deductibles, coinsurance, or other required cost sharing. [42 USC §1395 et seq.]
   
7. Prohibits an issuer from denying or conditioning the offering or effectiveness of any Medicare supplement contract available for sale in California, nor discriminating in the pricing of a contract because of the health status, claims experience, receipt of health care, or medical condition of an applicant in the case of an application for a contract that is submitted prior to or during the six-month period beginning with the first day of the first month in which an individual is both 65 years of age or older and is enrolled for benefits under Medicare Part B. [HSC §1358 and IC §10192.11]
   
8. Requires each Medicare supplement contract currently available from an issuer to be made available to all applicants who qualify and who are 65 years of age or older. [HSC §1358 and IC §10192.11]
9. Requires an issuer to make available specified Medicare supplement standardized benefit plans, if currently available, to a qualifying applicant who is 64 years of age or younger and does not have end-stage-renal disease (ESRD). [HSC §1358 and IC §10192.11]
10. Requires, if an issuer rejects an applicant for a Medicare supplement policy due to the applicant having ESRD, the issuer to inform the applicant about the California Major Risk Medical Insurance Program (MRMIP) and about the new coverage options and the potential for subsidized coverage through Covered California. Requires the insurer to direct persons seeking more information to MRMIP, Covered California, plan or policy representatives, insurance agents, or an entity paid by Covered California to assist with health coverage enrollment, such as a navigator or an assister. [HSC §1389.25 and IC §10113.9]

This bill:

1. Requires an issuer to accept premium and cost-sharing payment from the following third-party entities:
   1. A Ryan White HIV/AIDS Program;
   2. An Indian Tribe, tribal organization, or urban Indian organization; and,
   3. A local, state, or federal government program, including a grantee directed by a government program to make payments on its behalf.
      
2. Requires any entity that is not specified in 1) above that is making third-party premium and cost-sharing payments, to comply with all of the following requirements if the entity is a provider of services that receives a direct or indirect financial benefit from the third-party payments or is an entity that receives the majority of its funding from one or more financially interested health care providers:
   
   1. Provide assistance based on financial need; and,
   2. Provide assistance for a full plan or policy year.
      
3. Prohibits conditioning assistance on eligibility for, or receipt of, a transplant, for patients with ESRD, and requires conditioning assistance on income and presence of a qualifying condition without regard to the severity of the condition or the treatment choice.
   
4. Requires an entity described in 2) above to comply with the following:
   1. Annually provide a statement to the issuer and DMHC or CDI that it complies with 2) above;
   2. Annually provide a statement to the issuer and DMHC or CDI from the recipient of the assistance confirming that he or she has completed and submitted an application for Covered California or Medi-Cal and is not eligible for financial help from either program; and,
   3. Annually provide a statement informing the issuer that the recipient of the financial assistance has applied for Medicare and been denied coverage or is in a waiting period for coverage.
      
5. Requires an entity described in 2) above to disclose to the issuer and DMHC or CDI, at least 60 days prior to making the initial payment, the name of the enrollee or insured for each issuer on whose behalf a third-party premium or cost-sharing payment, or both, will be made.
   
6. Requires DMHC or CDI to establish a process to make a determination regarding eligibility within 30 days of receiving a disclosure pursuant to 5) above in those cases in which a question about eligibility for a third-party premium or cost-sharing payment, or both, results from that disclosure.
   
7. Limits reimbursement for covered services to the currently prevailing Medicare reimbursement rate, if an entity violates any provision of this bill relating to third-party payments. Requires, if the entity is a noncontracted provider, reimbursement to be governed by the terms and conditions of the policy or the Medicare rate, whichever is lower.
   
8. Defines third party payment to include payment of premiums, copayments, deductibles or coinsurance on behalf of an enrollee or insured.
   

FISCAL EFFECT:

This bill has not been analyzed by a fiscal committee.

COMMENTS:

1. Author’s statement. According to the author, health insurance rates in California are driven up every year when providers seek profit by exploiting loopholes created by the Affordable Care Act (ACA). Financially-interested providers who steer patients away from Medicare and Medi-Cal by directly or indirectly paying their commercial insurance premiums raise prices for Californians who purchase their own insurance, businesses purchasing insurance on behalf of their employees, and state/local governments purchasing insurance on behalf of their employees. Financially-interested providers steering patients onto commercial insurance plans can also expose patients to unnecessary coverage disruptions, higher out-of-pocket costs, and other harms. SB 1156 will regulate financially-interested third parties that boost their own profits by directly or indirectly purchasing health insurance for vulnerable patients. SB 1156 will require financially-interested providers or provider-funded entities to disclose that relationship to regulators and comply with disclosure requirements, including showing that patients are not otherwise eligible for Medicare or Medi-Cal. The bill would set an alternative payment rate tied to the lower of Medicare rates or contracted rates for financially-interested providers when the requirements are not met.
   
2. Examples of problem. On January 31, 2018 the Senate Health Committee held an informational hearing to examine the substance use disorder treatment system with a focus on treatment and services provided in residential facilities; insurance coverage; patient referrals; and the state’s regulation and oversight of the system. The Committee heard testimony similar to issues raised in a series published in the Orange County Register, about one of the industry’s biggest players, Community Recovery of Los Angeles (CRLA). A November 10, 2016 press release issued by CDI described an investigation that resulted in the arrest of the operators of CRLA. The operators were arrested on several felony counts of grand theft and identity theft for allegedly conspiring to defraud clients and insurers out of more than $176 million. Affected insurers included Anthem Blue Cross, Blue Shield, Cigna, Health Net, and Humana, which paid nearly $44 million before discovering the suspected fraud and stopping payments to CRLA. CRLA is accused of luring people with treatment marketing schemes and stealing patient identities to buy health insurance policies for people without their knowledge, as well as committing such acts as submitting claims for services not provided, falsely representing CRLA as a licensed residential treatment facility while not being licensed as such, and filing fraudulent health insurance policy applications. CDI Commissioner Dave Jones stated that this case was the first wave of indictments and charges in an ongoing investigation into one of the largest health insurance fraud cases in the state.
   
   A 2016 article published in the Tribune reports on litigation brought by Blue Shield of California against CenCal Health (a Medi-Cal managed care County Organized Health Plan serving people in Santa Barbara and San Luis Obispo), which administered a premium payment program that according to Blue Shield encouraged physicians to identify Medi-Cal patients with high-cost medical conditions who would bring higher reimbursement if the patients signed up for Blue Shield coverage. Blue Shield claimed about $11 million was paid to treat 40 patients since 2014. The article indicates that CenCal denied the allegation but also announced that it would discontinue the program.
   
3. Dialysis centers. On December 14, 2016, CMS issued an interim final rule that would have implemented new requirements for Medicare-certified dialysis facilities that make payments of premiums on behalf of their patients for individual market health plans. The rule was intended to protect patient health and safety; improve patient disclosure and transparency; and ensure that health insurance coverage decisions were not inappropriately influenced by the financial interests of dialysis facilities rather than the health and financial interests of patients; and protect patients from mid-year interruptions in coverage. The federal Department of Health and Human Services (HHS) had become concerned about the inappropriate steering of individuals eligible for or entitled to Medicare or Medicaid into individual market plans by providers and suppliers because of significantly higher reimbursement. One insurance company indicated that commercial coverage could pay more than ten times more than public coverage ($4,000 per treatment rather than $300 per treatment). After an extensive request for information period, HHS identified three types of harm to patients when dialysis facilities or organizations affiliated with these facilities paid for a patient’s individual market coverage: a) negatively impacts kidney transplant readiness; b) potentially exposes patients to additional costs for health care services; and, c) puts patients at significant risk for mid-year disruption in health care coverage.
   
   The rule would have required dialysis facilities that made payments of premiums for individual market health plans, whether directly, through a parent organization, or through another entity, to inform patients annually of all available health coverage options, including but not limited to Medicare, Medicaid, the Children’s Health Insurance Program (CHIP) and individual market plans. This disclosure would have included information on:
   
4. How plans in the individual market, Medicare, and Medicaid/CHIP coverage, including Medicare Savings Programs, would affect the patient’s access to, and costs for the providers and suppliers, services, and prescription drugs in the individual’s ESRD plan of care;
5. Costs likely to result from other documented health care needs;
6. An overview of the health related and financial risks and benefits of the plans offered through and outside the Exchange; and,
7. Each option’s coverage and anticipated costs associated with transplantation, including patient and living donor costs for pre-and post- transplant care.
   

The rule would have required facilities that made payments of premiums for individual market health plans (in any amount), whether directly, through a parent organization, or through another entity to disclose to the applicable issuer of each policy for which a third-party payment would be made, and obtain assurance from the issuer that the issuer would accept such payments for the duration of the plan year. If such assurances were not provided, the facility could not make payments of premiums and would need to take reasonable steps to ensure such payments were not made by the facility or by third parties to which the facility contributed.

A preliminary injunction was issued by a judge in the U.S. District in Eastern Texas to block implementation of the rule. The plaintiffs (Dialysis Patient Citizens, US Renal Care, Inc., Davita Inc., Fresenius Medical Care Holdings, Inc.) successfully argued that HHS/CMS violated the Administrative Procedures Act and the Medicare Act because the rule was unlawfully promulgated without notice and comment, and the rule’s disclosure requirements were arbitrary, capricious, and contrary to law. The judge did not agree with the defendants that an injunction would harm ESRD patients.

1. Medicare and ESRD. Generally speaking, Medicare provides health care coverage to qualifying individuals with ESRD regardless of age, including coverage for kidney transplantation, maintenance dialysis, and other health care needs. Typically a person with ESRD cannot enroll in Medicare Advantage plans (HMOs), and in some states (including California) cannot enroll in Medigap (also known as Medicare supplement insurance). Medigap policies help Medicare enrollees meet deductible and copayment requirements. Medicaid also provides coverage for some people with ESRD, and some low income people can qualify for both Medicare and Medicaid, which will cover the Medicare cost sharing. When a beneficiary is on Medicare solely due to ESRD, coverage begins at different times for different people depending on the circumstances. Medicare coverage usually starts the first day of the third month after the month in which a course of regular dialysis begins. All, or a portion of, the three-month waiting period may be waived if the individual participates in a self-dialysis training program, or if the individual has a kidney transplant within the three-month waiting period. People who are eligible for Medicare because of ESRD will lose Medicare coverage 12 months after the month he or she stops dialysis treatment or 36 months after the month of a kidney transplant.
2. Medicare secondary payer. A person with ESRD who has employer sponsored or union coverage should be fully informed about their coverage options when deciding to enroll in Medicare. If the group coverage has a yearly deductible, copayment, or coinsurance, enrolling in Medicare Part A and Part B could help pay those costs during the 30 month coordination period. However, most people are required to pay a premium payment for Part B. With group and Medicare coverage, Medicare would be the secondary payer, and the group coverage would be the primary payer. If the group plan does not have a deductible, the patient may want to wait to enroll in Medicare after the 30 month coordination period. Another consideration is that after a kidney transplant, the patient will need to be on immunosuppressive drugs for the rest of his or her life. Medicare only covers immunosuppressive drugs in specific circumstances. For someone who is eligible for Medicare because of ESRD, Medicare Part B will only cover transplant drugs if the patient already had Medicare Part A at the time of transplant, and the transplant surgery was performed at a Medicare-approved facility. Medicare will pay for the transplant drugs once a person becomes eligible for Medicare because of age or disability after a transplant that was paid for by private insurance that was primary to Medicare Part A if the transplant was done in a Medicare-certified facility.
   
3. Office of Inspector General (OIG). Many third-party payers have sought advisory opinions from the federal OIG to determine if donations by providers to independent 501(c)(3) charitable organizations for the purpose of funding insurance premiums is in violation of specific federal laws. The American Kidney Fund (AKF) is a 501(c)(3) that receives a majority of its revenue from donations by dialysis providers. AKF operates under OIG guidance issued in 1997, which indicates that, as described by AKF, the arrangement does not constitute a violation of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). HIPAA imposes civil penalties against any person who offers or transfers remuneration to any individual eligible for benefits under federal health care programs such as Medicare or Medicaid, that is likely to influence an individual to order or receive from a particular provider, practitioner, or supplier any item or service funded by the federal health care program. OIG indicated that the AKF arrangement is not in violation of HIPAA because the contributions to AKF from dialysis providers are not made to or on behalf of beneficiaries. Moreover, while the premium payments by AKF may constitute remuneration to beneficiaries, they are not likely to influence patients to order or receive services from particular providers. The OIG states that to the contrary, the insurance coverage purchased by AKF will follow a patient regardless of which provider the patient selects, thereby enhancing patient freedom of choice in health care providers.
   
4. Medicare Conditions for Coverage. Conditions for Coverage of ESRD facilities for community resources require an interdisciplinary team to provide necessary monitoring and social work interventions. These include counseling services and referrals for other social services to assist the patient in achieving and sustaining an appropriate psychosocial status. Additionally, the ESRD patient must be informed of services available in the facility and charges for services not covered under Medicare. If a facility plans to bill a patient for items and/or services which are usually covered by Medicare, but may not be considered reasonable and necessary in a particular situation, the patient must be informed and offered an Advanced Beneficiary Notice to sign, as specified. Other rules and expectations of the facility regarding patient conduct require the patient to provide to the facility information on changes in insurance. Committee staff have been unable to find anything in the Conditions for Coverage that require the facilities to provide information about the insurance coverage options that are best suited to the patient.
   
5. Existing authority on provider payment. According to CDI, there is nothing in state law that prohibits an insurer from having a contract provision that indicates that the insurer will not accept third-party premium payments from someone who has a financial interest in the policy being in effect. When an insurer submits that language, CDI does not reject it because there is nothing in state law that would prevent an insurer from having such a contract term. DMHC has been working on a regulation on this topic, which would require health plans to accept premium payments from a Ryan White Program, Indian Tribe, local, state or federal government program, and any member of the individual’s immediate family. The regulation would authorize a health plan to accept premium payments from other sources, including charitable foundations, if the payor is making the premium payment solely based on the individual’s financial need, and the payor is not a health care provider. The regulation would require a health plan to accept all premium payments received from an individual or member of the individual’s immediate family, and prohibits the health plan from attempting to determine whether the individual or the member of the individual’s family is the source of payment. The regulation limits when a health plan can reject third-party premium payments (not in the middle of a contract), and requires notification within 30 calendar days that the payment is being rejected, including the specific reasons, and requires notices about how to submit a grievance to the health plan and DMHC. The DMHC regulation is pending internally and has not yet undergone public comment.
6. Support in concept. Anthem Blue Cross writes that from 2014-2016, Anthem saw a significant spike of ESRD active members in the individual marketplace. The on-Exchange ESRD incidence rate in 2016 was over three times as high as in 2014, and for non-Exchange ESRD members in 2016 was nearly three times the rate in 2014. At the same time the ESRD incidence rate for Anthem’s Medicaid members remained relatively flat. Anthem indicates that they do not accept payments from third-party payors other than those required by law or those made by a family member or legal guardian on behalf of an applicant or member. Anthem indicates that they do not manually process payments, so they cannot easily track the source of third-party payments and some organizations have developed crafty methods of paying premiums that elude insurers’ efforts to track third-party payments. Examples include asking patients to open checking accounts into which the provider makes payments, providing patients with pre-paid debit cards, and/or cash to make premium/cost-sharing payments and using multiple credit cards. Anthem includes other examples where a provider submitted over $14 million in claims. Anthem believes this bill relies on self-reporting from bad actors and does not include a process for registering third-party payers and verifying the information that is self-reported. Also, Anthem questions how would the requirement that an entity pay a full year’s worth of premiums be enforced. Anthem also believes that current law allows Anthem to immediately begin rejecting payments from bad actors when identified, but under this bill, if the bad actor manages to get future payments approved, they would have to accept them. Anthem urges the HHS to take action to limit third-party payments and to create pathways to assist issuers in transitioning Medicare and Medicaid beneficiaries into the programs that are best suited for their needs.
   
   Health Net does not accept third-party payments unless those payments are from the Ryan White Program, federal, state and local governments, or from Indian tribal organizations. The challenge has been identifying when this practice occurs. Providers who game the system have gone to great lengths to disguise the source of these payments. The damage that is being inflicted on the individual market place by these practices is significant. Health Net opposes expanding the number of entities that can make third-party payments, especially those entities that have a clear motive for doing so.
   
7. Support. The California Labor Federation writes that steering patients onto commercial insurance plans can hurt patients who may now have higher out-of-pocket costs than if they stayed on public programs and can expose them to disruptions in coverage. The practice also shifts costs onto commercial plans, driving up health care spending and increasing premiums for Californians already struggling with rising costs. This bill will protect legitimate groups that help Californians afford health coverage, while placing reasonable disclosure and compliance requirements on providers and provider-funded entities that benefit financially from shifting patients to commercial coverage. Blue Shield of California writes that a foundational tenet of the ACA is that no person can be turned down for coverage because of a preexisting condition. This fundamental provision is now being used for financial gain by some providers. Over the past four years, Blue Shield has seen the creation of a cottage industry by bad actors who have figured out how to manipulate the market for financial gain, driving up the cost of coverage and unduly putting consumers at risk. Blue Shield indicates that providers identify patients who are otherwise Medicare or Med-Cal eligible, and pay the premiums for commercial coverage so they can receive higher reimbursement rates. They either do this directly or indirectly, through financial interested third parties and/or charities. While the biggest abuses are occurring in the dialysis industry, Blue Shield is seeing this market manipulation in substance use treatment, fertility treatment and others. On its face, this scam seems innocuous. However, it creates real patient harm and has damaging consequences to the health care market place. These third-party premium payments can place some of our sickest and most vulnerable consumers at risk of harm by potentially exposing them to increased out of pocket costs for health care services, negatively impacting a patient's determination of readiness for a transplant, and placing consumers at significant risk of a mid-year disruption in health care coverage when they need it the most. In addition to the patient harm, by shifting high-cost patients from public programs to commercial coverage, this scam increases the cost of care for consumers who obtain coverage through their employer or Covered California. This practice shifts tens of millions of dollars in claims on the backs of commercial sector consumers.
   
   The California Association of Health Plans writes that this practice of third party payments drives up overall health care costs resulting in higher premiums for all Californians. The Association of California Life and Health Insurance Companies indicates that the practice of steering vulnerable patients, via nonprofit organization, away from federally-assisted programs and into commercial coverage allows providers to bill private insurers for tens of thousands of dollars more than they would have otherwise received from either Medicare or Medi-Cal. This conduct is not only incredibly harmful to the integrity of the system as a whole it fundamentally undermines the individual market insurance risk pool. The California State Council of the Service Employees International Union writes that this practice has been most common among substance use disorder treatment facilities and outpatient dialysis clinics – two types of providers serving particularly vulnerable patients. Unscrupulous treatment facilities aggressively bill insurance companies for care including daily drug tests and detox monitoring and patients are kicked out of the facility as soon as their insurance rehab benefit is exhausted, and the premium payments for insurance are cut off. This bill will protect legitimate groups that altruistically help Californians afford health insurance, while placing reasonable disclosure and compliance requirements on providers and provider funded entities that benefit financially from the current practice of purchasing health insurance for certain patients.
   
8. Opposition. The California Dialysis Council (CDC) believes this bill will harm patients and cause patients to spend down their financial resources and will result in more ESRD patients on Medi-Cal increasing state costs. CDC writes that dialysis providers are required to educate patients on available community resources, including AKF, and that patients weigh numerous factors when determining what coverage best suits their individual circumstances. In California, where Medigap coverage is not guaranteed for ESRD patients under 65, the 20% uncapped co-insurance requirement under Medicare can make Medicare less attractive than private coverage. For financially needy patients, premiums for such coverage may be difficult to afford without charitable premium support from organizations like AKF. Dialysis Patient Citizens (DPC) writes that dialysis patients prefer private insurance because the actuarial value is often higher 88.9 to 91.8% compared to Medicare’s 80%. DPC also believes if a patient can lose coverage when his or her chronic kidney disease progresses to ESRD it will create a perverse financial incentive for the insurer not to take all possible measures to preserve the patient’s kidney function. US Renal Care writes that the effect of this bill is in direct conflict with the guidance provided by CMS regarding individuals and their eligibility for Medicare, that eligible individuals are not required to sign up for Medicare. The impact of this bill will be to limit premium care assistance for needed dialysis care, this is driven by the requirement in the bill that a provider of premium assistance and the department perform specified and new duties before a premium payment is allowed. Not only will this create a burden on the entity and the department, but most importantly will cause delays and loss of valuable coverage to the patient or their family.
   
   Fresenius Medical Care North America writes that the typical ESRD patient has dialysis three times a week, with each treatment requiring the patient to spend hours in a chair while a machine cleans their blood in replication of the work their kidneys would perform if they were functioning properly. Under CMS Condition of Coverage, dialysis centers are required to educate patients on their health insurance options, so that patients may make their own informed choices among the health coverage options available to them. They are also required to educate patients on community resources such as AKF. AKF makes grant decisions free from outside influence, without regard to a patient’s choice of coverage or choice of provider. More than half of their patients receiving premium assistance began receiving the assistance a year or more after they secured health insurance. This bill would strip patients of their freedom of choice by creating structural barriers to participate in AKF. For patients who are applying for premium assistance at the same time as they apply for health insurance, they have limited times to apply and pay for insurance (open enrollment, Medicare and Medigap guarantee issue periods, 63-day change of insurance guarantee issue period). Insurers generally require premiums to be paid right away and likely would not wait 60 days for a premium to be received before canceling their policy. Similarly, the bill calls for proof of Medi-Cal and Medicare eligibility and/or denial, either of which may only be obtained after a long submission process (Medi-Cal takes approximately 30-45 days and Medicare takes approximately 60 days). The California Hospital Association is concerned that this bill would undermine programs that pay for health insurance for patients who cannot afford it, but who do not qualify for Medicare, Medi-Cal or Covered California. CHA writes that this bill would impose significant administrative burdens that would adversely affect timely patient care. CHA understands that some restrictions on the current practice of third-party payments may be called for. However, the restrictions and conditions currently proposed would be extraordinarily burdensome and costly to the health care system and would not improve care.
   
9. Policy comment. Is the approach in this bill the best solution to the problem? This bill relies on financially interested third-party payors self-reporting specified information including letters from patients indicating that they have applied for and are not eligible for, financial assistance from Covered California or Medi-Cal. If an entity violates this requirement, the issuer can limit payment amounts to the provider. While this approach may make it more burdensome for intermediaries to make and patients to receive, these third party payments the bill would not prohibit a provider from advising, encouraging, or steering patients into coverage that is financially beneficial to the provider.
   

SUPPORT AND OPPOSITION:

Support: America’s Health Insurance Plans

Association of California Life and Health Insurance Companies

Blue Shield of California

California Association of Health Plans

California Labor Federation

California Rural Legal Assistance Foundation

SEIU California

Oppose: American Kidney Fund

California Dialysis Council

California Hospital Association

DaVita

Dialysis Patient Citizens

Fresenius Medical Care North America

US Renal Care

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