(1)Existing law establishes the Medi-Cal program, administered by the State Department of Health Care Services, under which health care services are provided to qualified, low-income persons. The Medi-Cal program is, in part, governed and funded by federal Medicaid program provisions. Under existing law, one of the methods by which Medi-Cal services are provided is pursuant to contracts with various types of managed care plans. Existing federal regulations, published on May 6, 2016, revise regulations governing Medicaid managed care plans to, among other things, align, where feasible, those rules with those of other major sources of coverage, including coverage through qualified health plans offered through an American Health Benefit Exchange, such as the California Health Benefit Exchange, and promote quality of care and strengthen efforts to reform delivery systems that serve Medicaid and CHIP beneficiaries. These federal regulations, among other things, require specified Medicaid managed care plans to calculate and report a medical loss ratio (MLR) for the rating period that begins in 2017. If a state elects to mandate a minimum MLR for its Medicaid managed care plans, these regulations require that minimum MLR to be equal to or higher than 85% and authorizes the state to impose a remittance requirement consistent with the minimum standards established in these federal regulations for the failure to meet the minimum ratio standard imposed by the state.

This bill would implement various provisions in regard to those federal regulations, as amended May 6, 2016, governing Medicaid managed care plans. The bill, commencing July 1, 2019, would require a Medi-Cal managed care plan to comply with a minimum 85% MLR and to calculate and report the MLR for each MLR reporting year, as defined, consistent with the MLR calculation and reporting requirements imposed under those federal regulations. The bill would require, effective for contract rating periods commencing on or after July 1, 2023, a Medi-Cal managed care plan to provide a remittance to the state if the ratio does not meet the minimum ratio of 85% for that reporting year consistent with those federal regulations. The bill would require the department to determine the remittance amount on a plan-specific basis for each rating region of the plan and to calculate the federal and nonfederal share amounts associated with each remittance. The bill would require the nonfederal share of amounts remitted by a Medi-Cal managed care plan to be transferred to the Medically Underserved Account for Physicians within the Health Professions Education Fund, and would require these funds, upon appropriation by the Legislature, to be used for purposes of the Steven M. Thompson Physician Corps Loan Repayment Program, as specified. The bill would generally provide that these MLR requirements do not apply to a health care service plan under a subcontract with a Medi-Cal managed care plan to provide covered health care services to Medi-Cal beneficiaries enrolled in the Medi-Cal managed care plan. The bill would require the department to post specified information on its Internet Web site, including any required remittances owed by a Medi-Cal managed care plan. The bill would require the department to seek any federal approvals it deems necessary to implement these MLR provisions. The bill would require these provisions to be implemented only to the extent that any necessary federal approvals are obtained and federal financial participation is available and is not otherwise jeopardized. The bill would make a conforming change.

(2)Existing federal regulations, published on March 30, 2016, revise regulations governing mental health parity requirements to address the application of certain mental health parity requirements under a specified federal law to certain Medicaid managed care plans, Medicaid benchmark and benchmark-equivalent plans, and the Childrens Health Insurance Program (CHIP).

This bill would require the State Department of Health Care Services to ensure that all covered mental health benefits and substance use disorder benefits, as defined, are provided in compliance with those revised federal regulations. The bill would authorize the department to implement, interpret, or make specific this provision by means of all-county letters, plan letters, or plan or provider bulletins, or similar instructions until regulations are adopted, and would require the department to adopt regulations, where appropriate, by July 1, 2022. The bill would require the department to make any findings of noncompliance and corrective action plans available on its Internet Web site.

(3)Existing law requires specified percentages of newly eligible beneficiaries, such as childless adults under 65 years of age, to be assigned to public hospital health systems in an eligible county, if applicable, until the county public hospital health system meets its enrollment target, as defined. Existing law also requires, subject to specified criteria, Medi-Cal managed care plans serving newly eligible beneficiaries to pay county public hospital health systems for providing and making available services to newly eligible beneficiaries of the Medi-Cal managed care plan in amounts that are no less than the cost of providing those services, and requires the capitation rates paid to Medi-Cal managed care plans for newly eligible beneficiaries to be determined based on its obligations to provide supplemental payments to those county public hospital health systems providing services to newly eligible beneficiaries. Existing law requires the department to pay Medi-Cal managed care plans specified rate range increases, and requires those Medi-Cal managed care plans to pay all of the rate range increases as additional payments to county public hospital health systems, as specified. Existing law authorizes a designated public hospital system or affiliated governmental entity to voluntarily provide intergovernmental transfers to provide support for the nonfederal share of risk-based payments to managed care health plans to enable those plans to compensate designated public hospital systems in an amount to preserve and strengthen the availability and quality of services provided by those hospitals.

These federal regulations, published on May 6, 2016, generally prohibit states from directing managed care plans expenditures under a managed care contract. The federal regulations authorize states to direct managed care plans expenditures for provider payment through the managed care contracts in a manner based on the delivery of services, utilization, and the outcomes and quality of the delivered services.

This bill, commencing with the 201718 state fiscal year, would require the department to require each Medi-Cal managed care plan, as defined, to increase contract services payments, as defined, to the designated public hospital systems, as defined, by an amount determined under a prescribed directed payment methodology to be developed by the department, and would authorize these directed payments to separately account for inpatient and noninpatient hospital services and require these directed payments to be developed and applied separately for classes of designated public hospital systems. The bill would require the department, in consultation with the designated public hospital systems, to establish the classes of designated public hospital systems, as specified. The bill would require a Medi-Cal managed care plan to annually provide to the department an accounting of the amount paid or payable to a designated public hospital system to demonstrate its compliance with the directed payment requirements. The bill would authorize the department, after providing notice of its determination to the affected Medi-Cal managed care plan and allowing a reasonable period to cure the deficiencies, to reduce the default assignment into a Medi-Cal managed care plan by up to 25% in the applicable county, as specified, if the Medi-Cal managed care plan is not in compliance with the directed payment requirements.

The bill, commencing with the 201718 state fiscal year, would require the department, in consultation with the designated public hospital systems and applicable Medi-Cal managed care plans, to establish a program under which a designated public hospital system may earn performance-based quality incentive payments from Medi-Cal managed care plans, as specified, and would require payments to be earned by each designated public hospital system based on its performance in achieving identified targets for quality of care. The bill would require the department to establish uniform performance measures and parameters for the designated public hospital systems to select the applicable measures, and would require these performance measures to advance at least one goal identified in the states Medicaid quality strategy.

The bill would authorize a designated public hospital system and their affiliated governmental entities, or other public entities, to voluntarily provide the nonfederal share of the portion of the capitation rates associated with the directed payments and for the quality incentive payments through an intergovernmental transfer. The bill would authorize the department to accept these elective funds and, in its discretion, to deposit the transfer in the Medi-Cal Inpatient Payment Adjustment Fund, a continuously appropriated fund, thereby making an appropriation.

The bill would prohibit the department or a Medi-Cal managed care plan from being required to make any payment pursuant to the provisions described in (3) for any state fiscal year in which these provisions are implemented, as specified.

The bill would authorize the department to implement, interpret, or make specific these provisions by means of all-county letters, plan letters, provider bulletins, or other similar instructions without taking regulatory action.

The bill would require these provisions to be implemented only to the extent that any necessary federal approvals are obtained and federal financial participation is available and is not otherwise jeopardized, and would require the department to seek any necessary federal approvals.

The bill would provide that these provisions shall cease to be operative on the first day of the state fiscal year beginning on or after the date the department determines, after consultation with the designated public hospital systems, that implementation of these provisions is no longer financially and programmatically supportive of the Medi-Cal program, as specified. The bill would require the department to post notice of the determination on its Internet Web site, and to provide written notice of the determination to the Secretary of State, the Secretary of the Senate, the Chief Clerk of the Assembly, and the Legislative Counsel.

(4)This bill would become operative only if AB 205 of the 201718 Regular Session is enacted and becomes effective on or before January 1, 2018.

(1)Existing law establishes the Medi-Cal program, administered by the State Department of Health Care Services, under which health care services are provided to qualified, low-income persons. The Medi-Cal program is, in part, governed and funded by federal Medicaid program provisions. Under existing law, one of the methods by which Medi-Cal services are provided is pursuant to contracts with various types of managed care plans. Existing federal regulations, published on May 6, 2016, revise regulations governing Medicaid managed care plans to, among other things, align, where feasible, those rules with those of other major sources of coverage, including coverage through qualified health plans offered through an American Health Benefit Exchange, such as the California Health Benefit Exchange, and promote quality of care and strengthen efforts to reform delivery systems that serve Medicaid and CHIP beneficiaries. These federal regulations, among other things, require specified Medicaid managed care plans to calculate and report a medical loss ratio (MLR) for the rating period that begins in 2017. If a state elects to mandate a minimum MLR for its Medicaid managed care plans, these regulations require that minimum MLR to be equal to or higher than 85% and authorizes the state to impose a remittance requirement consistent with the minimum standards established in these federal regulations for the failure to meet the minimum ratio standard imposed by the state.

This bill would implement various provisions in regard to those federal regulations, as amended May 6, 2016, governing Medicaid managed care plans. The bill, commencing July 1, 2019, would require a Medi-Cal managed care plan to comply with a minimum 85% MLR and to calculate and report the MLR for each MLR reporting year, as defined, consistent with the MLR calculation and reporting requirements imposed under those federal regulations. The bill would require, effective for contract rating periods commencing on or after July 1, 2023, a Medi-Cal managed care plan to provide a remittance to the state if the ratio does not meet the minimum ratio of 85% for that reporting year consistent with those federal regulations. The bill would require the department to determine the remittance amount on a plan-specific basis for each rating region of the plan and to calculate the federal and nonfederal share amounts associated with each remittance. The bill would require the nonfederal share of amounts remitted by a Medi-Cal managed care plan to be transferred to the Medically Underserved Account for Physicians within the Health Professions Education Fund, and would require these funds, upon appropriation by the Legislature, to be used for purposes of the Steven M. Thompson Physician Corps Loan Repayment Program, as specified. The bill would generally provide that these MLR requirements do not apply to a health care service plan under a subcontract with a Medi-Cal managed care plan to provide covered health care services to Medi-Cal beneficiaries enrolled in the Medi-Cal managed care plan. The bill would require the department to post specified information on its Internet Web site, including any required remittances owed by a Medi-Cal managed care plan. The bill would require the department to seek any federal approvals it deems necessary to implement these MLR provisions. The bill would require these provisions to be implemented only to the extent that any necessary federal approvals are obtained and federal financial participation is available and is not otherwise jeopardized. The bill would make a conforming change.

(2)Existing federal regulations, published on March 30, 2016, revise regulations governing mental health parity requirements to address the application of certain mental health parity requirements under a specified federal law to certain Medicaid managed care plans, Medicaid benchmark and benchmark-equivalent plans, and the Childrens Health Insurance Program (CHIP).

This bill would require the State Department of Health Care Services to ensure that all covered mental health benefits and substance use disorder benefits, as defined, are provided in compliance with those revised federal regulations. The bill would authorize the department to implement, interpret, or make specific this provision by means of all-county letters, plan letters, or plan or provider bulletins, or similar instructions until regulations are adopted, and would require the department to adopt regulations, where appropriate, by July 1, 2022. The bill would require the department to make any findings of noncompliance and corrective action plans available on its Internet Web site.

(3)Existing law requires specified percentages of newly eligible beneficiaries, such as childless adults under 65 years of age, to be assigned to public hospital health systems in an eligible county, if applicable, until the county public hospital health system meets its enrollment target, as defined. Existing law also requires, subject to specified criteria, Medi-Cal managed care plans serving newly eligible beneficiaries to pay county public hospital health systems for providing and making available services to newly eligible beneficiaries of the Medi-Cal managed care plan in amounts that are no less than the cost of providing those services, and requires the capitation rates paid to Medi-Cal managed care plans for newly eligible beneficiaries to be determined based on its obligations to provide supplemental payments to those county public hospital health systems providing services to newly eligible beneficiaries. Existing law requires the department to pay Medi-Cal managed care plans specified rate range increases, and requires those Medi-Cal managed care plans to pay all of the rate range increases as additional payments to county public hospital health systems, as specified. Existing law authorizes a designated public hospital system or affiliated governmental entity to voluntarily provide intergovernmental transfers to provide support for the nonfederal share of risk-based payments to managed care health plans to enable those plans to compensate designated public hospital systems in an amount to preserve and strengthen the availability and quality of services provided by those hospitals.

These federal regulations, published on May 6, 2016, generally prohibit states from directing managed care plans expenditures under a managed care contract. The federal regulations authorize states to direct managed care plans expenditures for provider payment through the managed care contracts in a manner based on the delivery of services, utilization, and the outcomes and quality of the delivered services.

This bill, commencing with the 201718 state fiscal year, would require the department to require each Medi-Cal managed care plan, as defined, to increase contract services payments, as defined, to the designated public hospital systems, as defined, by an amount determined under a prescribed directed payment methodology to be developed by the department, and would authorize these directed payments to separately account for inpatient and noninpatient hospital services and require these directed payments to be developed and applied separately for classes of designated public hospital systems. The bill would require the department, in consultation with the designated public hospital systems, to establish the classes of designated public hospital systems, as specified. The bill would require a Medi-Cal managed care plan to annually provide to the department an accounting of the amount paid or payable to a designated public hospital system to demonstrate its compliance with the directed payment requirements. The bill would authorize the department, after providing notice of its determination to the affected Medi-Cal managed care plan and allowing a reasonable period to cure the deficiencies, to reduce the default assignment into a Medi-Cal managed care plan by up to 25% in the applicable county, as specified, if the Medi-Cal managed care plan is not in compliance with the directed payment requirements.

The bill, commencing with the 201718 state fiscal year, would require the department, in consultation with the designated public hospital systems and applicable Medi-Cal managed care plans, to establish a program under which a designated public hospital system may earn performance-based quality incentive payments from Medi-Cal managed care plans, as specified, and would require payments to be earned by each designated public hospital system based on its performance in achieving identified targets for quality of care. The bill would require the department to establish uniform performance measures and parameters for the designated public hospital systems to select the applicable measures, and would require these performance measures to advance at least one goal identified in the states Medicaid quality strategy.

The bill would authorize a designated public hospital system and their affiliated governmental entities, or other public entities, to voluntarily provide the nonfederal share of the portion of the capitation rates associated with the directed payments and for the quality incentive payments through an intergovernmental transfer. The bill would authorize the department to accept these elective funds and, in its discretion, to deposit the transfer in the Medi-Cal Inpatient Payment Adjustment Fund, a continuously appropriated fund, thereby making an appropriation.

The bill would prohibit the department or a Medi-Cal managed care plan from being required to make any payment pursuant to the provisions described in (3) for any state fiscal year in which these provisions are implemented, as specified.

The bill would authorize the department to implement, interpret, or make specific these provisions by means of all-county letters, plan letters, provider bulletins, or other similar instructions without taking regulatory action.

The bill would require these provisions to be implemented only to the extent that any necessary federal approvals are obtained and federal financial participation is available and is not otherwise jeopardized, and would require the department to seek any necessary federal approvals.

The bill would provide that these provisions shall cease to be operative on the first day of the state fiscal year beginning on or after the date the department determines, after consultation with the designated public hospital systems, that implementation of these provisions is no longer financially and programmatically supportive of the Medi-Cal program, as specified. The bill would require the department to post notice of the determination on its Internet Web site, and to provide written notice of the determination to the Secretary of State, the Secretary of the Senate, the Chief Clerk of the Assembly, and the Legislative Counsel.

(4)This bill would become operative only if AB 205 of the 201718 Regular Session is enacted and becomes effective on or before January 1, 2018.

(1)Existing law establishes the Medi-Cal program, administered by the State Department of Health Care Services, under which health care services are provided to qualified, low-income persons. The Medi-Cal program is, in part, governed and funded by federal Medicaid program provisions. Under existing law, one of the methods by which Medi-Cal services are provided is pursuant to contracts with various types of managed care plans. Existing federal regulations, published on May 6, 2016, revise regulations governing Medicaid managed care plans to, among other things, align, where feasible, those rules with those of other major sources of coverage, including coverage through qualified health plans offered through an American Health Benefit Exchange, such as the California Health Benefit Exchange, and promote quality of care and strengthen efforts to reform delivery systems that serve Medicaid and CHIP beneficiaries. These federal regulations, among other things, authorize an enrollee to request a state fair hearing only after receiving notice that the Medicaid managed care plan is upholding an adverse benefit determination, and requires the enrollee to request a state fair hearing no later than 120 calendar days from the date of the Medicaid managed care plans notice of resolution. These federal regulations require, with regards to a state fair hearing request filed by an enrollee entitled to an expedited resolution of an appeal by a managed care plan, an agency to take final administrative action as expeditiously as the enrollees health condition requires, but not later than 3 working days after the agency receives, from the managed care plan, the case file and information for any appeal of a denial or a service that, as indicated by the managed care plan meets the criteria for expedited resolution of an appeal, but was not resolved within the timeframe for expedited resolution, or was resolved within the timeframe for expedited resolution of an appeal, but the managed care plan reached a decision wholly or partially adverse to the enrollee. These federal regulations, among other things, require specified Medicaid managed care plans to calculate and report a medical loss ratio (MLR) for the rating period that begins in 2017. If a state elects to mandate a minimum MLR for its Medicaid managed care plans, these regulations require that minimum MLR to be equal to or higher than 85% and authorizes the state to impose a remittance requirement consistent with the minimum standards established in these federal regulations for the failure to meet the minimum ratio standard imposed by the state.

This bill would implement various provisions in regard to those federal regulations, as amended May 6, 2016, governing Medicaid managed care plans. The bill, commencing July 1, 2019, would require a Medi-Cal managed care plan to comply with a minimum 85% MLR and to calculate and report the MLR for each MLR reporting year, as defined, consistent with the MLR calculation and reporting requirements imposed under those federal regulations. The bill would require, effective for contract rating periods commencing on or after July 1, 2023, a Medi-Cal managed care plan to provide a remittance to the state if the ratio does not meet the minimum ratio of 85% for that reporting year consistent with those federal regulations. The bill would require the department to determine the remittance amount on a plan-specific basis for each rating region of the plan and to calculate the federal and nonfederal share amounts associated with each remittance. The bill would require the nonfederal share of amounts remitted by a Medi-Cal managed care plan to be transferred to the Medically Underserved Account for Physicians within the Health Professions Education Fund, and would require these funds, upon appropriation by the Legislature, to be used for purposes of the Steven M. Thompson Physician Corps Loan Repayment Program, as specified. The bill would generally provide that these MLR requirements do not apply to a health care service plan under a subcontract with a Medi-Cal managed care plan to provide covered health care services to Medi-Cal beneficiaries enrolled in the Medi-Cal managed care plan. The bill would require the department to post specified information on its Internet Web site, including any required remittances owed by a Medi-Cal managed care plan. The bill would require the department to seek any federal approvals it deems necessary to implement these MLR provisions. The bill would require these provisions to be implemented only to the extent that any necessary federal approvals are obtained and federal financial participation is available and is not otherwise jeopardized. The bill would make a conforming change.

(2)Existing federal regulations, published on March 30, 2016, revise regulations governing mental health parity requirements to address the application of certain mental health parity requirements under a specified federal law to certain Medicaid managed care plans, Medicaid benchmark and benchmark-equivalent plans, and the Childrens Health Insurance Program (CHIP).

This bill would require the State Department of Health Care Services to ensure that all covered mental health benefits and substance use disorder benefits benefits, as defined, are provided in compliance with those revised federal regulations. The bill would require authorize the department to implement, interpret, or make specific this provision by means of all-county letters, plan letters, or plan or provider bulletins, or similar instructions until regulations are adopted, and would require the department to adopt regulations regulations, where appropriate, by July 1, 2018. The bill would require, on an annual basis and when requested by the department, a Medi-Cal managed care plan, as defined, to demonstrate to the department its compliance with these mental health parity requirements, and would require the department to make an annual compliance report available on its Internet Web site. 2022. The bill would require the department to make any findings of noncompliance and corrective action plans available on its Internet Web site.

(3)Existing law requires specified percentages of newly eligible beneficiaries, such as childless adults under 65 years of age, to be assigned to public hospital health systems in an eligible county, if applicable, until the county public hospital health system meets its enrollment target, as defined. Existing law also requires, subject to specified criteria, Medi-Cal managed care plans serving newly eligible beneficiaries to pay county public hospital health systems for providing and making available services to newly eligible beneficiaries of the Medi-Cal managed care plan in amounts that are no less than the cost of providing those services, and requires the capitation rates paid to Medi-Cal managed care plans for newly eligible beneficiaries to be determined based on its obligations to provide supplemental payments to those county public hospital health systems providing services to newly eligible beneficiaries. Existing law requires the department to pay Medi-Cal managed care plans specified rate range increases, and requires those Medi-Cal managed care plans to pay all of the rate range increases as additional payments to county public hospital health systems, as specified. Existing law authorizes a designated public hospital system or affiliated governmental entity to voluntarily provide intergovernmental transfers to provide support for the nonfederal share of risk-based payments to managed care health plans to enable those plans to compensate designated public hospital systems in an amount to preserve and strengthen the availability and quality of services provided by those hospitals.

These federal regulations regulations, published on May 6, 2016, generally prohibit states from directing managed care plans expenditures under a managed care contract. The federal regulations authorize states to direct managed care plans expenditures for provider payment through the managed care contracts in a manner based on the delivery of services, utilization, and the outcomes and quality of the delivered services.

This bill, commencing with the 201718 state fiscal year, would require the department to require each Medi-Cal managed care plan, as defined, to enhance increase contract services payments, as defined, to the designated public hospital systems, as defined, by an amount determined under a prescribed uniform distribution directed payment methodology to be developed by the department, and would authorize these directed payments to separately account for inpatient and noninpatient hospital services and require these directed payments to be developed and applied separately for and uniformly within specified classes of designated public hospital systems. for classes of designated public hospital systems. The bill would require the department, in consultation with the designated public hospital systems, to establish the classes of designated public hospital systems, as specified. The bill would require a Medi-Cal managed care plan to annually provide to the department an accounting of the amount paid or payable to a designated public hospital system to demonstrate its compliance with the directed payment requirements. The bill would authorize the department, after providing notice of its determination to the affected Medi-Cal managed care plan and allowing a reasonable period to cure the deficiencies, to reduce the default assignment into a Medi-Cal managed care plan by up to 25% in the applicable county, as specified, if the Medi-Cal managed care plan is not in compliance with the directed payment requirements.

The bill, commencing with the 201718 state fiscal year, would require the department, in consultation with the designated public hospital systems and applicable Medi-Cal managed care plans, to establish a program under which a designated public hospital system may earn performance-based quality incentive payments from Medi-Cal managed care plans, as specified, and would require payments to be earned by each designated public hospital system based on its performance in achieving identified targets for quality of care. The bill would require the department to establish uniform performance measures and parameters for the designated public hospital systems to select the applicable measures, and would require these performance measures to advance at least one goal identified in the states Medicaid quality strategy.

The bill would authorize a designated public hospital system and their affiliated governmental entities, or other public entities, to voluntarily provide the nonfederal share of the portion of the capitation rates associated with the directed payments and for the quality incentive payments through an intergovernmental transfer. The bill would authorize the department to accept these elective funds and, in its discretion, to deposit the transfer in the Medi-Cal Inpatient Payment Adjustment Fund, a continuously appropriated fund, thereby making an appropriation.

The bill would prohibit the department or a Medi-Cal managed care plan from being required to make any payment pursuant to the provisions described in (3) for any state fiscal year in which these provisions are implemented, as specified.

The bill would authorize the department to implement, interpret, or make specific these provisions by means of all-county letters, plan letters, provider bulletins, or other similar instructions without taking regulatory action.

The bill would require these provisions to be implemented only to the extent that any necessary federal approvals are obtained and federal financial participation is available and is not otherwise jeopardized, and would require the department to seek any necessary federal approvals.

The bill would provide that these provisions shall cease to be operative on the first day of the state fiscal year beginning on or after the date the department determines, after consultation with the designated public hospital systems, that implementation of these provisions is no longer financially and programmatically supportive of the Medi-Cal program, as specified. The bill would require the department to post notice of the determination on its Internet Web site, and to provide written notice of the determination to the Secretary of State, the Secretary of the Senate, the Chief Clerk of the Assembly, and the Legislative Counsel.

(1)Existing law establishes the Medi-Cal program, administered by the State Department of Health Care Services, under which health care services are provided to qualified, low-income persons. The Medi-Cal program is, in part, governed and funded by federal Medicaid program provisions. Under existing law, one of the methods by which Medi-Cal services are provided is pursuant to contracts with various types of managed care plans. Existing federal regulations, published on May 6, 2016, revise regulations governing Medicaid managed care plans to, among other things, align, where feasible, those rules with those of other major sources of coverage, including coverage through qualified health plans offered through an American Health Benefit Exchange, such as the California Health Benefit Exchange, and promote quality of care and strengthen efforts to reform delivery systems that serve Medicaid and CHIP beneficiaries. These federal regulations, among other things, authorize an enrollee to request a state fair hearing only after receiving notice that the Medicaid managed care plan is upholding an adverse benefit determination, and requires the enrollee to request a state fair hearing no later than 120 calendar days from the date of the Medicaid managed care plans notice of resolution. These federal regulations require, with regards to a state fair hearing request filed by an enrollee entitled to an expedited resolution of an appeal by a managed care plan, an agency to take final administrative action as expeditiously as the enrollees health condition requires, but not later than 3 working days after the agency receives, from the managed care plan, the case file and information for any appeal of a denial or a service that, as indicated by the managed care plan meets the criteria for expedited resolution of an appeal, but was not resolved within the timeframe for expedited resolution, or was resolved within the timeframe for expedited resolution of an appeal, but the managed care plan reached a decision wholly or partially adverse to the enrollee.

Existing state law establishes hearing procedures for an applicant for or beneficiary of Medi-Cal who is dissatisfied with certain actions regarding health care services and medical assistance to request a hearing from the State Department of Social Services under specified circumstances, and requires a request for a hearing to be filed within 90 days after the order or action complained of.

This bill would implement various provisions in regard to those federal regulations, as amended May 6, 2016, governing Medicaid managed care plans. The bill would authorize a person person, after he or she has exhausted the Medi-Cal managed care plans appeals process, to request a hearing involving a Medi-Cal managed care plan within 120 calendar days after the order or action complained of, he or she has either received verbal or written notice from the Medi-Cal managed care plan that the adverse benefit determination, as defined, is upheld or the appeal or expedited appeal is denied, or the person is deemed to have exhausted the Medi-Cal managed care plans appeals process, as specified, and would exclude a request from the 120-calendar day filing time if there is good cause, as defined, for filing the request beyond the 120-calendar day period. The bill would require the State Department of Social Services to adopt any necessary rules and regulations to implement these changes, and, until July 1, 2018, would authorize the State Department of Social Services to adopt any necessary rules and regulations as emergency regulations.

(2)These federal regulations require a state that contracts with specified Medicaid managed care plans to develop and enforce network adequacy standards and requires each state to ensure that all services covered under the Medicaid state plan are available and accessible to enrollees of specified Medicaid managed care plans in a timely manner. These regulations also require specified Medicaid managed care plans to calculate and report a medical loss ratio (MLR) for the rating period that begins in 2017. If a state elects to mandate a minimum MLR for its Medicaid managed care plans, these regulations require that minimum MLR to be equal to or higher than 85% and authorizes the state to impose a remittance requirement consistent with the minimum standards established in these federal regulations for the failure to meet the minimum ratio standard imposed by the state.

The bill would require the State Department of Health Care Services, in consultation with the Department of Managed Health Care, to develop time and distance standards for specified provider types to ensure that covered and medically necessary covered services are accessible to enrollees of Medi-Cal managed care plans, as defined, to develop, for those Medi-Cal managed care plans that cover long-term services and supports (LTSS), time and distance standards for LTSS providers and network adequacy standards other than time and distance standards, and to develop timeliness standards to ensure that all covered and medically necessary services are available and accessible to enrollees of Medi-Cal managed care plans in a timely manner, as specified. The bill would require these standards to meet or exceed specified existing standards for timeliness of access to care established by the Department of Managed Health Care or those set forth in existing Medi-Cal managed care plan contracts. contracts, and would require the department, in developing these standards, to take into consideration requirements under a specified federal regulation. The bill would authorize the State Department of Health Care Services, upon the request of a Medi-Cal managed care plan, to allow alternative access standards, including the use of telecommunications technology, if the applying Medi-Cal managed care plan has exhausted all other reasonable options to obtain providers to meet either the time and distance or timely access standards. The bill would require, on at least an annual basis, basis and when requested by the State Department of Health Care Services, a Medi-Cal managed care plan, as defined, to demonstrate to the department State Department of Health Care Services and, for Medi-Cal managed care plans licensed under the Knox-Keene Health Care Service Plan Act of 1975 (Knox-Keene Act), the Department of Managed Health Care its compliance with the standards developed under this provision. The bill would also require a health care service plan licensed under the Knox-Keene Act that provides services to Medi-Cal beneficiaries to provide to the Department of Managed Health Care, in a manner specified by the department, data regarding the standards developed under this provision. Because a willful violation of the Knox-Keene Act by a health care service plan is a crime, this bill would impose a state-mandated local program.

The bill would require a Medi-Cal managed care plan, as defined, to comply with the MLR calculation and reporting requirements imposed under those federal regulations, and would require a Medi-Cal managed care plan to comply with a minimum 85% MLR and to provide a remittance to the state if the ratio does not meet the minimum ratio of 85% for that reporting year consistent with those federal regulations. The bill would generally provide that these MLR requirements do not apply to a health care service plan under a subcontract with a Medi-Cal managed care plan to provide covered health care services to Medi-Cal beneficiaries enrolled in the Medi-Cal managed care plan. The bill would require the department to post specified information on its Internet Web site, including any required remittances owed by a Medi-Cal managed care plan.

The bill would require the department to adopt regulations by July 1, 2019, and, commencing July 1, 2018, would require the department to provide a status report to the Legislature on a semiannual basis until regulations are adopted.

(5)Existing law requires specified percentages of newly eligible beneficiaries, such as childless adults under 65 years of age, to be assigned to public hospital health systems in an eligible county, if applicable, until the county public hospital health system meets its enrollment target, as defined. Existing law also requires, subject to specified criteria, Medi-Cal managed care plans serving newly eligible beneficiaries to pay county public hospital health systems for providing and making available services to newly eligible beneficiaries of the Medi-Cal managed care plan in amounts that are no less than the cost of providing those services, and requires the capitation rates paid to Medi-Cal managed care plans for newly eligible beneficiaries to be determined based on its obligations to provide supplemental payments to those county public hospital health systems providing services to newly eligible beneficiaries. Existing law requires the department to pay Medi-Cal managed care plans specified rate range increases, and requires those Medi-Cal managed care plans to pay all of the rate range increases as additional payments to county public hospital health systems, as specified. Existing law authorizes a designated public hospital system or affiliated governmental entity to voluntarily provide intergovernmental transfers to provide support for the nonfederal share of risk-based payments to managed care health plans to enable those plans to compensate designated public hospital systems in an amount to preserve and strengthen the availability and quality of services provided by those hospitals.

These federal regulations generally prohibit states from directing managed care plans expenditures under a managed care contract. The federal regulations authorize states to direct managed care plans expenditures for provider payment through the managed care contracts in a manner based on the delivery of services, utilization, and the outcomes and quality of the delivered services.

This bill, commencing with the 201718 state fiscal year, would require the department to require each Medi-Cal managed care plan, as defined, to enhance contract services payments payments, as defined, to designated public hospital systems, as defined, by a uniform percentage applied uniformly across an amount determined under a prescribed uniform distribution methodology to be developed by the department, and would authorize these directed payments to separately account for inpatient and noninpatient hospital services and require these directed payments to be developed and applied separately for and uniformly within specified classes of designated public hospital systems in accordance with a prescribed methodology. systems. The bill would require a Medi-Cal managed care plan to annually provide to the department an accounting of the amount paid or payable to a designated public hospital system to demonstrate its compliance with the directed payment requirements. The bill would authorize the department department, after providing notice of its determination to the affected Medi-Cal managed care plan and allowing a reasonable period to cure the deficiencies, to reduce the default assignment into a Medi-Cal managed care plan by up to 25%, 25% in the applicable county, as specified, if the Medi-Cal managed care plan is not in compliance with the directed payment requirements.

The bill, commencing with the 201718 state fiscal year, would require the department, in consultation with the designated public hospital systems and each Medi-cal applicable Medi-Cal managed care plan, plans, to establish a program under which a designated public hospital system may earn performance-based quality incentive payments from Medi-Cal managed care plans, as specified, and would require payments to be earned by each designated public hospital system based on its performance in achieving identified targets for quality of care. The bill would require the department to establish uniform performance measures and parameters for the designated public hospital systems to select the applicable measures, and would require these performance measures to advance at least one goal identified in the states Medicaid quality strategy.

The bill would authorize a designated public hospital system and their affiliated governmental entities, or other public entities, to voluntarily provide the nonfederal share of the portion of the capitation rates associated with the directed payments and for the quality incentive payments through an intergovernmental transfer. The bill would authorize the department to accept these elective funds and, in its discretion, to deposit the transfer in the Medi-Cal Inpatient Payment Adjustment Fund, a continuously appropriated fund, thereby making an appropriation.

The bill would prohibit the department or a Medi-Cal managed care plan from being required to make any payment to a Medi-Cal managed care plan pursuant to the provisions described in (3) for any state fiscal year in which these provisions are implemented, as specified.

The bill would authorize the department to implement, interpret, or make specific these provisions by means of all-county letters, plan letters, provider bulletins, or other similar instructions without taking regulatory action.

The bill would require these provisions to be implemented only to the extent that any necessary federal approvals are obtained and federal financial participation is available and is not otherwise jeopardized, and would require the department to seek any necessary federal approvals.

(1)Existing law establishes the Medi-Cal program, administered by the State Department of Health Care Services, under which health care services are provided to qualified, low-income persons. The Medi-Cal program is, in part, governed and funded by federal Medicaid program provisions. Under existing law, one of the methods by which Medi-Cal services are provided is pursuant to contracts with various types of managed care plans. Existing federal regulations, published on May 6, 2016, revise regulations governing Medicaid managed care plans to, among other things, align, where feasible, those rules with those of other major sources of coverage, including coverage through qualified health plans offered through an American Health Benefit Exchange, such as the California Health Benefit Exchange, and promote quality of care and strengthen efforts to reform delivery systems that serve Medicaid and CHIP beneficiaries. These federal regulations, among other things, authorize an enrollee to request a state fair hearing only after receiving notice that the Medicaid managed care plan is upholding an adverse benefit determination, and requires the enrollee to request a state fair hearing no later than 120 calendar days from the date of the Medicaid managed care plans notice of resolution.

Existing state law establishes hearing procedures for an applicant for or beneficiary of Medi-Cal who is dissatisfied with certain actions regarding health care services and medical assistance to request a hearing from the State Department of Social Services under specified circumstances, and requires a request for a hearing to be filed within 90 days after the order or action complained of.

This bill would implement various provisions in regard to those federal regulations, as amended May 6, 2016, governing Medicaid managed care plans. The bill would authorize a person to request a hearing involving a Medi-Cal managed care plan within 120 calendar days after the order or action complained of, and would exclude a request from the 120-calendar day filing time if there is good cause, as defined, for filing the request beyond the 120-calendar day period.

(2)These federal regulations require a state that contracts with specified Medicaid managed care plans to develop and enforce network adequacy standards and requires each state to ensure that all services covered under the Medicaid state plan are available and accessible to enrollees of specified Medicaid managed care plans in a timely manner. These regulations also require specified Medicaid managed care plans to calculate and report a medical loss ratio (MLR) for the rating period that begins in 2017. If a state elects to mandate a minimum MLR for its Medicaid managed care plans, these regulations require that minimum MLR to be equal to or higher than 85% and authorizes the state to impose a remittance requirement consistent with the minimum standards established in these federal regulations for the failure to meet the minimum ratio standard imposed by the state.

The bill would require the State Department of Health Care Services, in consultation with the Department of Managed Health Care, to develop time and distance standards for specified provider types to ensure medically necessary covered services are accessible to enrollees of Medi-Cal managed care plans, as defined, to develop, for those Medi-Cal managed care plans that cover long-term services and supports (LTSS), time and distance standards for LTSS providers and network adequacy standards other than time and distance standards, and to develop timeliness standards to ensure that all services are available and accessible to enrollees of Medi-Cal managed care plans in a timely manner, as specified. The bill would require these standards to meet or exceed specified existing standards for timeliness of access to care established by the Department of Managed Health Care or those set forth in existing Medi-Cal managed care plan contracts. The bill would authorize the State Department of Health Care Services, upon the request of a Medi-Cal managed care plan, to allow alternative access standards, including the use of telecommunications technology, if the applying Medi-Cal managed care plan has exhausted all other reasonable options to obtain providers to meet either the time and distance or timely access standards. The bill would require, on at least an annual basis, a Medi-Cal managed care plan, as defined, to demonstrate to the department its compliance with the standards developed under this provision.

The bill would require a Medi-Cal managed care plan, as defined, to comply with the MLR reporting requirements imposed under those federal regulations, and would require a Medi-Cal managed care plan to comply with a minimum 85% MLR and to provide a remittance to the state if the ratio does not meet the minimum ratio of 85% for that reporting year consistent with those federal regulations.

The bill would require the department to adopt regulations by July 1, 2019, and, commencing July 1, 2018, would require the department to provide a status report to the Legislature on a semiannual basis until regulations are adopted.

(3)Existing law requires specified percentages of newly eligible beneficiaries, such as childless adults under 65 years of age, to be assigned to public hospital health systems in an eligible county, if applicable, until the county public hospital health system meets its enrollment target, as defined. Existing law also requires, subject to specified criteria, Medi-Cal managed care plans serving newly eligible beneficiaries to pay county public hospital health systems for providing and making available services to newly eligible beneficiaries of the Medi-Cal managed care plan in amounts that are no less than the cost of providing those services, and requires the capitation rates paid to Medi-Cal managed care plans for newly eligible beneficiaries to be determined based on its obligations to provide supplemental payments to those county public hospital health systems providing services to newly eligible beneficiaries. Existing law requires the department to pay Medi-Cal managed care plans specified rate range increases, and requires those Medi-Cal managed care plans to pay all of the rate range increases as additional payments to county public hospital health systems, as specified. Existing law authorizes a designated public hospital system or affiliated governmental entity to voluntarily provide intergovernmental transfers to provide support for the nonfederal share of risk-based payments to managed care health plans to enable those plans to compensate designated public hospital systems in an amount to preserve and strengthen the availability and quality of services provided by those hospitals.

These federal regulations generally prohibit states from directing managed care plans expenditures under a managed care contract. The federal regulations authorize states to direct managed care plans expenditures for provider payment through the managed care contracts in a manner based on the delivery of services, utilization, and the outcomes and quality of the delivered services.

This bill, commencing with the 201718 state fiscal year, would require the department to require each Medi-Cal managed care plan, as defined, to enhance contract services payments to designated public hospital systems, as defined, by a uniform percentage applied uniformly across specified classes of designated public hospital systems in accordance with a prescribed methodology. The bill would require a Medi-Cal managed care plan to annually provide to the department an accounting of the amount paid or payable to a designated public hospital system to demonstrate its compliance with the directed payment requirements. The bill would authorize the department to reduce the default assignment into a Medi-Cal managed care plan by up to 25%, as specified, if the Medi-Cal managed care plan is not in compliance with the directed payment requirements.

The bill, commencing with the 201718 state fiscal year, would require the department, in consultation with the designated public hospital systems and each Medi-cal managed care plans, plan, to establish a program under which a designated public hospital system may earn performance-based quality incentive payments from Medi-Cal managed care plans, as specified, and would require payments to be earned by each designated public hospital system based on its performance in achieving identified targets for quality of care. The bill would require the department to establish uniform performance measures and parameters for the designated public hospital systems to select the applicable measures, and would require these performance measures to advance at least one goal identified in the states Medicaid quality strategy.

The bill would authorize a designated public hospital system and their affiliated governmental entities, or other public entities, to voluntarily provide the nonfederal share of the portion of the capitation rates associated with the directed payments and for the quality incentive payments through an intergovernmental transfer. The bill would authorize the department to accept these elective funds and, in its discretion, to deposit the transfer in the Medi-Cal Inpatient Payment Adjustment Fund, a continuously appropriated fund, thereby making an appropriation.

The bill would prohibit the department from making being required to make any payment to a Medi-Cal managed care plan pursuant to the provisions described in (3) for any state fiscal year in which these provisions are implemented, as specified.

The bill would authorize the department to implement, interpret, or make specific these provisions by means of all-county letters, plan letters, provider bulletins, or other similar instructions without taking regulatory action.

The bill would require these provisions to be implemented only to the extent that any necessary federal approvals are obtained and federal financial participation is available and is not otherwise jeopardized, and would require the department to seek any necessary federal approvals.

(1)Existing law establishes the Medi-Cal program, administered by the State Department of Health Care Services, under which health care services are provided to qualified, low-income persons. The Medi-Cal program is, in part, governed and funded by federal Medicaid program provisions. Under existing law, one of the methods by which Medi-Cal services are provided is pursuant to contracts with various types of managed care plans. Existing federal regulations, published on May 6, 2016, revise regulations governing Medicaid managed care plans to, among other things, align, where feasible, those rules with those of other major sources of coverage, including coverage through qualified health plans offered through an American Health Benefit Exchange, such as the California Health Benefit Exchange, and promote quality of care and strengthen efforts to reform delivery systems that serve Medicaid and CHIP beneficiaries. These federal regulations regulations, among other things, authorize an enrollee to request a state fair hearing only after receiving notice that the Medicaid managed care plan is upholding an adverse benefit determination, and requires the enrollee to request a state fair hearing no later than 120 calendar days from the date of the Medicaid managed care plans notice of resolution.

Existing state law establishes hearing procedures for an applicant for or beneficiary of Medi-Cal who is dissatisfied with certain actions regarding health care services and medical assistance to request a hearing from the State Department of Health Care Social Services under specified circumstances, and requires a request for a hearing to be filed within 90 days after the order or action complained of.

This bill would implement various provisions in regard to those federal regulations, as amended May 6, 2016, governing Medicaid managed care plans. The bill would authorize a person to request a hearing involving a Medi-Cal managed care plan within 120 calendar days after the order or action complained of, and would exclude a request from the 120-calendar day filing time if there is good cause, as defined, for filing the request beyond the 120-calendar day period.

Existing law establishes the Medi-Cal program, administered by the State Department of Health Care Services, under which health care services are provided to qualified, low-income persons. The Medi-Cal program is, in part, governed and funded by federal Medicaid program provisions. Under existing law, one of the methods by which Medi-Cal services are provided is pursuant to contracts with various types of managed care plans. Existing federal regulations, published on May 6, 2016, revise regulations governing Medicaid managed care plans to, among other things, align, where feasible, those rules with those of other major sources of coverage, including coverage through qualified health plans offered through an American Health Benefit Exchange, such as the Exchange, and promote quality of care and strengthen efforts to reform delivery systems that serve Medicaid and CHIP beneficiaries. These federal regulations authorize an enrollee to request a state fair hearing only after receiving notice that the Medicaid managed care plan is upholding an adverse benefit determination, and requires the enrollee to request a state fair hearing no later than 120 calendar days from the date of the Medicaid managed care plans notice of resolution.

Existing law establishes hearing procedures for an applicant for or beneficiary of Medi-Cal who is dissatisfied with certain actions regarding health care services and medical assistance to request a hearing from the State Department of Health Care Services under specified circumstances, and requires a request for a hearing to be filed within 90 days after the order or action complained of.

This bill would authorize a person to request a hearing involving a Medi-Cal managed care plan within 120 calendar days after the order or action complained of, and would exclude a request from the 120-calendar day filing time if there is good cause, as defined, for filing the request beyond the 120-calendar day period.

 UNFINISHED BUSINESS  

Bill No: SB 171

Author:

Amended: 9/7/17

Vote:

SENATE HEALTH COMMITTEE: 9-0, 4/26/17

AYES: Hernandez, Nguyen, Atkins, Leyva, Mitchell, Monning, Newman, Nielsen, Roth

SENATE APPROPRIATIONS COMMITTEE: 5-1, 5/25/17

AYES: Lara, Beall, Bradford, Hill, Wiener

NOES: Nielsen

NO VOTE RECORDED: Bates

SENATE FLOOR: 37-0, 5/30/17

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

NO VOTE RECORDED: Fuller, Gaines, Morrell

ASSEMBLY FLOOR: 59-0, 9/15/17

(ROLL CALL NOT AVAILABLE)

SUBJECT: Medi-Cal: Medi-Cal managed care plans

SOURCE: Author

DIGEST:

This bill requires the Department of Health Care Services (DHCS) to require Medi-Cal managed care plans to increase contract services payments to designated public hospitals (DPH) by a uniform percentage, and to establish a program under which DPHs may earn performance-based quality incentive payments from plans. This bill implements a federal option to require a Medi-Cal managed care plans to provide a remittance if the plan fails to meet an 85% medical loss ratio (MLR), beginning with contract periods commencing with July 1, 2023. This bill requires DHCS to ensure that all covered mental health benefits and substance use disorder benefits are provided in compliance with federal regulations known as mental health parity.

Assembly Amendments delete provisions implementing provisions of the Medicaid managed care rule which are in AB 205 (Wood) dealing with state fair hearings, Medi-Cal managed care plan appeals, and a requirement that Medi-Cal managed care plans maintain a network of providers within time and distance and appointment availability standards. Delays the MLR requirement and the MLR remittance requirement, and requires money from the remittance requirement in this bill to go towards the Steven M. Thompson loan repayment program. Makes this bill contingent upon AB 205 being signed into law.

ANALYSIS:

Existing law:

1. Establishes the Medi-Cal program, administered by DHCS, under which health care services are provided to qualified, low-income persons. Establishes a schedule of benefits for Medi-Cal beneficiaries, which includes inpatient and outpatient hospital services. Provides Medi-Cal services through various types of managed care plans.
2. Permits a public entity to elect to transfer public funds to the state to be used solely as the non-federal share of Medi-Cal payments to managed care health plans for the provision of services to Medi-Cal beneficiaries. These transfers are known as intergovernmental transfers (IGTs) and are used to draw down federal Medicaid matching funds. Defines a “public entity” as a DPH, the University of California (UC), or a county or city and county or local hospital authority that is licensed to operate one or more DPHs.
3. Requires DHCS to require Medi-Cal managed care health plans to pay DPHs and other governmental providers affiliated with the transferring public entity for services at amounts that are no less than the total amount the provider would have otherwise been entitled on a fee-for-service (FFS) basis, for the full scope of Medi-Cal services in order to ensure that the implementation of the transfer of seniors and persons with disabilities (SPDs) to plans does not jeopardize the ability of DPHs and their affiliated public providers to continue serving Medi-Cal beneficiaries.
4. Requires Medi-Cal managed care plans serving Medi-Cal Affordable Care Act (ACA) expansion beneficiaries to pay county public hospital health systems for services provided to newly eligible beneficiaries under the ACA Medi-Cal expansion in amounts that are no less than the cost of providing those services, including the cost of network and out-of-network services that are charged to or paid for by county public hospital health systems. Requires the capitation rates paid to Medi-Cal managed care plans for ACA expansion beneficiaries to be determined to reflect this obligation.
5. Conditions the requirements in 3) and 4) above on an IGT to provide the non-federal share of funds.

This bill:

1. Requires DHCS, commencing with the 2017–18 state fiscal year, and for each state fiscal year thereafter, and notwithstanding any other law, to require each Medi-Cal managed care plan to increase contract services payments to DPH systems that are network providers by amounts determined under a directed payment methodology that meets federal requirements. Permits the directed payments to be determined and applied as distributions from directed payment pools, as a uniform percentage increase, or other basis, and to incorporate acuity adjustments or other factors.
2. Permits the directed payments to separately account for inpatient hospital services and non-inpatient hospital services, and requires the directed payments to be developed and applied separately for classes of DPH systems.
3. Requires DHCS, in consultation with the DPH systems, to establish the classes of DPH systems.
4. Prohibits the required payment enhancements from supplanting amounts that would otherwise be payable by a Medi-Cal managed care plan to a DPH system for an applicable state fiscal year.
5. Requires, each state fiscal year, a Medi-Cal managed care plan to provide to DHCS, at the times and in the form and manner specified by DHCS, an accounting of amounts paid or payable to the DPH systems it contracts with, including both contract rates and the directed payments, to demonstrate compliance with this bill.
6. Permits DHCS, to the extent DHCS determines that a Medi-Cal managed care plan is not in compliance with these requirements, or is otherwise circumventing the purposes thereof, to the material detriment of an applicable DPH system, after providing notice of its determination to the affected Medi-Cal managed care plan and allowing a reasonable period for the Medi-Cal managed care plan to cure the specified deficiencies, to reduce the default assignment into the Medi-Cal managed care plan with respect to all Medi-Cal managed care beneficiaries by up to 25% in the applicable county, so long as the other Medi-Cal managed care plan or Medi-Cal managed care plans in the applicable county have the capacity to receive the additional default membership. Prohibit DHCS’ determination whether to exercise discretion from being subject to judicial review, except that a Medi-Cal managed care plan that has its default assignment reduced may bring a writ of mandate to rectify an abuse of discretion by DHCS.
7. Requires capitation rates paid by DHCS to Medi-Cal managed care plans to account for the Medi-Cal managed care plan’s obligation to pay the directed payments in accordance with the above requirements.
8. Requires DHCS, effective for state fiscal years beginning with 2017-18, in consultation with the DPH systems and Medi-Cal managed care plans, to establish a program under which DPHs may earn performance-based quality incentive payments from Medi-Cal managed care plans.
9. Requires payments to be earned by each DPH system based on its performance achieving identified targets for quality of care.
10. Permits the non-federal share of the portion of the capitation rates associated with directed payments and the quality incentive payments to consist of voluntary IGT transfer of funds provided by DPHs and their affiliated governmental entities, or other public entities. Requires any IGT of funds made to be considered voluntary for purposes of all federal laws.
11. Permits the DHCS director, after consultation with the DPH systems and Medi-Cal managed care plans, to modify the DPH financing requirements set forth in this bill to the extent necessary to meet federal requirements or to maximize available federal financial participation (FFP).
12. Implements the above-described provisions only to the extent that any necessary federal approvals are obtained and FFP is available and is not otherwise jeopardized.
13. Requires, commencing July 1, 2019, a Medi-Cal managed care plan to comply with a minimum 85% MLR consistent with federal regulations. Applies this requirement to Medi-Cal managed care plans but not primary care case management plans, dental plans, county mental health plans or Drug Medi-Cal Organized Delivery Systems.
14. Requires, effective for contract rating periods commencing on or after July 1, 2023, a Medi-Cal managed care plan to provide a remittance for an MLR reporting year if the ratio for that MLR reporting year does not meet the minimum MLR standard of 85%. Requires DHCS to determine the remittance amount on a plan-specific basis for each rating region of the plan and to calculate the federal and nonfederal share amounts associated with each remittance.
15. Requires, after DHCS returns the requisite federal share amounts associated with any remittance funds collected in any applicable fiscal year to the federal Centers for Medicare and Medicaid Services, the remaining amounts remitted by a Medi-Cal managed care plan to be transferred to the Medically Underserved Account for Physicians within the Health Professions Education Fund and to be used, upon appropriation by the Legislature for the purposes of the Steven M. Thompson Physician Corps Loan Repayment Program.
16. Requires DHCS to post on its Internet Web the aggregate MLR of all Medi-Cal managed care plans, the MLR of each Medi-Cal managed care plan, and any required remittances owed by each Medi-Cal managed care plan.
17. Requires DHCS to ensure that all covered mental health benefits and substance use disorder benefits are provided in compliance with federal mental health parity regulations for Medicaid, and any subsequent amendment to those regulations, and any associated federal policy guidance issued by the federal Centers for Medicare and Medicaid Services.
    
18. Permits DHCS, without taking any further regulatory action, to implement, interpret, or make specific the parity requirement by means of all-county letters, plan letters, plan or provider bulletins, or similar instructions until the time regulations are adopted. Requires the DHCS director to consult with managed care plans and consumer advocates in doing so. Requires DHCS, by July 1, 2022, to adopt regulations where appropriate, in accordance with the requirements of Administrative Procedure Act.
    
19. Requires DHCS to make any findings of noncompliance and corrective action plans available on its Internet Web site.
20. Implements this bill only if AB 205 (Wood) is enacted and becomes effective on or before January 1, 2018.

Comments

1. Author’s statement. According to the author, in 2016 and early 2017, the federal Centers for Medicare and Medicaid Services (CMS) finalized two Medicaid and Children’s Health Insurance Program managed care regulations that have a significant impact on California’s Medi-Cal program in several areas. This bill implements changes in how Medi-Cal managed care plan reimburse county and UC hospitals to ensure compliance with the significant changes resulting from the managed care payment requirements of the federal rule while continuing to provide crucial funding support for these safety net providers. In addition, this bill implements a federal option to require a rebate if Medi-Cal managed care plans fail to spend at least 85% of premium revenue on health care services (known as an MLR), and addresses the state’s primary care workforce shortage by directing the resulting revenue to the Steven Thompson Loan Repayment Program.
2. Medicaid managed care rule and public hospital Medi-Cal funding from plans. Some of the most significant changes in the federal Medicaid managed care regulations are a prohibition (with exceptions) against states directing Medicaid managed care plans’ expenditures under the contract with the state, a requirement that permissible directed payments be uniform and be for network providers, and a requirement for a prospective payment to plans (instead of a “rate range” payment with retrospective payments allowed after the rate year). The effect of these changes is to require a change in how the state pays Medi-Cal managed care plans, and how payments from plans to public hospitals (county and UC hospitals) are made using IGTs.

Following discussions between DHCS, other states’ Medicaid programs and CMS and DPHs and Medi-Cal managed care plans, this bill would implement two permissible directed payment options under the federal rule: an enhanced contract service payment using a uniform methodology for network providers, and participation in quality incentive payment programs. These payments would apply to all Medi-Cal managed enrollees and would replace existing IGT-funded reimbursement currently received for SPDs and the ACA Medi-Cal expansion population.

1. MLR. The May 2016 rule requires states to ensure that each managed care plan calculates and reports a MLR. In general terms, an MLR is the percentage of each dollar the plan receives in premiums that the plan spends on health care services, as defined, versus administration, sales, marketing and profit. In addition to requiring plans to calculate and report an MLR, states must develop plan rates in a way that the plan would reasonably achieve a MLR standard of at least 85% for the rate year. The federal rule permits states to require Medi-Cal managed care plans to meet a minimum MLR, provided the minimum MLR is equal to or higher than 85% (the standard used for projecting soundness). The MLR must be calculated and reported for each MLR reporting year by the Medi-Cal managed care plan consistent with this federal rule. In addition, the rule gives states the option of requiring a remittance if plans do not meet the MLR, which this bill would implement. DHCS provided self-reported data from 21 Medi-Cal managed care plans indicating plans’ MLR for 2015-16 ranged from 77.9% to 97.7% (excluding Kaiser) with an unweighted average of 86.47%.

Any revenue from the MLR remittance under this bill would go to the Steven Thompson Lona Repayment Program (STLRP), which encourages recently licensed physicians to practice in health professional shortage areas in California. The program repays up to $105,000 in educational loans in exchange for full-time service for at least three years. In April 2016, OSHPD released a report that included data on STLRP awards. During the last two application cycles a total of 230 applications were received and 107 recipients were awarded a total of $10.3 million.

1. Medicaid Mental Health Parity Regulations. The federal Medicaid mental health parity rule applies the Mental Health Parity and Addiction Equity Act of 2008 to Medicaid. The change is intended to create consistency between the commercial and Medicaid markets. The Medicaid parity rule applies parity across different delivery systems, applies parity to alternative benefit plans and state plans, and extends parity protections to long-term services and supports. Mental health parity generally prohibits financial requirements and quantitative treatment limitations on mental health (MH) and substance use disorder (SUD) benefits from being more restrictive or be applied more stringently than medical/surgical (M/S) benefits. In addition, non-quantitative treatment limitations on MH or SUD benefits in processes, strategies, evidentiary standards, or other factors must be comparable to, and are applied no more stringently than, limitations applied to M/S benefits in the same classification. Parity applies to all individuals enrolled in a Medi-Cal managed care plan. Once the beneficiary is enrolled in a plan, his/her entire benefit package is subject to parity. Parity does not apply to beneficiaries who are in FFS only or who are not enrolled in a Medi-Cal managed care plan. The federal parity rule was effective May 31 2016 with an implementation date of October 2, 2017.

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

According to the Assembly Appropriations Committee of a prior version of this bill and a companion bill (AB 205), which this bill is joined:

1. This bill essentially implements federal regulations.
   1. DHCS will incur ongoing staff costs to comply with federal regulations pursuant to the provisions of this bill. In 2016-17, the Legislature approved DHCS's budget change proposal, providing $10.4 million and 38 positions to DHCS to implement the federal regulations this bill addresses. In the 2017-18 Governor's budget, the department is requested an additional $8.9 million and 15 positions for the same purpose. DHCS indicates the department does not intend to request additional resources.
   2. Department of Social Services expects to incur costs of $2.0 million in 2018-19 and $1.6 million ongoing for staff to implement required changes to the fair hearing process. Actual costs are difficult to project on balance—some appeals may be exhausted at the plan level instead of resulting in a fair hearing, but the shortened timelines may necessitate additional resources.
2. Uncertain impact on the overall financing of the Medi-Cal program. Three components have significant fiscal impacts: changing payments to public hospitals through managed care, implementing a medical loss ratio, and implementing standards on timely access to care. As the bill's provisions do not appear to go beyond what is required, the bill does not appear to result in any net cost impact that could be avoided. The state could see some, likely minor, level of remittances back from managed care plans that do not meet MLR requirements, due to the provision that implements a state option to require such remittances.

SUPPORT: (Verified 9/11/17)

American Federation of State, County and Municipal Employees, AFL-CIO

California Association of Physician Groups
California Association of Public Hospitals and Health Systems
California Hospital Association
California Medical Association
California Pan-Ethnic Health Network
California State Association of Counties
Health Access California
LA Care Health Plan
Riverside County Board of Supervisors
Western Center on Law & Poverty

OPPOSITION: (Verified 9/11/17)

None received

ARGUMENTS IN SUPPORT: The California Association of Public Hospitals and Health Systems (CAPHHS) writes in support of the public hospital-related provisions of this bill to address the changes resulting from the federal Medicaid managed care rule. CAPHHS states this bill implements critical provisions of the federal Medicaid managed care rule related to supplemental Medi‐Cal funding for California’s public health care systems by restructuring these payments to comply with the regulation, enabling public health care systems to retain more than $1 billion annually in federal Medicaid funding to help bridge the gap between low base Medi‐Cal rates and the true cost of providing care. In order to meet the new CMS requirements, this bill outlines two important provisions that meet the new federal requirements by implementing an enhanced contracted services payment, which would provide a uniform percentage increase above base Medi-Cal rates, and performance-based quality incentive payments. CAPHHS states successful implementation of these two approaches would allow public health care systems to retain critical Medi-Cal funding in order to support their mission and commitment to serving a large Medi-Cal and uninsured population.

Prepared by:

9/15/17 19:23:27

**** END ****

SENATE THIRD READING

STR Bill Id:SB 171

Author:(Hernandez)

As Amended Ver:September 7, 2017

Majority vote

SENATE VOTE: 37-0

SUMMARY: Implements a federal option to require Medi-Cal managed care (MCMC) plans to provide a remittance if the MCMC plan fails to meet an 85% medical loss ratio (MLR). Requires the Department of Health Care Services (DHCS) to ensure that all covered mental health and substance use disorder benefits are provided in compliance with federal mental health parity regulations. Requires DHCS to require MCMC plans to increase contract services payments to designated public hospitals (DPHs) by amounts determined under a directed payment methodology. Requires DHCS to establish a program under which DPHs may earn performance-based quality incentive payments from MCMC plans. Specifically, this bill:

Mental Health and Substance Use Disorder Benefits: Parity

1. Requires DHCS to ensure that all covered mental health and substance use disorder benefits are provided in compliance with the federal "Medicaid and Children's Health Insurance Programs: Mental Health Parity and Addiction Equity Act of 2008; the Application of Mental Health Parity Requirements to Coverage Offered by Medicaid Managed Care Organization, the Children's Health Insurance Program (CHIP), Alternative Benefit Plans; Final Rule," any subsequent amendments to those regulations, and any associated federal policy guidance issued by the federal Centers for Medicare and Medicaid Services (CMS).
2. Requires DHCS to implement, interpret, or make specific 1) above by means of all-county letters, plan letters, plan or provider bulletins, or similar instructions until regulations are adopted. Requires the DHCS Director to consult with MCMC plans and consumer advocates. Requires DHCS to adopt regulations by July 1, 2022 where appropriate.
3. Requires DHCS to make any findings of noncompliance and corrective action plans available on its Internet Web site.

Medical Loss Ratio (MLR)

1. Requires a MCMC plan, commencing July 1, 2019, to comply with a minimum 85% MLR and requires the MLR to be calculated and reported for each MLR reporting year by the MCMC plan, consistent with specified federal regulations.
2. Requires a MCMC plan, effective for contract rating periods commencing on or after July 1, 2023, to provide a remittance for an MLR reporting year if the ratio for that MLR reporting year does not meet the minimum MLR standard of 85%.
3. Requires DHCS to determine the remittance amount on a plan-specific basis for each rating region of the plan and to calculate the federal and nonfederal share amounts associated with each remittance.
4. Requires DHCS, after it returns the requisite federal share amounts associated with any remittance funds collected in any applicable fiscal year to CMS, the remaining amounts remitted by a MCMC plan must be transferred to the Medically Underserved Account for Physicians within the Health Professions Education Fund and upon appropriation by the Legislature, to be used for purposes of the Steven M. Thompson Physician Corps Loan Repayment Program, as specified.
5. Requires DHCS to seek any federal approvals necessary to implement the above provisions, and to be implemented only to the extent that any necessary federal approvals are obtained and federal financial participation is available and is not jeopardized.
6. Applies the remittance requirement to MCMC plans but exempts primary care management plans or dental managed care plans.
7. Requires DHCS to post on its Internet Website all of the following:
   1. The aggregate MLR of all MCMC plans;
   2. The MLR of each MCMC plan; and,
   3. Any required remittances owed by each MCMC plan.

DPH Systems: Directed Payments

1. Requires DHCS, commencing with the 2017-18 state fiscal year (SFY), and for each SFY thereafter, to require each MCMC plan to increase contract services payments to the DPH systems by amounts determined under a directed payment methodology that meets federal requirements, and as described in this bill. Permits the directed payments to be determined and applied as distributions from directed payment pools, as a uniform percentage increase, or other basis, and may incorporate acuity adjustments or other factors.
2. Permits the directed payments to separately account for inpatient hospital services and noninpatient hospital services and must be developed and applied separately for classes of DPH systems. Requires DHCS, in consultation with the DPH systems, to establish the classes of DPH systems consistent with the objectives specified below and that take into account differences in services provided, service delivery systems, and in the level of risk assumed from managed care plans. Specifies that the factors to be considered include, but are not limited to, operation by the University of California (UC), DPH systems comprised of multiple acute care hospitals, level 1 or level 2 trauma designation, and the assumption of risk for the provision of inpatient hospital services.
3. Requires DHCS to develop and implement the directed payment program in consultation with DPH systems or MCMC plans, or both, as follows:
   1. DHCS, in consultation with the DPH systems, must annually determine on a prospective basis the aggregate amount of payments that will be directed to each class of DPH systems, and the classification of each DPH system. Prohibits that classification from being changed no sooner than the subsequent SFY once DHCS determines the classification for each DPH systems for that particular SFY. For SFYs following the 2017-18 SFY, the aggregate amounts of payments to a class of DPHs must account for trend adjustments to the aggregate amounts available during the prior SFY, subject to any modifications to account for changes in the classification of DPHs, changes required by federal law, changes to account for the size of the payments, or other material payments;
   2. DHCS, in consultation with the DPHs must develop the methodologies for determining the required directed payments for each DPH system;
   3. Permits DHCS, to the extent necessary to meet the objectives identified in this bill or to comply with federal requirements, in consultation with the DPH systems, to adjust or modify the amounts of the aggregate directed payments for any class of DPH systems or the method for determining the distribution of the directed payment amounts within any class of DPHs, and modify, consolidate, or subdivide the classes of DPHs, as specified; and,
   4. After the aggregate amounts and the distribution methodology of directed payments for each DPHs class have been established, DHCS shall consult with the DPHs and each affected MCMC plan with regard to the impact on the MCMC plan capitation rate setting process, and implementation of the directed payment requirements, including applicable interim and final payment processes, to ensure that 100% of the aggregate amounts are paid to the applicable DPH system.
4. Requires the required directed payment amounts to be paid by the MCMC plan as adjustments, in a form and manner specified by DHCS, to the total amounts of contract services payments otherwise paid to the DPH systems.
5. Requires the directed payments to be implemented and documented by each MCMC plan and DPH system and requires the MCMC plan and DPH system to determine the manner, timing, and amount of payment for contracted service, as specified.
6. Prohibits the required directed payment enhancements from supplanting amounts that would otherwise be payable by a MCMC plan to a DPH system for an applicable SFY. Prohibits a MCMC plan from imposing a fee or retention amount that would result in a direct or indirect reduction to the amounts, as required.
7. Prohibits a contract between a MCMC plan and a DPH from being terminated by either party for the specific purpose of circumventing or otherwise impacting the payment obligations.
8. Requires a MCMC plan, in the event it subcontracts or delegates responsibility to a separate entity for either or both the arrangement or payment of services, to be responsible for paying the DPH system the directed payment described in this bill with respect to the services it provides that are covered by that arrangement. Requires the DPH system and the applicable subcontractor or delegated entity to work together with the MCMC plan to provide the necessary information to facilitate the MCMC plan’s compliance with the payment requirements.
9. Requires, each SFY, a MCMC plan to provide to DHCS an accounting of amounts paid or payable to the DPH systems it contracts with, including both contracted rates and the directed payments in order to demonstrate compliance.
10. Permits DHCS, after providing notice of its determination to the affected MCMC plan and allowing a reasonable period for the MCMC plan to cure specified deficiencies, to reduce the default assignment into the MCMC plan with respect to all MCMC beneficiaries by up to 25%, if DHCS determines, in its sole discretion, that a MCMC plan is not in compliance with the requirements of the above provisions, or is otherwise circumventing the purposes thereof, to the material detriment of an applicable DPH system, so long as the other MCMC plan or MCMC plans in the applicable county have the capacity to receive the additional default membership. Specifies that DHCS’s determination whether to exercise discretion is not subject to judicial review, except that a MCMC plan that has its default assignment reduced may bring a writ of mandate, as specified. Prohibits these provisions from being construed to preclude or otherwise limit the right of any MCMC plan or DPH system to pursue a breach of contract action in connection with these requirements.
11. Requires capitation rates paid by DHCS to a MCMC plan to be actuarially sound and account for the MCMC plan’s obligation to pay the directed payments to DPH systems, as specified.
12. Permits DHCS to require MCMC plans and the DPH systems to submit information regarding contract rates and expected or actual utilization of services, at the times and in the form and manner specified by DHCS.
13. Requires DHCS to utilize the most recently available data, and reasonable projections, as determined by DHCS, when accounting for directed payments, and to account for additional clinics, practices, or other health care providers added to the DPH systems. Permits DHCS to account for material adjustments, as appropriate under federal law and actuarial standards, and as determined by DHCS, to contracts entered into between a MCMC plan and a DPH system.

DPH Systems: Quality Incentive Payments

1. Requires DHCS, in consultation with DPH systems and applicable MCMC plans, commencing with the 2017-18 SFY, and for each SFY thereafter, to establish a program under which a DPH system may earn performance-based quality incentive payments from the MCMC plan they contract with in accordance with this bill.
2. Requires incentive payments to be earned by each DPH system based on its performance in achieving identified targets for quality of care.
3. Requires DHCS, in consultation with DPH systems and each MCMC plan, to establish and provide a method for updating uniform performance measures for the performance-based quality incentive payment program and parameters for the DPH system to select the applicable measures. Requires the performance measures to advance at least one goal identified in the state's Medicaid quality strategy and prohibits measures from duplicating measures utilized in the Public Hospital Redesign and Incentives in Medi-Cal (known as the PRIME) program operated under the state's Section 1115 Medicaid Waiver.
4. Requires each DPH system to submit reports to DHCS containing information required to evaluate its performance on all applicable performance measures, at the times and in the form and manner specified by DHCS. Requires a MCMC plan to assist a DPH system in collecting information necessary for these reports.
5. Requires DHCS, in consultation with each DPH, to determine a maximum amount that each class may earn in quality incentive payments for the SFY, as specified. Requires this amount to be paid to the DPH system by each of its contracted MCMC plans. Requires DHCS, if a DPH system contracts with multiple MCMC plans, to identify each MCMC plan's proportionate amount of the DPH system’s payment, as specified.
6. Prohibits a contract between a MCMC plan and DPH system from being terminated by either party for the specific purpose of circumventing or otherwise impacting the payment obligations, as specified under this bill.
7. Requires each MCMC plan to be responsible for payment of the quality incentive payments.
8. Requires DHCS to provide appropriate funding to each MCMC plan, to account for and to enable them to make the quality incentive payments through incorporation into actuarially sound capitation rates or any other federally permissible method. Requires the amounts designated by DHCS for the quality incentive payments be reserved for the purposes of the performance-based quality incentive payment program.
9. Requires DHCS to consult with DPH systems to establish the uniform percentages and the aggregate size of the quality incentive payment program that, in combination with one another, are projected to result in aggregate payments that will advance the quality and access objectives reflected in prior payment enhancement mechanisms for DPH systems. Permits DHCS to modify the directed payments or quality incentive payment program. Requires DHCS, once the payment levels are established, to consult with the DPH systems and MCMC plans in the development of the MCMC rates needed for the directed payments and the structure of the quality incentive payment program.
10. Requires DHCS, for the 2017-18 SFY, to provide written notice of the directed payment and quality incentive payment amounts as soon as practicable after receipt of necessary federal approvals. Makes a MCMC plan's obligation to pay the directed payments and quality incentive payments to a DPH system for the 2017-18 SFY to be contingent on the receipt of the written notice. Requires DHCS, for each annual determination commencing with the 2018-19 SFY and each SFY thereafter, to provide written notice, as soon as practicable, to each affected MCMC plan and DPH system of the applicable MCMC plan's directed payment amounts, the classification of DPH systems, quality incentive payment amounts, and any other information deemed necessary for the MCMC plan to fulfill its payment obligations. Requires DHCS, if the modification of either or both directed payment amounts or quality incentive payment amounts is necessary after receipt of the written notification, to notify the MCMC plan and DPH system in writing of the revised amounts prior to implementation of the revised amounts.
11. Deems the contract service payments and quality incentive payment program provisions to be incorporated into each contract between a DPH system and a MCMC plan, and its subcontractor or designee, as applicable, and any claim for breach of those provisions may be brought directly in a court of competent jurisdiction.
12. Permits the nonfederal share of the portion of the capitation rates associated with directed payments to DPH systems and the quality incentive payments to consist of voluntary intergovernmental transfers (IGT) of funds provided by DPH systems and their affiliated governmental entities, or other public entities. Requires any IGT of funds made to be considered voluntary for purposes of all federal laws.
13. Requires DHCS, when applicable for voluntary IGTs, in consultation with DPH systems, to develop and maintain a protocol to determine the available funding for the nonfederal share associated with payments for each applicable SFY. Requires the protocol to account for any applicable contributions made by public entities to the nonfederal share of MCMC expenditures, including, contributions previously made under specified provisions of law.
14. Implements the above provisions only to the extent that any necessary federal approvals are obtained and federal financial participation (FFP) is available and is not otherwise jeopardized.
15. Prohibits DHCS, for any SFY that this bill is implemented, from being required to make any payment to MCMC plans pursuant to the following requirements in existing law that plans:
    1. Pay DPHs fee-for-service payments amounts for seniors and persons with disabilities;
    2. Pay DPHs cost-based services for the Medi-Cal-Patient Protection and Affordable Care Act (ACA) expansion population; and,
    3. Pay all of the rate range increase for the Medi-Cal-ACA expansion as additional payments to county public hospital health systems (plans are paid at least at 75% of the rate range available; to the extent FFP is available).
16. Requires DHCS to seek any necessary federal approvals for the directed payments and the quality incentive payments set forth in this bill.
17. Requires DHCS to consult with DPH systems with regard to the development and implementation of the directed payment levels and the quality incentive payments and to consult with both DPHs and MCMC plans with regards to the implementation of the payments.
18. Permits the DHCS Director, after consultation with DPH systems and MCMC plans, to modify the requirements set forth in this bill to the extent necessary to meet federal requirements or to maximize available FFP. Requires the DHCS Director, in the event federal approval is only available with significant limitations or modifications, or in the event of changes to the federal Medicaid program that result in a loss of funding currently available to the DPHs, to consult with DPHs and MCMC plans to consider alternative methodologies.
19. Permits DHCS to implement, interpret, or make specific this bill by means of all-county letters, plan letters, provider bulletins, or other similar instructions, without taking regulatory action. Requires DHCS to make use of appropriate processes to ensure that affected DPH systems and MCMC plans are informed in a timely manner of, and have access to, applicable guidance issued pursuant to this authority, and that this guidance remains publicly available until all payments made are finalized.
20. Establishes a "poison pill" provision and ceases operation of the directed payments and quality incentive payment program, as specified, if implementation is no longer financially and programmatically supportive of the Medi-Cal program. Requires the determination to be based on both of the following factors:
    1. The projected amount of the nonfederal share funds available is insufficient to support implementation of these provisions in the subject SFY; and,
    2. The degree to which the payment arrangements will no longer materially advance the goals and objectives of the above provisions and in DHCS' managed care quality strategy drafted and implemented under federal regulations in the subject SFY.
21. Requires DHCS to consider all reasonable options for mitigating the circumstances in 20) above, including, but not limited to, options for curing projected funding shortfalls and options for program revisions and strategy updates to better coordinate payment requirements with the goals and objectives of this bill and the manage care quality strategy.
22. Requires DHCS to post notice of the determination pursuant to 20) above on its Internet Web site, and to provide written notice of the determination to the Secretary of State, the Secretary of the Senate, the Chief Clerk of the Assembly, and the Legislative Counsel.
23. Requires DHCS, in consultation with the DPHs and the MCMC plans, to provide the Legislature with the federally approved evaluation plan required by federal regulations to measure the degree to which the DPH payments authorized under this bill advance at least one of the goals and objectives of DHCS' managed care quality strategy.
24. Requires DHCS, in consultation with the DPH systems and the MCMC plans, to report to the Legislature the results of this evaluation no earlier than January 1, 2021.
25. Authorizes DHCS, after consultation with the DPH systems and MCMC plans, to exclude certain MCMC enrollee categories of aid, or subcategories, or certain categories of medical assistance provided under a MCMC plan, or subcategories from the definition of contract services payments.
26. Defines various terms, including contract services payments.

Contingent Enactment makes this bill operative only if AB 205 (Wood) of the current legislative session is enacted and becomes effective on or before January 1, 2018.

FISCAL EFFECT: According to an analysis of a prior version of this bill by the Assembly Appropriations Committee this bill essentially implements federal regulations.

1. DHCS will incur ongoing staff costs to comply with federal regulations pursuant to the provisions of this bill. In 2016-17, the Legislature approved DHCS's budget change proposal, providing $10.4 million and 38 positions to DHCS to implement the federal regulations this bill addresses. In the 2017-18 Governor's budget, DHCS requested an additional $8.9 million and 15 positions for the same purpose. DHCS indicates they do not intend to request additional resources.
2. The Department of Social Services expects to incur costs of $2.0 million in 2018-19 and $1.6 million ongoing for staff to implement required changes to the fair hearing process. Actual costs are difficult to project on balance—some appeals may be exhausted at the plan level instead of resulting in a fair hearing, but the shortened timelines may necessitate additional resources.
3. Uncertain impact on the overall financing of the Medi-Cal program. Three components have significant fiscal impacts: changing payments to public hospitals through managed care, implementing a medical loss ratio, and implementing standards on timely access to care. As the bill's provisions do not appear to go beyond what is required, the bill does not appear to result in any net cost impact that could be avoided. The state could see some, likely minor, level of remittances back from managed care plans that do not meet medical loss ratio requirements, due to the provision that implements a state option to require such remittances.

COMMENTS: According to the author, in 2016 and early 2017, CMS finalized two Medicaid and CHIP managed care regulations that have a significant impact on California's Medi-Cal program in several areas, including how the state pays MCMC plans, how the plans pay hospitals and other health care providers, the grievance and appeals process for Medi-Cal beneficiaries who are enrolled in plans, and access to health care providers in MCMC plans, Denti-Cal managed care plans, and county specialty mental health networks. The rules set forth requirements that states with Medicaid managed care must meet, options in how states meet those requirements, and gives states flexibility to establish different requirements than those contained in the federal rule.

This bill and AB 205 (Wood) of the current legislative session are companion bills to implement the Medicaid managed care rule in California. This bill would change how MCMC plans reimburse county and UC hospitals to ensure compliance with the significant changes resulting from the managed care payment requirements of the federal rule while continuing to provide crucial funding support for these safety net providers. This bill also implements a federal option to require a rebate if MCMC plans fail to spend at least 85% of premium revenue on health care services (the MLR), with the resulting revenue being used to provide loan repayment to physicians who practice in medically underserved areas through the Steven M. Thompson Physician Loan Repayment Program, and to require DHCS to ensure that all covered mental health and substance use disorder benefits are provided in compliance with the federal mental health parity regulations.

Analysis Prepared by: Rosielyn Pulmano / HEALTH / (916) 319-2097 FN: 0002301

Date of Hearing: September 11, 2017

ASSEMBLY COMMITTEE ON HEALTH

Jim Wood, Chair

SBPCA Bill Id:SB 171

Author:(Hernandez) – As Amended Ver:September 7, 2017

SENATE VOTE: 37-0

SUBJECT: Medi-Cal: Medi-Cal managed care plans.

SUMMARY: Implements a federal option to require Medi-Cal managed care (MCMC) plans to provide a remittance if the MCMC plan fails to meet an 85% medical loss ratio (MLR). Requires the Department of Health Care Services (DHCS) to ensure that all covered mental health and substance use disorder benefits are provided in compliance with federal mental health parity regulations. Requires DHCS to require MCMC plans to increase contract services payments to designated public hospitals (DPHs) by amounts determined under a directed payment methodology. Requires DHCS to establish a program under which DPHs may earn performance-based quality incentive payments from MCMC plans. Specifically, this bill:

Mental Health and Substance Use Disorder Benefits: Parity

1. Requires DHCS to ensure that all covered mental health and substance use disorder benefits are provided in compliance with the federal “Medicaid and Children’s Health Insurance Programs: Mental Health Parity and Addiction Equity Act of 2008; the Application of Mental Health Parity Requirements to Coverage Offered by Medicaid Managed Care Organization, the Children’s Health Insurance Program (CHIP), Alternative Benefit Plans; Final Rule,” any subsequent amendments to those regulations, and any associated federal policy guidance issued by the federal Centers for Medicare and Medicaid Services (CMS).
2. Requires DHCS to implement, interpret, or make specific 1) above by means of all-county letters, plan letters, plan or provider bulletins, or similar instructions until regulations are adopted. Requires the DHCS Director to consult with MCMC plans and consumer advocates. Requires DHCS to adopt regulations by July 1, 2022 where appropriate.
   
3. Requires DHCS to make any findings of noncompliance and corrective action plans available on its Internet Website.
   

MLR

1. Requires a MCMC plan, commencing July 1, 2019, to comply with a minimum 85% MLR and requires the MLR to be calculated and reported for each MLR reporting year by the MCMC plan, consistent with specified federal regulations.
   
2. Requires a MCMC plan, effective for contract rating periods commencing on or after July 1, 2023, to provide a remittance for an MLR reporting year if the ratio for that MLR reporting year does not meet the minimum MLR standard of 85%.
   
3. Requires DHCS to determine the remittance amount on a plan-specific basis for each rating region of the plan and to calculate the federal and nonfederal share amounts associated with each remittance.
4. Requires DHCS, after it returns the requisite federal share amounts associated with any remittance funds collected in any applicable fiscal year to CMS, the remaining amounts remitted by a MCMC plan must be transferred to the Medically Underserved Account for Physicians within the Health Professions Education Fund and upon appropriation by the Legislature, to be used for purposes of the Steven M. Thompson Physician Corps Loan Repayment Program, as specified.
   
5. Requires DHCS to seek any federal approvals necessary to implement the above provisions, and to be implemented only to the extent that any necessary federal approvals are obtained and federal financial participation is available and is not jeopardized.
   
6. Applies the remittance requirement to MCMC plans but exempts primary care management plans or dental managed care plans.
   
7. Requires DHCS to post on its Internet Website all of the following:
   1. The aggregate MLR of all MCMC plans;
   2. The MLR of each MCMC plan; and,
   3. Any required remittances owed by each MCMC plan.

DPH Systems: Directed Payments

1. Requires DHCS, commencing with the 2017-18 state fiscal year (SFY), and for each SFY thereafter, to require each MCMC plan to increase contract services payments to the DPH systems by amounts determined under a directed payment methodology that meets federal requirements, and as described in this bill. Permits the directed payments to be determined and applied as distributions from directed payment pools, as a uniform percentage increase, or other basis, and may incorporate acuity adjustments or other factors.
   
2. Permits the directed payments to separately account for inpatient hospital services and noninpatient hospital services and must be developed and applied separately for classes of DPH systems. Requires DHCS, in consultation with the DPH systems, to establish the classes of DPH systems consistent with the objectives specified below and that take into account differences in services provided, service delivery systems, and in the level of risk assumed from managed care plans. Specifies that the factors to be considered include, but are not limited to, operation by the University of California (UC), DPH systems comprised of multiple acute care hospitals, level 1 or level 2 trauma designation, and the assumption of risk for the provision of inpatient hospital services.
   
3. Requires DHCS to develop and implement the directed payment program in consultation with DPH systems or MCMC plans, or both, as follows:
   
   1. DHCS, in consultation with the DPH systems, must annually determine on a prospective basis the aggregate amount of payments that will be directed to each class of DPH systems, and the classification of each DPH system. Prohibits that classification from being changed no sooner than the subsequent SFY once DHCS determines the classification for each DPH systems for that particular SFY. For SFYs following the 2017-18 SFY, the aggregate amounts of payments to a class of DPHs must account for trend adjustments to the aggregate amounts available during the prior SFY, subject to any modifications to account for changes in the classification of DPHs, changes required by federal law, changes to account for the size of the payments, or other material payments;
   2. DHCS, in consultation with the DPHs must develop the methodologies for determining the required directed payments for each DPH system;
      
   3. Permits DHCS, to the extent necessary to meet the objectives identified in this bill or to comply with federal requirements, in consultation with the DPH systems, to adjust or modify the amounts of the aggregate directed payments for any class of DPH systems or the method for determining the distribution of the directed payment amounts within any class of DPHs, and modify, consolidate, or subdivide the classes of DPHs, as specified; and,
      
   4. After the aggregate amounts and the distribution methodology of directed payments for each DPHs class have been established, DHCS shall consult with the DPHs and each affected MCMC plan with regard to the impact on the MCMC plan capitation rate setting process, and implementation of the directed payment requirements, including applicable interim and final payment processes, to ensure that 100% of the aggregate amounts are paid to the applicable DPH system.
      
4. Requires the required directed payment amounts to be paid by the MCMC plan as adjustments, in a form and manner specified by DHCS, to the total amounts of contract services payments otherwise paid to the DPH systems.
   
5. Requires the directed payments to be implemented and documented by each MCMC plan and DPH system and requires the MCMC plan and DPH system to determine the manner, timing, and amount of payment for contracted service, as specified.
   
6. Prohibits the required directed payment enhancements from supplanting amounts that would otherwise be payable by a MCMC plan to a DPH system for an applicable SFY. Prohibits a MCMC plan from imposing a fee or retention amount that would result in a direct or indirect reduction to the amounts, as required.
   
7. Prohibits a contract between a MCMC plan and a DPH from being terminated by either party for the specific purpose of circumventing or otherwise impacting the payment obligations.
   
8. Requires a MCMC plan, in the event it subcontracts or delegates responsibility to a separate entity for either or both the arrangement or payment of services, to be responsible for paying the DPH system the directed payment described in this bill with respect to the services it provides that are covered by that arrangement. Requires the DPH system and the applicable subcontractor or delegated entity to work together with the MCMC plan to provide the necessary information to facilitate the MCMC plan’s compliance with the payment requirements.
   
9. Requires, each SFY, a MCMC plan to provide to DHCS an accounting of amounts paid or payable to the DPH systems it contracts with, including both contracted rates and the directed payments in order to demonstrate compliance.
   
10. Permits DHCS, after providing notice of its determination to the affected MCMC plan and allowing a reasonable period for the MCMC plan to cure specified deficiencies, to reduce the default assignment into the MCMC plan with respect to all MCMC beneficiaries by up to 25%, if DHCS determines, in its sole discretion, that a MCMC plan is not in compliance with the requirements of the above provisions, or is otherwise circumventing the purposes thereof, to the material detriment of an applicable DPH system, so long as the other MCMC plan or MCMC plans in the applicable county have the capacity to receive the additional default membership. Specifies that DHCS’s determination whether to exercise discretion is not subject to judicial review, except that a MCMC plan that has its default assignment reduced may bring a writ of mandate, as specified. Prohibits these provisions from being construed to preclude or otherwise limit the right of any MCMC plan or DPH system to pursue a breach of contract action in connection with these requirements.
    
11. Requires capitation rates paid by DHCS to a MCMC plan to be actuarially sound and account for the MCMC plan’s obligation to pay the directed payments to DPH systems, as specified.
    
12. Permits DHCS to require MCMC plans and the DPH systems to submit information regarding contract rates and expected or actual utilization of services, at the times and in the form and manner specified by DHCS.
    
13. Requires DHCS to utilize the most recently available data, and reasonable projections, as determined by DHCS, when accounting for directed payments, and to account for additional clinics, practices, or other health care providers added to the DPH systems. Permits DHCS to account for material adjustments, as appropriate under federal law and actuarial standards, and as determined by DHCS, to contracts entered into between a MCMC plan and a DPH system.

DPH Systems: Quality Incentive Payments

1. Requires DHCS, in consultation with DPH systems and applicable MCMC plans, commencing with the 2017-18 SFY, and for each SFY thereafter, to establish a program under which a DPH system may earn performance-based quality incentive payments from the MCMC plan they contract with in accordance with this bill.
   
2. Requires incentive payments to be earned by each DPH system based on its performance in achieving identified targets for quality of care.
   
3. Requires DHCS, in consultation with DPH systems and each MCMC plan, to establish and provide a method for updating uniform performance measures for the performance-based quality incentive payment program and parameters for the DPH system to select the applicable measures. Requires the performance measures to advance at least one goal identified in the state’s Medicaid quality strategy and prohibits measures from duplicating measures utilized in the Public Hospital Redesign and Incentives in Medi-Cal (known as the PRIME) program operated under the state’s Section 1115 Medicaid Waiver.
   
4. Requires each DPH system to submit reports to DHCS containing information required to evaluate its performance on all applicable performance measures, at the times and in the form and manner specified by DHCS. Requires a MCMC plan to assist a DPH system in collecting information necessary for these reports.
   
5. Requires DHCS, in consultation with each DPH, to determine a maximum amount that each class may earn in quality incentive payments for the SFY, as specified. Requires this amount to be paid to the DPH system by each of its contracted MCMC plans. Requires DHCS, if a DPH system contracts with multiple MCMC plans, to identify each MCMC plan’s proportionate amount of the DPH system’s payment, as specified.
   
6. Prohibits a contract between a MCMC plan and DPH system from being terminated by either party for the specific purpose of circumventing or otherwise impacting the payment obligations, as specified under this bill.
   
7. Requires each MCMC plan to be responsible for payment of the quality incentive payments.
   
8. Requires DHCS to provide appropriate funding to each MCMC plan, to account for and to enable them to make the quality incentive payments through incorporation into actuarially sound capitation rates or any other federally permissible method. Requires the amounts designated by DHCS for the quality incentive payments be reserved for the purposes of the performance-based quality incentive payment program.
   
9. Requires DHCS to consult with DPH systems to establish the uniform percentages and the aggregate size of the quality incentive payment program that, in combination with one another, are projected to result in aggregate payments that will advance the quality and access objectives reflected in prior payment enhancement mechanisms for DPH systems. Permits DHCS to modify the directed payments or quality incentive payment program. Requires DHCS, once the payment levels are established, to consult with the DPH systems and MCMC plans in the development of the MCMC rates needed for the directed payments and the structure of the quality incentive payment program.
   
10. Requires DHCS, for the 2017-18 SFY, to provide written notice of the directed payment and quality incentive payment amounts as soon as practicable after receipt of necessary federal approvals. Makes a MCMC plan’s obligation to pay the directed payments and quality incentive payments to a DPH system for the 2017-18 SFY to be contingent on the receipt of the written notice. Requires DHCS, for each annual determination commencing with the 2018-19 SFY and each SFY thereafter, to provide written notice, as soon as practicable, to each affected MCMC plan and DPH system of the applicable MCMC plan’s directed payment amounts, the classification of DPH systems, quality incentive payment amounts, and any other information deemed necessary for the MCMC plan to fulfill its payment obligations. Requires DHCS, if the modification of either or both directed payment amounts or quality incentive payment amounts is necessary after receipt of the written notification, to notify the MCMC plan and DPH system in writing of the revised amounts prior to implementation of the revised amounts.
    
11. Deems the contract service payments and quality incentive payment program provisions to be incorporated into each contract between a DPH system and a MCMC plan, and its subcontractor or designee, as applicable, and any claim for breach of those provisions may be brought directly in a court of competent jurisdiction.
    
12. Permits the nonfederal share of the portion of the capitation rates associated with directed payments to DPH systems and the quality incentive payments to consist of voluntary intergovernmental transfers (IGT) of funds provided by DPH systems and their affiliated governmental entities, or other public entities. Requires any IGT of funds made to be considered voluntary for purposes of all federal laws.
    
13. Requires DHCS, when applicable for voluntary IGTs, in consultation with DPH systems, to develop and maintain a protocol to determine the available funding for the nonfederal share associated with payments for each applicable SFY. Requires the protocol to account for any applicable contributions made by public entities to the nonfederal share of MCMC expenditures, including, contributions previously made under specified provisions of law.
    
14. Implements the above provisions only to the extent that any necessary federal approvals are obtained and federal financial participation (FFP) is available and is not otherwise jeopardized.
    
15. Prohibits DHCS, for any SFY that this bill is implemented, from being required to make any payment to MCMC plans pursuant to the following requirements in existing law that plans:
    
    1. Pay DPHs fee-for-service (FFS) payments amounts for seniors and persons with disabilities (SPDs);
    2. Pay DPHs cost-based services for the Medi-Cal-Patient Protection and Affordable Care Act (ACA) expansion population; and,
    3. Pay all of the rate range increase for the Medi-Cal-ACA expansion as additional payments to county public hospital health systems (plans are paid at least at 75% of the rate range available; to the extent FFP is available).
       
16. Requires DHCS to seek any necessary federal approvals for the directed payments and the quality incentive payments set forth in this bill.
17. Requires DHCS to consult with DPH systems with regard to the development and implementation of the directed payment levels and the quality incentive payments and to consult with both DPHs and MCMC plans with regards to the implementation of the payments.
18. Permits the DHCS Director, after consultation with DPH systems and MCMC plans, to modify the requirements set forth in this bill to the extent necessary to meet federal requirements or to maximize available FFP. Requires the DHCS Director, in the event federal approval is only available with significant limitations or modifications, or in the event of changes to the federal Medicaid program that result in a loss of funding currently available to the DPHs, to consult with DPHs and MCMC plans to consider alternative methodologies.
    
19. Permits DHCS to implement, interpret, or make specific this bill by means of all-county letters, plan letters, provider bulletins, or other similar instructions, without taking regulatory action. Requires DHCS to make use of appropriate processes to ensure that affected DPH systems and MCMC plans are informed in a timely manner of, and have access to, applicable guidance issued pursuant to this authority, and that this guidance remains publicly available until all payments made are finalized.
20. Establishes a “poison pill” provision and ceases operation of the directed payments and quality incentive payment program, as specified, if implementation is no longer financially and programmatically supportive of the Medi-Cal program. Requires the determination to be based on both of the following factors:
    1. The projected amount of the nonfederal share funds available is insufficient to support implementation of these provisions in the subject SFY; and,
    2. The degree to which the payment arrangements will no longer materially advance the goals and objectives of the above provisions and in DHCS’ managed care quality strategy drafted and implemented under federal regulations in the subject SFY.
       
21. Requires DHCS to consider all reasonable options for mitigating the circumstances in 43) above, including, but not limited to, options for curing projected funding shortfalls and options for program revisions and strategy updates to better coordinate payment requirements with the goals and objectives of this bill and the manage care quality strategy.
    
22. Requires DHCS to post notice of the determination pursuant to 43) above on its Internet Website, and to provide written notice of the determination to the Secretary of State, the Secretary of the Senate, the Chief Clerk of the Assembly, and the Legislative Counsel.
    
23. Requires DHCS, in consultation with the DPHs and the MCMC plans, to provide the Legislature with the federally approved evaluation plan required by federal regulations to measure the degree to which the DPH payments authorized under this bill advance at least one of the goals and objectives of DHCS’ managed care quality strategy.
    
24. Requires DHCS, in consultation with the DPH systems and the MCMC plans, to report to the Legislature the results of this evaluation no earlier than January 1, 2021.
    
25. Authorizes DHCS, after consultation with the DPH systems and MCMC plans, to exclude certain MCMC enrollee categories of aid, or subcategories, or certain categories of medical assistance provided under a MCMC plan, or subcategories from the definition of contract services payments.
    
26. Defines various terms, including contract services payments.
    
27. Makes this bill operative only if AB 205 (Wood) is enacted and becomes effective on or before January 1, 2018.
    

EXISTING STATE LAW:

1. Establishes the Medi-Cal program, administered by DHCS, under which health care services are provided to qualified, low-income persons. Establishes a schedule of benefits for Medi-Cal beneficiaries, which includes inpatient and outpatient hospital services. Provides Medi-Cal services through various types of MCMC plans.
2. Permits a public entity to elect to transfer public funds to the state to be used solely as the nonfederal share of Medi-Cal payments to managed care health plans for the provision of services to Medi-Cal beneficiaries. States these transfers are known as IGTs and are used to draw down federal Medicaid matching funds. Defines a public entity as a DPH, the University of California (UC), a county or city and county, or local hospital authority that is licensed to operate one or more DPHs.
3. Requires DHCS to require MCMC plans to pay DPH and other governmental providers affiliated with the transferring public entity for services at amounts that are no less than the total amount the provider would have otherwise been entitled to on a FFS basis, for the full scope of Medi-Cal services in order to ensure that the implementation of the transfer of SPDs to plans does not jeopardize the ability of DPHs and their affiliated public providers to continue serving Medi-Cal beneficiaries.
4. Requires MCMC plans serving Medi-Cal-ACA expansion beneficiaries to pay county public hospital health systems for services provided to newly eligible beneficiaries in amounts that are no less than the cost of providing those services, including the cost of network and out-of-network services that are charged to, or paid for by, county public hospital health systems. Requires the capitation rates paid to MCMC plans for ACA expansion beneficiaries to be determined to reflect this obligation.
5. Conditions the requirements in 3) and 4) above on an IGT to provide the nonfederal share of funds.
6. Establishes the Steven M. Thompson Physician Corps Loan Repayment Program which offers up to $105,000 for medical school loan repayments to a licensed physician and surgeon for practicing in a medically underserved community, as specified.

EXISTING FEDERAL MEDICAID MANAGED CARE REGULATIONS:

1. Prohibits the state from directing a Medicaid managed care plan’s expenditures under the contract, except the rule permits a state to require a managed care plan to implement value-based purchasing models, adopt a maximum or minimum fee schedule, or a uniform dollar or percentage increase for network providers.
2. Requires states to ensure that each Medicaid managed care calculates and reports a MLR or the percentage of each dollar the plan receives in premiums that the plan spends on health care services, as defined, versus administration, sales, marketing, and profit.
3. Requires states to develop plan rates in a way that the plan would reasonably achieve a MLR standard of at least 85% for the rate year.

FISCAL EFFECT: According to an analysis of a prior version of this bill by the Assembly Appropriations Committee:

1. This bill essentially implements federal regulations.
   1. DHCS will incur ongoing staff costs to comply with federal regulations pursuant to the provisions of this bill. In 2016-17, the Legislature approved DHCS's budget change proposal (BCP), providing $10.4 million and 38 positions to DHCS to implement the federal regulations this bill addresses. In the 2017-18 Governor's budget, DHCS requested an additional $8.9 million and 15 positions for the same purpose. DHCS indicates they do not intend to request additional resources.
   2. The Department of Social Services expects to incur costs of $2.0 million in 2018-19 and $1.6 million ongoing for staff to implement required changes to the fair hearing process. Actual costs are difficult to project on balance—some appeals may be exhausted at the plan level instead of resulting in a fair hearing, but the shortened timelines may necessitate additional resources.
   3. Uncertain impact on the overall financing of the Medi-Cal program. Three components have significant fiscal impacts: changing payments to public hospitals through managed care, implementing a medical loss ratio, and implementing standards on timely access to care. As the bill's provisions do not appear to go beyond what is required, the bill does not appear to result in any net cost impact that could be avoided. The state could see some, likely minor, level of remittances back from managed care plans that do not meet medical loss ratio requirements, due to the provision that implements a state option to require such remittances.

COMMENTS:

1. PURPOSE OF THIS BILL. According to the author, in 2016 and early 2017, CMS finalized two Medicaid and CHIP managed care regulations that have a significant impact on California’s Medi-Cal program in several areas, including how the state pays MCMC plans, how the plans pay hospitals and other health care providers, the grievance and appeals process for Medi-Cal beneficiaries who are enrolled in plans, and access to health care providers in MCMC plans, Denti-Cal managed care (DMC) plans, and county specialty mental health networks. The rules set forth requirements that states with Medicaid managed care must meet, options in how states meet those requirements, and gives states flexibility to establish different requirements than those contained in the federal rule.
   
   This bill and AB 205 (Wood) are companion bills to implement the Medicaid managed care rule in California. This bill would change how MCMC plans reimburse county and UC hospitals to ensure compliance with the significant changes resulting from the managed care payment requirements of the federal rule while continuing to provide crucial funding support for these safety net providers. This bill also implements a federal option to require a rebate if MCMC plans fail to spend at least 85% of premium revenue on health care services (the MLR), with the resulting revenue being used to provide loan repayment to physicians who practice in medically underserved areas through the Steven M. Thompson Physician Loan Repayment Program, and to require DHCS to ensure that all covered mental health and substance use disorder benefits are provided in compliance with the federal mental health parity regulations.
2. BACKGROUND. The Medi-Cal program is projected to have covered 13.7 million Californians each month in FY 2016-17, at a cost of $105.6 billion in total funds ($18.6 billion General Fund). DHCS administers Medi-Cal through two types of delivery systems: managed care and FFS.
   
   DHCS contracts with 22 MCMC plans across California, 56 county specialty mental health plans, and two primary care case management plans (AIDS Healthcare Foundation and Family Mosaic). Approximately 79% Medi-Cal beneficiaries receive care through a MCMC plan, a significant shift from December 2011, when only approximately 45% of beneficiaries were enrolled in MCMC.
   
   Dental services provided through Medi-Cal are known as Denti-Cal, and are primarily provided through FFS, except in two counties (Sacramento and Los Angeles). In Sacramento County, enrollment in a DMC plan is mandatory for Medi-Cal beneficiaries. In Los Angeles County, enrollment in a DMC plan is optional for beneficiaries. DMC plans are also subject to the federal rule. According to a 2016 DHCS report, between the two counties, there are approximately 932,000 beneficiaries receiving care under DMC. The provisions of the federal rule also apply to the 56 county specialty mental health plans that provide mental health services to Medi-Cal beneficiaries with a severe mental illness (two counties are served by one plan).
   
   1. Medicaid managed care rule and public hospital Medi-Cal funding from plans. Some of the most significant changes in the federal Medicaid managed care regulations are a prohibition (with exceptions) against states directing Medicaid managed care plans’ expenditures under the contract with the state, a requirement that permissible directed payments be uniform and be for network providers, and a requirement for a prospective payment to plans (instead of a “rate range” payment with retrospective payments allowed after the rate year). The effect of these changes is to require a change in how the state pays MCMC plans, and how payments from plans to public hospitals (county and UC hospitals) are made using IGTs. Under the federal rule, existing supplemental payments from plans to hospitals using funds from IGTs and associated federal matching funds are considered directed payments that are not permitted under one of the permissible directed payment provisions in federal regulation. The federal rule only allows the state to require the plan to make directed payments involving value-based purchasing models for provider reimbursement, through a minimum or maximum fee schedule or a uniform dollar or percentage increase for network providers.
      
      In addition, any directed payments must be developed in accordance with actuarial soundness rate requirements, generally accepted actuarial principles and practices, and have written approval prior to implementation. To obtain written approval, a state must demonstrate, in writing that the arrangement is based on the utilization and delivery of services, directs expenditures equally, advances one of the goals and objectives of the state’s quality strategy, has an evaluation plan, is not renewed automatically, and does not condition network participation in contract arrangements on the provider entering into or adhering to IGT agreements.
      
      Following discussions between DHCS, other states’ Medicaid programs and CMS, the directed payment provisions in this bill have been have modified to reduce the financial risk to MCMC plans and DPHs at least during the early stages of implementation of the federal rule.
      
      This bill would implement two permissible directed payment options under the federal rule: an enhanced contract service payment using a uniform methodology for network providers, and participation in quality incentive payment programs. These payments would apply to all Medi-Cal managed enrollees and would replace existing IGT-funded reimbursement currently received for SPDs and the ACA Medi-Cal expansion population. The directed payment provisions apply to rating periods for contracts starting on or after July 1, 2017.
   2. MLR. In general terms, an MLR is the percentage of each dollar the plan receives in premiums that the plan spends on health care services, as defined, versus administration, sales, marketing, and profit. In addition to requiring plans to calculate and report a MLR, states must develop plan rates in a way that the plan would reasonably achieve a MLR standard of at least 85% for the rate year.
      
      The federal rule permits states to require MCMC plans to meet a minimum MLR, provided the minimum MLR is equal to or higher than 85% (the standard used for projecting soundness) and the MLR must be calculated and reported for each MLR reporting year by the MCMC plan that is consistent with this federal rule. In addition, the rule gives states the option of requiring a remittance if plans do not meet the MLR. This bill implements this federal option and would require a rebate if MCMC plans fail to comply with the MLR requirement, with the resulting revenue being used to provide loan repayment to physicians who practice in medically underserved areas through the Steven M. Thompson Physician Corps Loan Repayment Program.
      
      The ACA required states to establish a MLR for health plans serving commercial populations. Dental plans are exempt from the ACA-required MLR. For plans in the large group market, the ACA-required MLR is 85% or a higher percentage determined by the state through regulation. For individual and small group plans, the MLR is 80% or higher percentage determined by the state through regulation. The federal Department of Health and Human Services Secretary can adjust small group and individual market MLR if he or she determines that the 80% requirement may destabilize the individual market in a state.
      
      If a plan fails to meet the federal MLR requirements, rebates are required to be issued to the plan’s customers. California does not impose a MLR on full-service MCMC plans, except for a federally required MLR for the Medicaid optional expansion population. California has a contractually required dental “minimum” loss ratio for dental managed care plans of 70%. Federal rebates from the ACA-required MLR (reported to DMHC), indicates, from reporting year 2011 through 2015, 10 plans have issued rebates in the following dollar amounts:
      
      1. Individual market: total $64 million;
      2. Small group market: total $138.2 million; and,
      3. Large group market: total $3.3 million.

DHCS provided self-reported data from 21 MCMC plans indicating plans’ MLR for SFY 2015-16 ranged from 77.9% to 97.7% (excluding Kaiser) with an unweighted average of 86.47%.

• 1. Mental Health Parity. The federal Medicaid mental health parity rule applies the Mental Health Parity and Addiction Equity Act of 2008 to Medicaid. The change is intended to create consistency between the commercial and Medicaid markets. The Medicaid parity rule applies parity across different delivery systems, applies parity to alternative benefit plans and state plans, and extends parity protections to long-term services supports. Parity generally requires that financial requirements and quantitative treatment limitations on mental health and substance use disorder benefits cannot be more restrictive or be applied more stringently than medical/surgical benefits. In addition, non-quantitative treatment limitations on mental health or substance use disorder benefits in processes, strategies, evidentiary standards, or other factors must be comparable to, and applied no more stringently than, limitations applied to medical/surgical benefits in the same classification. Parity applies to all individuals enrolled in a MCMC plan. Once the beneficiary is enrolled in a plan, his/her entire benefit package is subject to parity. Parity does not apply to beneficiaries who are in FFS only or not enrolled in an MCMC plan. The federal parity rule was effective May 31, 2016 with an implementation date of October 2, 2017.
     
  2. Recent CMS Guidance. On June 30, 2017, CMS issued an informational bulletin regarding the provisions of the Medicaid Managed Care Regulations with a July 1, 2017 compliance date. CMS had previously notified states (in March 2017) that it was committed to a review of the managed care regulations in order to prioritize beneficiary outcomes and state priorities, but that any modifications or changes to the Medicaid managed care final rule would generally necessitate rulemaking as required by the federal Administrative Procedures Act.
     
     In the June 2017 bulletin, CMS stated that while it conducts this review, it intends to use its enforcement discretion to focus on working with states to achieve compliance with the managed care regulations when states are unable to implement new and potentially burdensome requirements of the final rule by the required compliance date, particularly provisions with a compliance deadline of contracts beginning on or after July 1, 2017. CMS indicated this use of its enforcement discretion will be applied based on state-specific facts and circumstances and focused on states’ specific needs.
     
     To implement this targeted enforcement discretion, states will need to identify for CMS those regulations of the final rule that they are unable to implement by the required compliance date. CMS indicates states should work through their normal regional office processes to identify the specific regulations. CMS will work with states on assessing compliance with the specific regulation, including: i) the specific goals and intent for the regulation; ii) compliance with regulatory standards that were in effect prior to the Medicaid managed care rule publication in 2016; iii) alternatives the state could consider in moving toward compliance and strategies for how states can best mitigate specific risks and concerns with non-compliance; and, iv) developing a timeline for future compliance with the regulatory requirement. Notwithstanding this guidance, CMS states it is unable to permit flexibility for all provisions of the final rule for which compliance is required for contracts beginning on or after July 1, 2017. Specifically, CMS points out it cannot permit flexibility for: the actuarial soundness and payment provisions; the pass-through payment provisions; and, specified MLR provisions.
     
  3. Informational Hearing. On February 28, 2017, the Assembly and Senate Health Committees conducted a joint informational hearing on the implementation of the Federal Medicaid managed care rule in California. The hearing provided an overview of the provisions of the rules that have a significant fiscal impact on California’s MCMC delivery system or where California has policy choices in implementing the rules.
     

1. SUPPORT. The California Association of Public Hospitals and Health Systems (CAPHHS) supports the public hospital-related provisions of this bill to implement critical provisions of the federal Medicaid Managed Care rule related to supplemental Medi-Cal funding for California’s public health care systems. CAPHHS writes that this bill restructures these payments to comply with the regulation, enabling public health care systems to retain more than $1 billion annually in federal Medicaid funding currently provided through supplemental payments drawn down through IGT funded payments made by counties and public hospitals. In order to meet new CMS requirements, public health care system supplemental payments must be restructured. This bill would implement two new payment provisions (directed payments and performance-based quality incentive payments) that would allow public health care systems to leverage supplemental funding, if and only if they achieve clinical and performance metrics. CAPHHS concludes that successful implementation of these two approaches would allow public health care systems to retain critical Medi-Cal funding in order to support their mission and commitment to serving a large Medi-Cal and uninsured population. Riverside County, the California Association of Counties, the California Hospital Association, San Francisco Department of Public Health, and the Urban Counties of California similarly support the public hospitals provisions.
   
   The California Association of Physician Groups (CAPG) and the California Medical Association support the MLR provisions and state that it is critical that the limited Medi-Cal funds be spent on beneficiary health care services to the greatest extent possible.
   
   The California Pan-Ethnic Health Network, Health Access California, and the Western Center on Law and Poverty support a robust stakeholder process and public reporting compliance for the mental health and substance use disorder parity provisions, consistent with federal requirements.
   
2. RELATED LEGISLATION. AB 205 (Wood) implements the state fair hearing, managed care plan grievance requirements, and access to care/time and distance provisions of the federal Medicaid managed care rule. AB 205 is pending in the Senate.

REGISTERED SUPPORT / OPPOSITION:

Support

American Federation of State, County, and Municipal Employees

California Association of Physician Groups

California Association of Public Hospitals and Health Systems

California Hospital Association

California Medical Association

California Pan-Ethnic Health Network

California State Association of Counties

City and County of San Francisco

Contra Costa County Board of Supervisors

Health Access California

Riverside County Board of Supervisors

San Francisco Department of Public Health

Santa Clara County Board of Supervisors

Urban Counties of California

Western Center on Law & Poverty

Opposition

None on file.

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

SENATE THIRD READING

STR Bill Id:

Author:(Hernandez)

As Amended Ver:

Majority vote

SENATE VOTE: 37-0

SUMMARY: Requires the Department of Health Care Services (DHCS) to develop time and distance standards for health care provider types specified in federal regulation to ensure access to medically necessary covered services. Implements a federal option to require Medi-Cal managed care (MCMC) plans to provide a remittance if the MCMC plan fails to meet an 85% medical loss ratio (MLR). Requires DHCS to ensure that all covered mental health and substance use disorder benefits are provided in compliance with federal mental health parity regulations. Requires DHCS to require MCMC plans to enhance contract services payments to designated public hospitals (DPHs) by amounts determined under a uniform methodology. Requires DHCS to establish a program under which DPHs may earn performance-based quality incentive payments from MCMC plans. Specifically, this bill:

Hearing Procedures

1. Requires a person who is enrolled in a MCMC plan and who has received an adverse benefit determination from the MCMC plan, to the extent required by federal law or regulation, to appeal the adverse benefit determination to the MCMC plan before requesting a state fair hearing.
2. Authorizes a person to request a fair hearing involving a MCMC plan within 120 calendar days (currently at 90 days) after an order or action, under either the following conditions:
   1. Receiving verbal or written notice from the MCMC plan that the adverse benefit determination is upheld or the appeal or expedited appeal is denied; or,
   2. When the enrollee's appeal is deemed exhausted because the MCMC plan failed to comply with state or federal requirements for notice and timeliness related to the disputed action or the appeal, including when a MCMC plan fails to respond to an appeal within 30 days as required or asks the enrollee or his or her treating provider for more information to resolve the appeal solely for purposes of delaying a decision.
3. Allows an extension of the timeframe in 2) above where there is good cause for filing the request beyond the 120-calendar year period, and continues to allow the Director of the Department of Social Services (DSS) to determine whether good cause exists.
4. Requires DSS to implement the provisions of this bill by adopting any necessary rules and regulations in accordance with the Administrative Procedure Act (APA). Authorizes emergency regulations until July 1, 2018.
5. Requires DSS, for a beneficiary of a MCMC plan that meets the criteria for an expedited resolution of an appeal, to take final administrative action as expeditiously as the individual's health condition requires, but no later than three working days after DSS receives from the MCMC plan, the case file and information for any appeal of a denial or a service that, as indicated by the MCMC plan, meets either of the following criteria:
   1. Meets federal criteria for expedited resolution but was not resolved within the timeframe for expedited resolution; or,
   2. Was resolved within the timeframe for expedited resolution, but reached a decision wholly or partially adverse to the beneficiary.
6. Requires MCMC plans, upon notice from DSS that a MCMC plan's beneficiary has requested a state fair hearing, to provide a copy of the following information within three business days of the MCMC plan's receipt of DSS's notice of a request by a beneficiary for a state fair hearing:
   1. The case file; and,
   2. Any information for any appeal or a denial of a service, as specified.

Time and Distance Requirements

1. Specifies intent of the Legislature that the DHCS implement time and distance requirements to ensure that all Medi-Cal covered services are available and accessible to enrollees of MCMC plans in a timely manner, as those standards were enacted in May 2016.
2. Requires DHCS, in consultation with the Department of Managed Health Care (DMHC), to develop time and distance standards for the following provider types, to ensure that covered and medically necessary benefits are accessible to enrollees of a MCMC plan:
   1. Primary care: adult and pediatric;
   2. Obstetrics and gynecology (OB/GYN);
   3. Behavioral health (including mental health and substance use disorder): adult and pediatric;
   4. Specialist: adult and pediatric;
   5. Hospital;
   6. Pharmacy;
   7. Pediatric dental;
   8. Additional provider types when it promotes the objectives of the Medicaid program, as determined by the federal Centers for Medicare and Medicaid Services (CMS)
   9. Long-term services and supports (LTSS) provider types in which an enrollee must travel to the provider to receive services; and,
   10. Network adequacy standards other than time and distance standards for LTSS provider types that travel to the enrollee to deliver services.
3. Requires the standards developed by DHCS to: a) meet existing time and distance standards in existing regulations and Medi-Cal contracts entered into as of January 1, 2016. Requires, in the event of a conflict between the time and distance standards set forth in regulations and contracts entered into by DHCS as of January 1, 2016, the standard that requires a shorter travel time or less distance prevails; b) to meet the appointment time standards implemented pursuant to the Knox-Keene Health Care Service Act of 1975 (Knox-Keene) regulations and in standards in contracts with MCMC; and, c) take into consideration specified elements contained in federal regulations, as specified.
4. Requires DHCS, if it elects a county standard for the time and distance standard, to categorize counties into at least five or more county categories, one of which is a rural county category.
5. Permits DHCS to have varying standards for the same provider type based on geographic areas, subject to the above requirements.
6. Permits DHCS, upon request of a MCMC plan, to allow alternative access standards if the requesting MCMC plan has exhausted all other reasonable options to obtain providers to meet either time and distance or timely access standards, and, if the MCMC plan is licensed as a health care service plan under Knox-Keene, and has obtained approval from DMHC. Requires DHCS to post any approved alternative access standards on its Internet Website.
7. Permits DHCS to allow for the use of telecommunications technology as a means of alternative access to care, including telehealth consistent with existing law requirements, e-visits, or other evolving and innovative technological solutions that are used to provide care from a distance.
8. Permits DHCS to permit standards other than time and distance if the health care provider travels to the beneficiary or to a community-based setting to deliver services.
9. Requires a MCMC plan to, on an annual basis and when requested by DHCS, demonstrate its compliance with the time and distance and appointment wait time standards pursuant to this bill. Requires the report to measure compliance separately for adult and pediatric services for primary care, behavioral health, and core specialist services. Requires a MCMC plan, that is also licensed under Knox-Keene to, on an annual basis, demonstrate to the DMHC its compliance with the time and distance and appointment and wait time standards.
10. Requires DHCS to annually publish on its Internet Web site a report for each MCMC plan that specifies any areas where the MCMC plan was found to be out of compliance and the MCMC plan's corrective action plan.
11. Requires DHCS to consult with MCMC plans, including mental health plans, health care providers, consumers, providers and consumers of LTSS, and organizations representing Medi-Cal beneficiaries in the implementation of the time and distance requirements.
12. Authorizes DHCS to implement, interpret, or make specific the above provisions by means of all-county letters, plan letters, plan or provider bulletins, or similar instructions until regulations are adopted. Requires DHCS to adopt regulations by July 1, 2019. Requires DHCS beginning July 1, 2018, to provide a status report to the Legislature on a semi-annual basis, as specified.

Mental Health and Substance Use Disorder Benefits: Mental Health Parity

1. Requires DHCS to ensure that all covered mental health and substance use disorder benefits are provided in compliance with the federal "Medicaid and Children's Health Insurance Programs: Mental Health Parity and Addiction Equity Act of 2008; the Application of Mental Health Parity Requirements to Coverage Offered by Medicaid Managed Care Organization, the Children's Health Insurance Program (CHIP), Alternative Benefit Plans; Final Rule," any subsequent amendments to those regulations, and any associated federal policy guidance issued by CMS.
2. Requires DHCS to implement, interpret, or make specific 19) above by means of all-county letters, plan letters, plan or provider bulletins, or similar instructions until regulations are adopted. Requires the DHCS Director to consult with MCMC plans and consumer advocates. Requires DHCS to adopt regulations by July 1, 2018.
3. Requires a MCMC plan, on an annual basis and when requested by DHCS, demonstrate compliance with the above provisions. Requires DHCS to make an annual compliance report available on its Internet Web site.

MLR

1. Requires a MCMC plan to comply with a minimum 85% MLR and requires the MLR to be calculated and reported for each MLR reporting year by the MCMC plan, consistent with specified federal regulations.
2. Requires a MCMC plan to provide a remittance for an MLR reporting year if the ratio for that MLR reporting year does not meet the minimum MLR standard of 85%.
3. Applies the remittance requirement in 23) above to MCMC plans but exempts primary care management plans or dental managed care plans.
4. Requires DHCS to post on its Internet Web site all of the following:
   1. The aggregate MLR of all MCMC plans;
   2. The MLR of each MCMC plan; and,
   3. Any required remittances owed by each MCMC plan.

Adverse Benefit Determinations & Appeals

1. Requires a MCMC plan to give a beneficiary timely and adequate notice of an adverse benefit determination in writing consistent with federal managed care rules requirements, as specified.
2. Defines an adverse benefit determination pursuant to the definition in federal law or any health care service eligible for coverage and payment under a MCMC plan contract that has been denied, modified, or delayed by a decision of the MCMC plan, or by one of its contracting providers.
3. Requires a MCMC plan to resolve an appeal no more than 30 calendar days from the day the MCMC plan receives the appeal.
4. Requires a MCMC plan to resolve an expedited appeal no longer than 72 hours after the MCMC plan receives the appeal. Requires a MCMC plan to establish and maintain an expedited review process for a beneficiary or the beneficiary's provider to request an expedited resolution of an appeal based on either of the following circumstances:
   1. If the MCMC plan determines, for a request from the beneficiary, or the provider indicates, in making the request on the beneficiary's behalf or supporting the beneficiary's request, that taking the time for a standard resolution under the timeframe described in 28) above could seriously jeopardize the beneficiary's life, physical or mental health, or ability to attain, or regain, maximum function; or,
   2. When the beneficiary's condition is such that the beneficiary faces an imminent and serious threat to his or her health, including but not limited to, the potential loss of life, limb, or other major bodily function, and the 30 day timeframe in 28) above would be detrimental to the beneficiary's life, or health or could jeopardize the beneficiary's ability to regain maximum function.

DPH Systems: Enhanced Payments

1. Requires DHCS, commencing with the 2017-18 state fiscal year (SFY), and for each SFY thereafter, to require each MCMC plan to enhance contract services payments to the DPH systems by amounts determined under a uniform methodology that meets federal requirements and as described in this bill. Permits the enhancements to be determined and applied as distributions from directed enhanced payment pools, as a uniform percentage increase, or other basis, and may incorporate acuity adjustments or other factors.
2. Permits the directed payments to separately account for inpatient hospital services and noninpatient hospital services and must be developed and applied separately for and uniformly within each of the following classes of DPH systems, as follows:
   1. DPHs owned and operated by the University of California (UC);
   2. DPHs that hold a risk-based per member per month capitated contract with one or more MCMC plans that includes capitation for the provision of inpatient hospital services;
   3. DPHs with a level 1 or level 2 trauma designation; and,
   4. All other DPHs not identified in a), b) or c) above.
3. Requires DHCS to develop and implement the directed payment program in consultation with DPH systems or MCMC plans, or both, as follows:
   1. DHCS, in consultation with the DPH systems, to annually determine on a prospective basis the aggregate amount of payments that will be directed to each class of DPH systems, and the classification of each DPH system. Prohibits that classification from being changed no sooner than the subsequent SFY once DHCS determines the classification for each DPH systems for that particular SFY. For SFYs following the 2017-18 SFY, the aggregate amounts of payments to a class of DPHs must include an increase for the rate of inflation to the aggregate amounts available during the prior SFY, subject to any modifications to account for changes in the classification of DPHs, changes required by federal law, changes to account for the size of the payments, or other material payments;
   2. DHCS, in consultation with the DPHs must develop the methodologies for determining the required directed payments for each DPH system;
   3. Permits DHCS, to the extent necessary to meet the objectives identified in this bill or to comply with federal requirements, in consultation with the DPH systems, to adjust or modify the amounts of the aggregate directed payments for any class of DPH systems or the method for determining the distribution of the directed payment amounts within any class of DPHs, and modify, consolidate, or subdivide the classes of DPHs; and,
   4. After the aggregate amounts and the distribution methodology of directed payments for each DPHs class have been established, DHCS shall consult with the DPHs and each affected MCMC plan with regard to the impact on the MCMC plan capitation rate setting process, and implementation of the directed payment requirements, including applicable interim and final payment processes, to ensure that 100% of the aggregate amounts are paid to the applicable DPH system.
4. Requires the required directed payment amounts to be paid by the MCMC plan as adjustments to the total amounts of contract services payments otherwise paid to the DPH systems in accordance with DHCS's directions and methodologies.
5. Requires the directed payments to be implemented and documented by each MCMC plan and DPH system and requires the MCMC plan and DPH system to determine the manner, timing, and amount of payment for contracted service, as specified.
6. Prohibits the required directed payment enhancements from supplanting amounts that would otherwise be payable by a MCMC plan to a DPH system for an applicable SFY. Prohibits a MCMC plan from imposing a fee or retention amount that would result in a direct or indirect reduction to the amounts, as required.
7. Prohibits a contract between a MCMC plan and a DPH from being terminated by either party for the specific purpose of circumventing or otherwise impacting the payment obligations.
8. Requires a MCMC plan, in the event it subcontracts or delegates responsibility to a separate entity for either or both the arrangement or payment of services, to be responsible for paying the DPH system the directed payment described in this bill with respect to the services it provides that are covered by that arrangement. Requires the DPH system and the applicable subcontractor or delegated entity to work with the MCMC plan to provide the necessary information to facilitate the MCMC plan's compliance with the payments requirements.
9. Requires, each year, a MCMC plan to provide to DHCS an accounting of amounts paid or payable to the DPH systems it contracts with, including both contracted rates and the directed payments in order to demonstrate compliance.
10. Permits DHCS, after providing notice of its determination to the affected MCMC plan and allowing a reasonable period for the MCMC plan to cure specified deficiencies, to reduce the default assignment into the MCMC plan with respect to all MCMC beneficiaries by up to 25%, if DHCS determines, in its sole discretion, that a MCMC plan is not in compliance with the requirements of the above provisions, or is otherwise circumventing the purposes thereof, to the material detriment of an applicable DPH system, so long as the other MCMC plan or MCMC plans in the applicable county have the capacity to receive the additional default membership. Prohibits these provisions from being construed to preclude or otherwise limit the right of any MCMC plan or DPH system to pursue a breach of contract action in connection with these requirements.
11. Requires capitation rates paid by DHCS to a MCMC plan to be actuarially sound and account for the MCMC plan's obligation to pay the directed payments to DPH systems, as specified.
12. Permits DHCS to require MCMC plans and the DPH systems to submit information regarding contract rates and expected or actual utilization of services, at the times and in the form and manner specified by DHCS.
13. Requires DHCS to utilize the most recently available data, and reasonable projections, as determined by DHCS, when accounting for directed payments, and to account for additional clinics, practices, or other health care providers added to the DPH systems. Permits DHCS to account for material adjustments, as appropriate under federal law and actuarial standards, and as determined by DHCS, to contracts entered into between a MCMC plan and a DPH system.

DPH Systems: Quality Incentive Payments

1. Requires DHCS, in consultation with DPH systems and applicable MCMC plans, commencing with the 2017-18 SFY, and for each SFY thereafter, to establish a program under which a DPH system may earn performance-based quality incentive payments from the MCMC plan they contract with in accordance with this bill.
2. Requires incentive payments to be earned by each DPH system based on its performance in achieving identified targets for quality of care.
3. Requires DHCS, in consultation with DPH systems and each MCMC plan, to establish and provide a method for updating uniform performance measures for the performance-based quality incentive payment program and parameters for the DPH system to select the applicable measures. Requires the performance measures to advance at least one goal identified in the state's Medicaid quality strategy and prohibits measures from duplicating measures utilized in the Public Hospital Redesign and Incentives in Medi-Cal (known as the PRIME) program operated under the state's Section 1115 Medicaid Waiver.
4. Requires each DPH system to submit reports to DHCS containing information required to evaluate its performance on all applicable performance measures, at the times and in the form and manner specified by DHCS. Requires a MCMC plan to assist a DPH system in collecting information necessary for these reports.
5. Requires DHCS, in consultation with each DPH, to determine a maximum amount that each class may earn in quality incentive payments for the SFY, as specified. Requires this amount to be paid to the DPH system by each of its contracted MCMC plans. Requires DHCS, if a DPH system contracts with multiple MCMC plans, to identify each MCMC plan's proportionate amount of the DPH system's payment, as specified.
6. Prohibits a contract between a MCMC plan and DPH system from being terminated by either party for the specific purpose of circumventing or otherwise impacting the payment obligations, as specified under this bill.
7. Requires each MCMC plan to be responsible for payment of the quality incentive payments.
8. Requires DHCS to provide appropriate funding to each MCMC plan, to account for and to enable them to make the quality incentive payments through the incorporation into actuarially sound capitation rates or any other federally permissible method. Requires the amounts designated by DHCS for the quality incentive payments to be reserved for the purposes of the performance-based quality incentive payment program.
9. Requires DHCS to consult with DPH systems to establish the uniform percentages and the aggregate size of the quality incentive payment program that, in combination with one another, are projected to result in aggregate payments that will advance the quality and access objectives reflected in prior payment enhancement mechanisms for DPH systems. Permits DHCS to modify the directed payments or quality incentive payment program. Requires DHCS, once the payment levels are established, to consult with the DPH systems and MCMC plans in the development of the MCMC rates needed for the directed payments and the structure of the quality incentive payment program.
10. Requires DHCS, for the SFY 2017–18, to provide written notice of the directed payment and quality incentive payment amounts. Requires DHCS, for each annual determination thereafter, to provide written notice at least 90 days in advance to each affected Medi-Cal managed care plan and designated public hospital system of the applicable Medi-Cal managed care plan's directed payment amounts, the classification of DPH systems, quality incentive payment amounts, and any other information deemed necessary for the Medi-Cal managed care plan to fulfill its payment obligations. Requires DHCS, if the modification of either or both directed payment amounts or quality incentive payment amounts is necessary after receipt of the written notification, to notify the MCMC plan and DPH system in writing of the revised amounts prior to implementation of the revised amounts.
11. Provides that a MCMC plan's obligation to pay the directed payments and quality incentive payments to a DPH is contingent upon receipt of notice from DHCS that it is in receipt of the necessary federal approvals, as specified.
12. Deems the contract service payments and quality incentive payment program provisions to be incorporated into each contract between a DPH system and a MCMC plan, and its subcontractor or designee, as applicable, and any claim for breach of those provisions may be brought directly in a court of competent jurisdiction.
13. Permits the nonfederal share of the portion of the capitation rates associated with directed payments to DPH systems and the quality incentive payments to consist of voluntary intergovernmental transfers (IGT) of funds provided by DPH systems and their affiliated governmental entities, or other public entities. Requires any IGT of funds made to be considered voluntary for purposes of all federal laws.
14. Requires DHCS, when applicable for voluntary IGTs, in consultation with DPH systems, to develop and maintain a protocol to determine the available funding for the nonfederal share associated with payments for each applicable SFY. Requires the protocol to account for any applicable contributions made by public entities to the nonfederal share of MCMC expenditures, including, contributions previously made under specified provisions of law.
15. Implements the above provisions only to the extent that any necessary federal approvals are obtained and federal financial participation (FFP) is available and is not otherwise jeopardized.
16. Prohibits DHCS, for any SFY that this bill is implemented, from being required to make any payment to MCMC plans pursuant to the following requirements in existing law that plans:
    1. Pay DPHs fee-for-service payments amounts for seniors and persons with disabilities;
    2. Pay DPHs cost-based services for the Medi-Cal-Patient Protection and Affordable Care Act (ACA) expansion population; and,
    3. Pay all of the rate range increase for the Medi-Cal-ACA expansion as additional payments to county public hospital health systems (plans are paid at least at 75% of the rate range available; to the extent FFP is available).
17. Requires DHCS to seek any necessary federal approvals for the directed payments and the quality incentive payments set forth in this bill.
18. Requires DHCS to consult with DPH systems with regard to the development and implementation of the directed payment levels and the quality incentive payments and to consult with both DPHs and MCMC plans with regards to the implementation of the payments.
19. Permits the DHCS Director, after consultation with DPH systems and MCMC plans, to modify the requirements set forth in this bill to the extent necessary to meet federal requirements or to maximize available FFP. Requires the DHCS Director, in the event federal approval is only available with significant limitations or modifications, or in the event of changes to the federal Medicaid program that result in a loss of funding currently available to the DPHs, to consult with DPHs and MCMC plans to consider alternative methodologies.
20. Permits DHCS to implement, interpret, or make specific this bill by means of all-county letters, plan letters, provider bulletins, or other similar instructions, without taking regulatory action. Requires DHCS to make use of appropriate processes to ensure that affected DPH systems and MCMC plans are timely informed of, and have access to, applicable guidance issued pursuant to this authority, and that this guidance remains publicly available until all payments made are finalized.
21. Establishes a "poison pill" provision and ceases operation of the directed payments and quality incentive payment program, as specified, if implementation is no longer financially and programmatically supportive of the Medi-Cal program. Requires the determination to be based on both of the following factors:
    1. The projected amount of the nonfederal share funds available is insufficient to support implementation of these provisions in the subject SFY; and,
    2. The degree to which the payment arrangements will no longer materially advance the goals and objectives of the above provisions and in DHCS' managed care quality strategy drafted and implemented under federal regulations in the subject SFY.
22. Requires DHCS to consider all reasonable options for mitigating the circumstances in 63) above, including, but not limited to, options for curing projected funding shortfalls and options for program revisions and strategy updates to better coordinate payment requirements with the goals and objectives of this bill and the manage care quality strategy.
23. Requires DHCS to post notice of the determination pursuant to 63) above on its Internet Website, and to provide written notice of the determination to the Secretary of State, the Secretary of the Senate, the Chief Clerk of the Assembly, and the Legislative Counsel.
24. Requires DHCS, in consultation with the designated public hospitals and the MCMC plans, to provide the Legislature with the evaluation plan required by federal regulation to measure the degree to which the DPH payments authorized under this bill advance at least one of the goals and objectives of DHCS' managed care quality strategy.
25. Requires DHCS, in consultation with the DPH systems and the MCMC plans, to report to the Legislature the results of this evaluation no earlier than January 1, 2021.

FISCAL EFFECT: According to the Assembly Appropriations Committee:

1. This bill essentially implements federal regulations.
   1. DHCS will incur ongoing staff costs to comply with federal regulations pursuant to the provisions of this bill. In 2016-17, the Legislature approved DHCS's budget change proposal (BCP), providing $10.4 million and 38 positions to DHCS to implement the federal regulations this bill addresses. In the 2017-18 Governor's budget, the department is requested an additional $8.9 million and 15 positions for the same purpose. DHCS indicates the department does not intend to request additional resources.
   2. Department of Social Services expects to incur costs of $2.0 million in 2018-19 and $1.6 million ongoing for staff to implement required changes to the fair hearing process. Actual costs are difficult to project on balance—some appeals may be exhausted at the plan level instead of resulting in a fair hearing, but the shortened timelines may necessitate additional resources.
2. Uncertain impact on the overall financing of the Medi-Cal program. Three components have significant fiscal impacts: changing payments to public hospitals through managed care, implementing a medical loss ratio, and implementing standards on timely access to care. As the bill's provisions do not appear to go beyond what is required, the bill does not appear to result in any net cost impact that could be avoided. The state could see some, likely minor, level of remittances back from managed care plans that do not meet medical loss ratio requirements, due to the provision that implements a state option to require such remittances.

COMMENTS: According to the author, in 2016 and early 2017, CMS finalized two Medicaid and CHIP managed care regulations that have a significant impact on California's Medi-Cal program in several areas, including how the state pays MCMC plans, how the plans pay hospitals and other health care providers, the grievance and appeals process for Medi-Cal beneficiaries who are enrolled in plans, and access to health care providers in MCMC plans, Denti-Cal managed care plans, and county specialty mental health networks. The rules set forth requirements that states with Medicaid managed care must meet, options in how states meet those requirements, and while giving states flexibility to establish different requirements than those contained in the federal rule.

Analysis Prepared by: Rosielyn Pulmano / HEALTH / (916) 319-2097 FN: 0001737

Date of Hearing: August 23, 2017

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

SBPCA Bill Id:SB 171

Author:(Hernandez) – As Amended Ver:July 5, 2017

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

SUMMARY:

This bill makes changes needed to implement major federal regulations governing managed care delivery systems in Medicaid (Medi-Cal in California). Specifically, major provisions of this bill:

1. Require the Department of Health Care Services (DHCS) to implement time and distance standards for managed care plans, and require the standards be not less than those currently in place pursuant to state contracts and health plan licensure requirements.
2. Change the methodology by which public hospitals are paid by managed care plans from the current cost-based system, to a methodology with two components: (1) directed payments based on a uniform percentage of contracted services payments, and (2) quality incentive payments.
3. Allow DHCS flexibility in implementation of (2) to meet federal requirements or maximize federal financial participation, and allow for the cessation of payments pursuant to (2) upon a DHCS determination that its provisions are no longer financially and programmatically supportive of the Medi-Cal program, as specified.
4. Implement requirements that managed care plans comply with an 85% minimum "medical loss ratio" (percentage of revenues spent on services), and remit payments to the state if minimums are not met.
5. Implement requirements that an enrollee must appeal an "adverse benefit determination," such as a denial of a requested service, with the plan prior to requesting a state-administered fair hearing, and modify the circumstances and time frames that apply to such requests.
6. Require Medi-Cal managed care plans to have in place an expedited process to resolve certain appeals.
7. Require DHCS to ensure covered mental health and substance use disorder benefits are provided in compliance with federal regulations that require mental health benefits in federally funded public programs to be offered at parity with physical health benefits.
8. Allow DHCS to use non-regulatory means or emergency regulations to implement many of its provisions.

FISCAL EFFECT:

1. This bill essentially implements federal regulations.
   1. DHCS will incur ongoing staff costs to comply with federal regulations pursuant to the provisions of this bill. In 2016-17, the budget provided $10.4 million and 38 positions to DHCS to implement the federal regulations this bill addresses. In the 2017-18 Governor's budget, the department is requested an additional $8.9 million and 15 positions for the same purpose. DHCS indicates the department does not intend to request additional resources.
   2. Department of Social Services expects to incur costs of $2.0 million in 2018-19 and $1.6 million ongoing for staff to implement required changes to the fair hearing process. Actual costs are difficult to project on balance—some appeals may be exhausted at the plan level instead of resulting in a fair hearing, but the shortened timelines may necessitate additional resources.
2. Uncertain impact on the overall financing of the Medi-Cal program. Three components have significant fiscal impacts: changing payments to public hospitals through managed care, implementing a medical loss ratio, and implementing standards on timely access to care. As the bill's provisions do not appear to go beyond what is required, the bill does not appear to result in any net cost impact that could be avoided. The state could see some, likely minor, level of remittances back from managed care plans that do not meet medical loss ratio requirements, due to the provision that implements a state option to require such remittances.

COMMENTS:

1. Purpose. The intent of this bill is to implement new, major federal requirements on Medicaid managed care plans. According to the author, in 2016 and early 2017, the federal Centers for Medicare and Medicaid Services (CMS) finalized two Medicaid and Children’s Health Insurance Program (CHIP) managed care regulations that have a significant impact on California’s Medi-Cal program in several areas. These include changes to how the state pays Medi-Cal managed care plans, how the plans pay hospitals and other health care providers, the grievance and appeals process for Medi-Cal beneficiaries who are enrolled in plans, and access to health care providers in Medi-Cal managed care plans, Denti-Cal managed care plans, and county specialty mental health networks. The rules set forth requirements that states with Medicaid managed care must meet and options in how states meet those requirements They also give states flexibility to establish different requirements than those contained in the federal rule.
2. Background. The Medi-Cal program is projected to cover 14.1 million Californians each month in 2016-17, at a cost of $100 billion in total funds ($19.6 billion GF). Approximately 11 million individuals, or 79% of enrollees, are covered through managed care plans. Managed care plans are paid a capitation (per-member-per-month) rate to cover their care, which varies based on eligibility category. Because the state essentially subcontracts the payment for, and management of, health care services to managed care plans, numerous legal and contractual requirements are in place to ensure managed care plans are providing appropriate care. CMS regulations— one on the use of managed care in CHIP in 2016, and a 2017 rule on the use so-called pass-through payments— were the first major updates to Medicaid and CHIP managed care regulations in more than a decade, and represent a major overhaul of federal standards governing managed care. According to CMS, the regulations align key rules with those of other health insurance coverage programs, modernize how states purchase managed care for beneficiaries, and strengthen the consumer experience and key consumer protections. The components of this bill— time and distance standards, public hospital payments, medical loss ratio requirements, and changes to the health plan grievance process—directly respond to the federal regulations.
3. Complications for Medi-Cal Funding. As was discussed in a February 28, 2017, joint informational hearing on their implementation, the rules have particular relevance for California because they address the complex mechanisms the state uses to fund the program. Specifically, public hospitals (through intergovernmental transfers (IGTs) of funds) and private hospitals (through a hospital quality assurance fee (QAF) program) fund a portion of the non-federal share of Medi-Cal costs, and the rules put in place a number of restrictions on these types of funding mechanisms. In general, CMS rules intend to ensure payments made through managed care are meaningfully based on the delivery of services, utilization, outcomes, and/or quality, and that the payments are not directed by the state as a simple pass-through payment to fund the program. This rule change necessitates statutory changes to how payments are made. This bill addresses needed changes to the public hospital funding mechanisms through managed care.
4. State Choices in Implementation of Federal Regulations. While some federal regulatory requirements implemented in this bill are rigid, such as maximum time frames for resolution of appeals, this bill also makes some state policy choices, including the following:
   1. Time and Distance Standards: Federal regulations require the development and enforcement of network adequacy standards for managed care, including time and distance standards. This bill bases minimum standards on those defined in existing state law and regulation, specifies a minimum of five county categories if DHCS uses category-specific standards, allows for alternative access standards, and requires public reporting of failures to comply.
   2. Medical Loss Ratio: Federal regulations require Medi-Cal managed care plans to spend a minimum of 85% of revenues on medical services. This bill implements an option to require a remittance back to the state if this minimum medical loss ratio is not met.
   3. Responsible State Regulatory Agencies: This bill requires DHCS to consult with the Department of Managed Health Care (DMHC) in the development of time and distance standards, and requires DMHC approval for most alternative access standards allowed by DHCS. It also requires most plans to demonstrate to both departments compliance with time, distance, and appointment wait time standards.
   4. Public Hospital Payments: As discussed in (3), above, federal regulations prohibit certain types of current payment arrangements. This bill implements new mechanisms for making these payments, which have been developed in consultation with stakeholders.
5. Companion Bill. As has become common practice with many recent major health-related federal conformity bills, a companion Assembly Bill has been introduced. AB 205 (Wood), pending in the Senate Appropriations Committee, is identical to this bill.

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

Date of Hearing: July 11, 2017

ASSEMBLY COMMITTEE ON HEALTH

Jim Wood, Chair

SBPCA Bill Id:SB 171

Author:(Hernandez) – As Amended Ver:July 5, 2017

SENATE VOTE: 37-0

SUBJECT: Medi-Cal: Medi-Cal managed care plans.

SUMMARY: Requires the Department of Health Care Services (DHCS) to develop time and distance standards for health care provider types specified in federal regulation to ensure access to medically necessary covered services. Implements a federal option to require Medi-Cal managed care (MCMC) plans to provide a remittance if the MCMC plan fails to meet an 85% medical loss ratio (MLR). Requires DHCS to ensure that all covered mental health and substance use disorder benefits are provided in compliance with federal mental health parity regulations. Requires DHCS to require MCMC plans to enhance contract services payments to designated public hospitals (DPHs) by amounts determined under a uniform methodology. Requires DHCS to establish a program under which DPHs may earn performance-based quality incentive payments from MCMC plans. Specifically, this bill:

Hearing Procedures

1. Requires a person who is enrolled in a MCMC plan and who has received an adverse benefit determination from the MCMC plan, to the extent required by federal law or regulation, to appeal the adverse benefit determination to the MCMC plan before requesting a state fair hearing.
2. Authorizes a person to request a fair hearing involving a MCMC plan within 120 calendar days (currently at 90 days) after an order or action, under either the following conditions:
   1. Receiving verbal or written notice from the MCMC plan that the adverse benefit determination is upheld or the appeal or expedited appeal is denied; or,
   2. When the enrollee’s appeal is deemed exhausted because the MCMC plan failed to comply with state or federal requirements for notice and timeliness related to the disputed action or the appeal, including when a MCMC plan fails to respond to an appeal within 30 days as required or asks the enrollee or his or her treating provider for more information to resolve the appeal solely for purposes of delaying a decision.
3. Allows an extension of the timeframe in 2) above where there is good cause for filing the request beyond the 120-calendar year period, and continues to allow the Director of the Department of Social Services (DSS) to determine whether good cause exists.
4. Requires DSS to implement the provisions of this bill by adopting any necessary rules and regulations in accordance with the Administrative Procedure Act (APA). Authorizes emergency regulations until July 1, 2018.
5. Requires DSS, for a beneficiary of a MCMC plan that meets the criteria for an expedited resolution of an appeal, to take final administrative action as expeditiously as the individual’s health condition requires, but no later than three working days after DSS receives from the MCMC plan, the case file and information for any appeal of a denial or a service that, as indicated by the MCMC plan, meets either of the following criteria:
   1. Meets federal criteria for expedited resolution but was not resolved within the timeframe for expedited resolution; or,
   2. Was resolved within the timeframe for expedited resolution, but reached a decision wholly or partially adverse to the beneficiary.
6. Requires MCMC plans, upon notice from DSS that a MCMC plan’s beneficiary has requested a state fair hearing, to provide a copy of the following information within three business days of the MCMC plan’s receipt of DSS’s notice of a request by a beneficiary for a state fair hearing:
   1. The case file; and,
   2. Any information for any appeal or a denial of a service, as specified.
      

Time and Distance Requirements

1. Specifies intent of the Legislature that the DHCS implement time and distance requirements to ensure that all Medi-Cal covered services are available and accessible to enrollees of MCMC plans in a timely manner, as those standards were enacted in May 2016.
   
2. Requires DHCS, in consultation with the Department of Managed Health Care (DMHC), to develop time and distance standards for the following provider types, to ensure that covered and medically necessary benefits are accessible to enrollees of a MCMC plan:
   1. Primary care: adult and pediatric;
   2. Obstetrics and gynecology (OB/GYN);
   3. Behavioral health (including mental health and substance use disorder): adult and pediatric;
   4. Specialist: adult and pediatric;
   5. Hospital;
   6. Pharmacy;
   7. Pediatric dental;
   8. Additional provider types when it promotes the objectives of the Medicaid program, as determined by the federal Centers for Medicare and Medicaid Services (CMS)
   9. Long-term services and supports (LTSS) provider types in which an enrollee must travel to the provider to receive services; and,
   10. Network adequacy standards other than time and distance standards for LTSS provider types that travel to the enrollee to deliver services.
3. Requires the standards developed by DHCS to: a) meet existing time and distance standards in existing regulations and Medi-Cal contracts entered into as of January 1, 2016. Requires, in the event of a conflict between the time and distance standards set forth in regulations and contracts entered into by DHCS as of January 1, 2016, the standard that requires a shorter travel time or less distance prevails; b) to meet the appointment time standards implemented pursuant to the Knox-Keene Health Care Service Act of 1975 (Knox-Keene) regulations and in standards in contracts with MCMC; and, c) take into consideration specified elements contained in federal regulations, as specified.
4. Requires DHCS, if it elects a county standard for the time and distance standard, to categorize counties into at least five or more county categories, one of which is a rural county category.
5. Permits DHCS to have varying standards for the same provider type based on geographic areas, subject to the above requirements.
6. Permits DHCS, upon request of a MCMC plan, to allow alternative access standards if the requesting MCMC plan has exhausted all other reasonable options to obtain providers to meet either time and distance or timely access standards, and, if the MCMC plan is licensed as a health care service plan under Knox-Keene, and has obtained approval from DMHC. Requires DHCS to post any approved alternative access standards on its Internet Website.
7. Permits DHCS to allow for the use of telecommunications technology as a means of alternative access to care, including telehealth consistent with existing law requirements, e-visits, or other evolving and innovative technological solutions that are used to provide care from a distance.
8. Permits DHCS to permit standards other than time and distance if the health care provider travels to the beneficiary or to a community-based setting to deliver services.
9. Requires a MCMC plan to, on an annual basis and when requested by DHCS, demonstrate its compliance with the time and distance and appointment wait time standards pursuant to this bill. Requires the report to measure compliance separately for adult and pediatric services for primary care, behavioral health, and core specialist services. Requires a MCMC plan, that is also licensed under Knox-Keene to, on an annual basis, demonstrate to the DMHC its compliance with the time and distance and appointment and wait time standards.
10. Requires DHCS to annually publish on its Internet Website a report for each MCMC plan that specifies any areas where the MCMC plan was found to be out of compliance and the MCMC plan’s corrective action plan.
11. Requires DHCS to consult with MCMC plans, including mental health plans, health care providers, consumers, providers and consumers of LTSS, and organizations representing Medi-Cal beneficiaries in the implementation of the time and distance requirements.
12. Authorizes DHCS to implement, interpret, or make specific the above provisions by means of all-county letters, plan letters, plan or provider bulletins, or similar instructions until regulations are adopted. Requires DHCS to adopt regulations by July 1, 2019. Requires DHCS beginning July 1, 2018, to provide a status report to the Legislature on a semi-annual basis, as specified.
    

Mental Health and Substance Use Disorder Benefits: Mental Health Parity

1. Requires DHCS to ensure that all covered mental health and substance use disorder benefits are provided in compliance with the federal “Medicaid and Children’s Health Insurance Programs: Mental Health Parity and Addiction Equity Act of 2008; the Application of Mental Health Parity Requirements to Coverage Offered by Medicaid Managed Care Organization, the Children’s Health Insurance Program (CHIP), Alternative Benefit Plans; Final Rule,” any subsequent amendments to those regulations, and any associated federal policy guidance issued by the federal Centers for Medicare and Medicaid Services (CMS).
   
2. Requires DHCS to implement, interpret, or make specific 19) above by means of all-county letters, plan letters, plan or provider bulletins, or similar instructions until regulations are adopted. Requires the DHCS Director to consult with MCMC plans and consumer advocates. Requires DHCS to adopt regulations by July 1, 2018.
   
3. Requires a MCMC plan, on an annual basis and when requested by DHCS, demonstrate compliance with the above provisions. Requires DHCS to make an annual compliance report available on its Internet Website.
   

MLR

1. Requires a MCMC plan to comply with a minimum 85% MLR and requires the MLR to be calculated and reported for each MLR reporting year by the MCMC plan, consistent with specified federal regulations.
   
2. Requires a MCMC plan to provide a remittance for an MLR reporting year if the ratio for that MLR reporting year does not meet the minimum MLR standard of 85%.
   
3. Applies the remittance requirement in 23) above to MCMC plans but exempts primary care management plans or dental managed care plans.
   
4. Requires DHCS to post on its Internet Website all of the following:
   1. The aggregate MLR of all MCMC plans;
   2. The MLR of each MCMC plan; and,
   3. Any required remittances owed by each MCMC plan.
      

Adverse Benefit Determinations & Appeals

1. Requires a MCMC plan to give a beneficiary timely and adequate notice of an adverse benefit determination in writing consistent with federal managed care rules requirements, as specified.
   
2. Defines an adverse benefit determination pursuant to the definition in federal law or any health care service eligible for coverage and payment under a MCMC plan contract that has been denied, modified, or delayed by a decision of the MCMC plan, or by one of its contracting providers.
   
3. Requires a MCMC plan to resolve an appeal no more than 30 calendar days from the day the MCMC plan receives the appeal.
   
4. Requires a MCMC plan to resolve an expedited appeal no longer than 72 hours after the MCMC plan receives the appeal. Requires a MCMC plan to establish and maintain an expedited review process for a beneficiary or the beneficiary’s provider to request an expedited resolution of an appeal based on either of the following circumstances:
   1. If the MCMC plan determines, for a request from the beneficiary, or the provider indicates, in making the request on the beneficiary’s behalf or supporting the beneficiary’s request, that taking the time for a standard resolution under the timeframe described in 28) above could seriously jeopardize the beneficiary’s life, physical or mental health, or ability to attain, or regain, maximum function; or,
   2. When the beneficiary’s condition is such that the beneficiary faces an imminent and serious threat to his or her health, including but not limited to, the potential loss of life, limb, or other major bodily function, and the 30 day timeframe in 28) above would be detrimental to the beneficiary’s life, or health or could jeopardize the beneficiary’s ability to regain maximum function.
      

DPH Systems: Enhanced Payments

1. Requires DHCS, commencing with the 2017-18 state fiscal year (SFY), and for each SFY thereafter, to require each MCMC plan to enhance contract services payments to the DPH systems by amounts determined under a uniform methodology that meets federal requirements and as described in this bill. Permits the enhancements to be determined and applied as distributions from directed enhanced payment pools, as a uniform percentage increase, or other basis, and may incorporate acuity adjustments or other factors.
   
2. Permits the directed payments to separately account for inpatient hospital services and noninpatient hospital services and must be developed and applied separately for and uniformly within each of the following classes of DPH systems, as follows:
   1. DPHs owned and operated by the University of California (UC);
   2. DPHs that hold a risk-based per member per month capitated contract with one or more MCMC plans that includes capitation for the provision of inpatient hospital services;
   3. DPHs with a level 1 or level 2 trauma designation; and,
   4. All other DPHs not identified in a), b) or c) above.
      
3. Requires DHCS to develop and implement the directed payment program in consultation with DPH systems or MCMC plans, or both, as follows:
   1. DHCS, in consultation with the DPH systems, to annually determine on a prospective basis the aggregate amount of payments that will be directed to each class of DPH systems, and the classification of each DPH system. Prohibits that classification from being changed no sooner than the subsequent SFY once DHCS determines the classification for each DPH systems for that particular SFY. For SFYs following the 2017-18 SFY, the aggregate amounts of payments to a class of DPHs must include an increase for the rate of inflation to the aggregate amounts available during the prior SFY, subject to any modifications to account for changes in the classification of DPHs, changes required by federal law, changes to account for the size of the payments, or other material payments;
   2. DHCS, in consultation with the DPHs must develop the methodologies for determining the required directed payments for each DPH system;
   3. Permits DHCS, to the extent necessary to meet the objectives identified in this bill or to comply with federal requirements, in consultation with the DPH systems, to adjust or modify the amounts of the aggregate directed payments for any class of DPH systems or the method for determining the distribution of the directed payment amounts within any class of DPHs, and modify, consolidate, or subdivide the classes of DPHs; and,
   4. After the aggregate amounts and the distribution methodology of directed payments for each DPHs class have been established, DHCS shall consult with the DPHs and each affected MCMC plan with regard to the impact on the MCMC plan capitation rate setting process, and implementation of the directed payment requirements, including applicable interim and final payment processes, to ensure that 100% of the aggregate amounts are paid to the applicable DPH system.
      
4. Requires the required directed payment amounts to be paid by the MCMC plan as adjustments to the total amounts of contract services payments otherwise paid to the DPH systems in accordance with DHCS’s directions and methodologies.
   
5. Requires the directed payments to be implemented and documented by each MCMC plan and DPH system and requires the MCMC plan and DPH system to determine the manner, timing, and amount of payment for contracted service, as specified.
   
6. Prohibits the required directed payment enhancements from supplanting amounts that would otherwise be payable by a MCMC plan to a DPH system for an applicable SFY. Prohibits a MCMC plan from imposing a fee or retention amount that would result in a direct or indirect reduction to the amounts, as required.
   
7. Prohibits a contract between a MCMC plan and a DPH from being terminated by either party for the specific purpose of circumventing or otherwise impacting the payment obligations.
   
8. Requires a MCMC plan, in the event it subcontracts or delegates responsibility to a separate entity for either or both the arrangement or payment of services, to be responsible for paying the DPH system the directed payment described in this bill with respect to the services it provides that are covered by that arrangement. Requires the DPH system and the applicable subcontractor or delegated entity to work with the MCMC plan to provide the necessary information to facilitate the MCMC plan’s compliance with the payments requirements.
   
9. Requires, each year, a MCMC plan to provide to DHCS an accounting of amounts paid or payable to the DPH systems it contracts with, including both contracted rates and the directed payments in order to demonstrate compliance.
   
10. Permits DHCS, after providing notice of its determination to the affected MCMC plan and allowing a reasonable period for the MCMC plan to cure specified deficiencies, to reduce the default assignment into the MCMC plan with respect to all MCMC beneficiaries by up to 25%, if DHCS determines, in its sole discretion, that a MCMC plan is not in compliance with the requirements of the above provisions, or is otherwise circumventing the purposes thereof, to the material detriment of an applicable DPH system, so long as the other MCMC plan or MCMC plans in the applicable county have the capacity to receive the additional default membership. Prohibits these provisions from being construed to preclude or otherwise limit the right of any MCMC plan or DPH system to pursue a breach of contract action in connection with these requirements.
    
11. Requires capitation rates paid by DHCS to a MCMC plan to be actuarially sound and account for the MCMC plan’s obligation to pay the directed payments to DPH systems, as specified.
    
12. Permits DHCS to require MCMC plans and the DPH systems to submit information regarding contract rates and expected or actual utilization of services, at the times and in the form and manner specified by DHCS.
    
13. Requires DHCS to utilize the most recently available data, and reasonable projections, as determined by DHCS, when accounting for directed payments, and to account for additional clinics, practices, or other health care providers added to the DPH systems. Permits DHCS to account for material adjustments, as appropriate under federal law and actuarial standards, and as determined by DHCS, to contracts entered into between a MCMC plan and a DPH system.

DPH Systems: Quality Incentive Payments

1. Requires DHCS, in consultation with DPH systems and applicable MCMC plans, commencing with the 2017-18 SFY, and for each SFY thereafter, to establish a program under which a DPH system may earn performance-based quality incentive payments from the MCMC plan they contract with in accordance with this bill.
   
2. Requires incentive payments to be earned by each DPH system based on its performance in achieving identified targets for quality of care.
   
3. Requires DHCS, in consultation with DPH systems and each MCMC plan, to establish and provide a method for updating uniform performance measures for the performance-based quality incentive payment program and parameters for the DPH system to select the applicable measures. Requires the performance measures to advance at least one goal identified in the state’s Medicaid quality strategy and prohibits measures from duplicating measures utilized in the Public Hospital Redesign and Incentives in Medi-Cal (known as the PRIME) program operated under the state’s Section 1115 Medicaid Waiver.
   
4. Requires each DPH system to submit reports to DHCS containing information required to evaluate its performance on all applicable performance measures, at the times and in the form and manner specified by DHCS. Requires a MCMC plan to assist a DPH system in collecting information necessary for these reports.
   
5. Requires DHCS, in consultation with each DPH, to determine a maximum amount that each class may earn in quality incentive payments for the SFY, as specified. Requires this amount to be paid to the DPH system by each of its contracted MCMC plans. Requires DHCS, if a DPH system contracts with multiple MCMC plans, to identify each MCMC plan’s proportionate amount of the DPH system’s payment, as specified.
   
6. Prohibits a contract between a MCMC plan and DPH system from being terminated by either party for the specific purpose of circumventing or otherwise impacting the payment obligations, as specified under this bill.
   
7. Requires each MCMC plan to be responsible for payment of the quality incentive payments.
   
8. Requires DHCS to provide appropriate funding to each MCMC plan, to account for and to enable them to make the quality incentive payments through the incorporation into actuarially sound capitation rates or any other federally permissible method. Requires the amounts designated by DHCS for the quality incentive payments to be reserved for the purposes of the performance-based quality incentive payment program.
   
9. Requires DHCS to consult with DPH systems to establish the uniform percentages and the aggregate size of the quality incentive payment program that, in combination with one another, are projected to result in aggregate payments that will advance the quality and access objectives reflected in prior payment enhancement mechanisms for DPH systems. Permits DHCS to modify the directed payments or quality incentive payment program. Requires DHCS, once the payment levels are established, to consult with the DPH systems and MCMC plans in the development of the MCMC rates needed for the directed payments and the structure of the quality incentive payment program.
   
10. Requires DHCS, for the SFY 2017–18, to provide written notice of the directed payment and quality incentive payment amounts. Requires DHCS, for each annual determination thereafter, to provide written notice at least 90 days in advance to each affected Medi-Cal managed care plan and designated public hospital system of the applicable Medi-Cal managed care plan’s directed payment amounts, the classification of DPH systems, quality incentive payment amounts, and any other information deemed necessary for the Medi-Cal managed care plan to fulfill its payment obligations. Requires DHCS, if the modification of either or both directed payment amounts or quality incentive payment amounts is necessary after receipt of the written notification, to notify the MCMC plan and DPH system in writing of the revised amounts prior to implementation of the revised amounts.
    
11. Provides that a MCMC plan’s obligation to pay the directed payments and quality incentive payments to a DPH is contingent upon receipt of notice from DHCS that it is in receipt of the necessary federal approvals, as specified.
    
12. Deems the contract service payments and quality incentive payment program provisions to be incorporated into each contract between a DPH system and a MCMC plan, and its subcontractor or designee, as applicable, and any claim for breach of those provisions may be brought directly in a court of competent jurisdiction.
    
13. Permits the nonfederal share of the portion of the capitation rates associated with directed payments to DPH systems and the quality incentive payments to consist of voluntary intergovernmental transfers (IGT) of funds provided by DPH systems and their affiliated governmental entities, or other public entities. Requires any IGT of funds made to be considered voluntary for purposes of all federal laws.
    
14. Requires DHCS, when applicable for voluntary IGTs, in consultation with DPH systems, to develop and maintain a protocol to determine the available funding for the nonfederal share associated with payments for each applicable SFY. Requires the protocol to account for any applicable contributions made by public entities to the nonfederal share of MCMC expenditures, including, contributions previously made under specified provisions of law.
    
15. Implements the above provisions only to the extent that any necessary federal approvals are obtained and federal financial participation (FFP) is available and is not otherwise jeopardized.
    
16. Prohibits DHCS, for any SFY that this bill is implemented, from being required to make any payment to MCMC plans pursuant to the following requirements in existing law that plans:
    1. Pay DPHs fee-for-service (FFS) payments amounts for seniors and persons with disabilities;
    2. Pay DPHs cost-based services for the Medi-Cal-Patient Protection and Affordable Care Act (ACA) expansion population; and,
    3. Pay all of the rate range increase for the Medi-Cal-ACA expansion as additional payments to county public hospital health systems (plans are paid at least at 75% of the rate range available; to the extent FFP is available).
       
17. Requires DHCS to seek any necessary federal approvals for the directed payments and the quality incentive payments set forth in this bill.
    
18. Requires DHCS to consult with DPH systems with regard to the development and implementation of the directed payment levels and the quality incentive payments and to consult with both DPHs and MCMC plans with regards to the implementation of the payments.
    
19. Permits the DHCS Director, after consultation with DPH systems and MCMC plans, to modify the requirements set forth in this bill to the extent necessary to meet federal requirements or to maximize available FFP. Requires the DHCS Director, in the event federal approval is only available with significant limitations or modifications, or in the event of changes to the federal Medicaid program that result in a loss of funding currently available to the DPHs, to consult with DPHs and MCMC plans to consider alternative methodologies.
    
20. Permits DHCS to implement, interpret, or make specific this bill by means of all-county letters, plan letters, provider bulletins, or other similar instructions, without taking regulatory action. Requires DHCS to make use of appropriate processes to ensure that affected DPH systems and MCMC plans are timely informed of, and have access to, applicable guidance issued pursuant to this authority, and that this guidance remains publicly available until all payments made are finalized.
    
21. Establishes a “poison pill” provision and ceases operation of the directed payments and quality incentive payment program, as specified, if implementation is no longer financially and programmatically supportive of the Medi-Cal program. Requires the determination to be based on both of the following factors:
    1. The projected amount of the nonfederal share funds available is insufficient to support implementation of these provisions in the subject SFY; and,
    2. The degree to which the payment arrangements will no longer materially advance the goals and objectives of the above provisions and in DHCS’ managed care quality strategy drafted and implemented under federal regulations in the subject SFY.
       
22. Requires DHCS to consider all reasonable options for mitigating the circumstances in 63) above, including, but not limited to, options for curing projected funding shortfalls and options for program revisions and strategy updates to better coordinate payment requirements with the goals and objectives of this bill and the manage care quality strategy.
    
23. Requires DHCS to post notice of the determination pursuant to 63) above on its Internet Website, and to provide written notice of the determination to the Secretary of State, the Secretary of the Senate, the Chief Clerk of the Assembly, and the Legislative Counsel.
    
24. Requires DHCS, in consultation with the designated public hospitals and the MCMC plans, to provide the Legislature with the evaluation plan required by federal regulation to measure the degree to which the DPH payments authorized under this bill advance at least one of the goals and objectives of DHCS’ managed care quality strategy.
25. Requires DHCS, in consultation with the DPH systems and the MCMC plans, to report to the Legislature the results of this evaluation no earlier than January 1, 2021.

EXISTING STATE LAW:

1. Establishes the Medi-Cal program, administered by DHCS, under which health care services are provided to qualified, low-income persons. Establishes a schedule of benefits for Medi-Cal beneficiaries, which includes inpatient and outpatient hospital services. Provides Medi-Cal services through various types of MCMC plans.
2. Permits a public entity to elect to transfer public funds to the state to be used solely as the nonfederal share of Medi-Cal payments to managed care health plans for the provision of services to Medi-Cal beneficiaries. States these transfers are known as IGTs and are used to draw down federal Medicaid matching funds. Defines a public entity as a DPH, the UC, a county or city and county, or local hospital authority that is licensed to operate one or more DPHs.
3. Requires DHCS to require MCMC plans to pay DPH and other governmental providers affiliated with the transferring public entity for services at amounts that are no less than the total amount the provider would have otherwise been entitled on a FFS basis, for the full scope of Medi-Cal services in order to ensure that the implementation of the transfer of seniors and persons with disabilities to plans does not jeopardize the ability of DPHs and their affiliated public providers to continue serving Medi-Cal beneficiaries.
4. Requires MCMC plans serving Medi-Cal-ACA expansion beneficiaries to pay county public hospital health systems for services provided to newly eligible beneficiaries in amounts that are no less than the cost of providing those services, including the cost of network and out-of-network services that are charged to, or paid for by, county public hospital health systems. Requires the capitation rates paid to MCMC plans for ACA expansion beneficiaries to be determined to reflect this obligation.
5. Conditions the requirements in 3) and 4) above on an IGT to provide the nonfederal share of funds.
6. Establishes, through Knox-Keene regulations, time and distance standards (e.g., requiring a primary care provider to be within 15 miles or 30 minutes of an enrollee’s work or residence) and appointment availability standards (e.g., 48 hours for urgent appointments that do not require prior authorization, 15 days for specialists for non-urgent appointments) for health plans licensed pursuant to Knox-Keene.
7. Requires an individual to be accorded an opportunity for a state fair hearing (an appeal) if:
   1. Any applicant for or recipient of public social services (including Medi-Cal) is dissatisfied with any action of the county department relating to his or her application for or receipt of public social services;
   2. His or her application is not acted upon with reasonable promptness; or,
   3. If any person who desires to apply for public social services is refused the opportunity to submit a signed application therefor, and is dissatisfied with that refusal.
      
8. Prohibits a person from being entitled to a state fair hearing unless he or she files his or her request for the hearing within 90 days after the order or action. Entitles a person to a fair hearing if he or she files the request more than 90 days after the order or action complained of and there is good cause for filing the request beyond the 90-day period. Permits the Director of the DSS to determine whether good cause exists.
   

EXISTING FEDERAL MEDICAID MANAGED CARE REGULATIONS:

1. Prohibits the state from directing a Medicaid managed care plan’s expenditures under the contract, except the rule permits a state to require a managed care plan to implement value-based purchasing models, adopt a maximum or minimum fee schedule, or a uniform dollar or percentage increase for network providers.
2. Requires states to ensure that each Medicaid managed care calculates and reports a MLR or the percentage of each dollar the plan receives in premiums that the plan spends on health care services, as defined, versus administration, sales, marketing, and profit.
3. Requires states to develop plan rates in a way that the plan would reasonably achieve a MLR standard of at least 85% for the rate year.
4. Requires states that contract with MCMC plans to deliver Medicaid services to develop and enforce network adequacy standards, including time and distance standards for specified provider types, taking into account specified factors such as expected Medicaid enrollment and expected utilization.
5. Requires states to ensure that all services covered under their Medicaid program are available and accessible to enrollees of Medicaid managed care plans in a timely manner.
6. Authorizes an enrollee to request a state fair hearing only after receiving notice that the Medicaid managed care plan is upholding an adverse benefit determination, and requires the enrollee to request a state fair hearing no later than 120 calendar days from the date of the Medicaid managed care plan’s notice of resolution.

FISCAL EFFECT: According to the Senate Appropriations Committee:

1. Ongoing staff costs in millions for DHCS to make the necessary regulatory and system changes to implement the bill (General Fund [GF] and federal funds). A complete estimate of the administrative costs to comply with the new federal rule is not available at this time. In the 2016-17 Budget Act and the 2017-18 budget proposal, DHCS has been granted or requested roughly $18 million for staff and contracts to implement the new rule (of which about $13 million is ongoing costs). In addition, DHCS has dedicated significant existing staff resources to planning for complying with the requirements of the rule.
   
2. Uncertain impact on the overall financing of the Medi-Cal program (GF, local funds, federal funds). The new managed care rule makes many changes to the operation of managed care, several of which may impact the overall funding of the program.
   
   1. Funding Medi-Cal services at public hospitals. The new federal rule limits the state’s ability to provide directed payments through MCMC plans to public hospitals. This will require the state, managed care plans, and public hospitals to revise the system for making payments to public hospitals. At this time, the overall impact this will have on financing Medi-Cal services at public hospitals is not known, although the intention of DHCS and the public hospitals is to maintain the existing level of federal funding.
   2. MLR. This bill would implement a federal option to require MCMC plans to remit to the state if they do not meet a medical loss ratio of 85%. Whether this provision will result in future remittances to the state is unknown. In 2015-16, the unweighted average MLR was 86%, thus some plans were out of compliance with the requirement in this bill.
   3. Access to care standards. This bill requires DHCS to adopt standards for access to care in regulation and imposes specific requirements on the standards. It is unknown whether the standards currently under development by DHCS will significantly change the utilization of services in Medi-Cal.

COMMENTS:

1. PURPOSE OF THIS BILL. According to the author, in 2016 and early 2017, CMS finalized two Medicaid and CHIP managed care regulations that have a significant impact on California’s Medi-Cal program in several areas, including how the state pays MCMC plans, how the plans pay hospitals and other health care providers, the grievance and appeals process for Medi-Cal beneficiaries who are enrolled in plans, and access to health care providers in MCMC plans, Denti-Cal managed care plans, and county specialty mental health networks. The rules set forth requirements that states with Medicaid managed care must meet, options in how states meet those requirements, and while giving states flexibility to establish different requirements than those contained in the federal rule.
   
   This bill would implement several provisions of the federal rules to bring California law into compliance with the rule. In addition, this bill would change how MCMC plans reimburse county and UC hospitals to ensure compliance with the significant changes resulting from the managed care payment requirements of the federal rule while continuing to provide crucial funding support for these safety net providers. This bill would require DHCS to implement the federally required provider access and time and distance standards by requiring the adoption of a regulation in consultation with DMHC, and would implement a federal option to require a rebate if MCMC plans fail to spend at least 85% of premium revenue on health care services (known as an MLR).
2. BACKGROUND. The Medi-Cal program is projected to have covered 13.7 million Californians each month in FY 2016-17, at a cost of $105.6 billion in total funds ($18.6 billion GF). DHCS administers Medi-Cal through two types of delivery systems: managed care and FFS.
   
   DHCS contracts with 22 MCMC plans across California, 56 county specialty mental health plans, and two primary care case management plans (AIDS Healthcare Foundation and Family Mosaic). Approximately 79% Medi-Cal beneficiaries receive care through a MCMC plan, a significant shift from December 2011, when only approximately 45% of beneficiaries were enrolled in MCMC.
   
   Dental services provided through Medi-Cal are known as Denti-Cal, and are primarily provided through FFS, except in two counties (Sacramento and Los Angeles). In Sacramento County, enrollment in a Denti-Cal managed care plan is mandatory for Medi-Cal beneficiaries. In Los Angeles County, enrollment in a Denti-Cal managed care plan is optional for beneficiaries. Denti-Cal managed care plans are also subject to the federal rule. According to a 2016 DHCS report, between the two counties, there are approximately 932,000 beneficiaries receiving care under Denti-Cal managed care. The provisions of the federal rule also apply to the 56 county specialty mental health plans that provide mental health services to Medi-Cal beneficiaries with a severe mental illness (two counties are served by one plan).
   1. Medicaid managed care rule and public hospital Medi-Cal funding from plans. One of the most significant changes in the federal regulations is a prohibition (with exceptions) against states directing Medicaid managed care plans’ expenditures under the contract with the state, a requirement that permissible directed payments be uniform and be for network providers, and the requirement for a prospective payment to plans (instead of a “rate range” payment with retrospective payments allowed after the rate year). The effect of these changes is to require a change in how the state pays MCMC plans, and how payments from plans to public hospitals (county and UC hospitals) are made using IGTs. Under the federal rule, existing supplemental payments from plans to hospitals using funds from IGTs and associated federal matching funds are considered directed payments that are not permitted under one of the permissible directed payment provisions in federal regulation. The federal rule only allows the state to require the plan to make the following directed payments:
      1. Implement value-based purchasing models for provider reimbursement, such as pay-for-performance arrangements, bundled payments, or other service payment models intended to recognize value or outcomes over volume of services;
      2. Participate in a multi-payer or Medicaid-specific delivery system reform or performance improvement initiative;
      3. Adopt a minimum fee schedule for network providers that provide a particular service under the contract;
      4. Provide a uniform dollar or percentage increase for network providers that provide a particular service under the contract; or,
      5. Adopt a maximum fee schedule for network providers that provide a particular service under the contract, so long as the plan retains the ability to reasonably manage risk and has discretion in accomplishing the goals of the contract.
         

In addition, any directed payments must be developed in accordance with actuarial soundness rate requirements, generally accepted actuarial principles and practices, and have written approval prior to implementation. To obtain written approval, a state must demonstrate, in writing that the arrangement is based on the utilization and delivery of services, directs expenditures equally, advances one of the goals and objectives of the state’s quality strategy, has an evaluation plan, is not renewed automatically, and does not condition network participation in contract arrangements on the provider entering into or adhering to IGT agreements.

The rule also affects how the state pays MCMC plans under a provision that requires states to prospectively certify the final capitation rate paid per rate category of aid (COA; an example of a COA rate category would be the rate for a child, an adult, and aged/disabled individuals) under each risk contract and document the underlying data, assumptions and methodologies supporting that specific capitation rate. Under current practice, DHCS now publishes three Medi-Cal plan rates (referred to as a “rate range”), but typically pays plans rates at the lower bound of the rate range. Below is an example of a rate range for an aged and disabled non-dual eligible for a particular county organized health system plan for six months of 2014:

Category of Aid Lower Bound Midpoint Upper Bound

Aged and disabled non-dual $977 $1,000 $1,023

Public providers (such as DPHs) transfer funds to fund the nonfederal share of the rate through an IGT to receive a rate range payment increase through the managed care plan up to the upper bound of the rate range (in the example above, the difference between $1023 – $977 = $46, multiplied by the number of enrollees). The use of rate ranges has enabled DHCS to limit GF spending and to draw down additional federal funds to support safety net and public providers while using local IGT funds as the required federal match.

This bill implements two permissible directed payment options under the federal rule: a uniform percentage increase for network providers, and participation in quality incentive payment programs. The directed payment provisions apply to rating periods for contracts starting on or after July 1, 2017.

• 1. MLR. The May 2016 rule requires states to ensure that each managed care plan calculate and report a MLR. In general terms, an MLR is the percentage of each dollar the plan receives in premiums that the plan spends on health care services, as defined, versus administration, sales, marketing, and profit. In addition to requiring plans to calculate and report a MLR, states must develop plan rates in a way that the plan would reasonably achieve a MLR standard of at least 85% for the rate year. The MLR requirement applies to contracts starting on or after July 1, 2017.
     
     The federal rule permits states to require MCMC plans to meet a minimum MLR, provided the minimum MLR is equal to or higher than 85% (the standard used for projecting soundness) and the MLR must be calculated and reported for each MLR reporting year by the MCMC plan that is consistent with this federal rule. In addition, the rule gives states the option of requiring a remittance if plans do not meet the MLR.
     
     The ACA required states to establish a MLR for health plans serving commercial populations. Dental plans are exempt from the ACA-required MLR. For plans in the large group market, the ACA-required MLR is 85% or a higher percentage determined by the state through regulation. For individual and small group plans, the MLR is 80% or higher percentage determined by the state through regulation. The federal Department of Health and Human Services Secretary can adjust small group and individual market MLR if he or she determines that the 80% requirement may destabilize the individual market in a state.
     
     If a plan fails to meet the federal MLR requirements, rebates are required to be issued to the plan’s customers. California does not impose a MLR on full-service MCMC plans, except for a federally required MLR for the Medicaid optional expansion population. California has a contractually required dental “minimum” loss ratio for dental managed care plans of 70%. Federal rebates from the ACA-required MLR (reported to DMHC), indicates, from reporting year 2011 through 2015, 10 plans have issued rebates in the following dollar amounts:
     1. Individual market: $64 million;
     2. Small group market: total $138.2 million; and,
     3. Large group market: total $3.3 million.

DHCS provided self-reported data from 21 MCMC plans indicating plans’ MLR for SFY 2015-16 ranged from 77.9% to 97.7% (excluding Kaiser) with an unweighted average of 86.47%.

• 1. Medicaid managed care access to care standards in federal rule. The federal Medicaid rule requires states that contract with Medicaid managed care plans to deliver Medicaid services to ensure that all services covered under its Medicaid program are available and accessible to enrollees of Medicaid managed care plans in a timely manner. In addition, the federal rule requires states to develop and enforce network adequacy standards, including time and distance standards for the provider types below, taking into account specified factors such as expected Medicaid enrollment and expected utilization.

1. Primary care (adult and pediatric);
2. OB/GYN;
3. Behavioral health (mental health and substance use disorder), adult and pediatric;
4. Specialist, adult and pediatric;
5. Hospital;
6. Pharmacy;
7. Pediatric dental;
8. Additional provider types when it promotes the objectives of the Medicaid program, as determined by CMS, for the provider type to be subject to time and distance access standards;
9. LTSS, for plans with contracts which cover LTSS, for LTSS provider types in which an enrollee must travel to the provider to receive services; and,
10. Network adequacy standards other than time and distance standards for LTSS provider types that travel to the enrollee to deliver services.

California has time and distance standards in statute, regulation and contract for MCMC plans for primary care physicians and hospitals but not specialists and LTSS providers.
Medi-Cal requires in its managed care contracts that a primary care physician be within 10 miles or 30 minutes of the beneficiary’s residence, and that a hospital be available within 15 miles or 30 minutes. In addition, California has appointment time elapsed standards for physicians in Knox-Keene regulations, as follows:

On February 2, 2017, DHCS released its proposed, “Medicaid Managed Care Final Rule: Network Adequacy Policy Proposal” for public comment. The DHCS policy proposal uses existing standards in Knox-Keene or Medi-Cal contract or regulation where those standards are available, and establishes different time and distance standards for new provider categories based on county size. DHCS uses three county size categories, consisting of Los Angeles County, a second category with 27 medium counties, and a third category with 27 small and rural counties. Public comments on the DHCS proposal were due to DHCS on February 28, 2017, and DHCS intends to finalize its proposal this year.

The language in this bill requires the standards to be ultimately adopted in regulation (after initial implementation through an all plan letter), requires DHCS to use at least five county categories (instead of DHCS’ proposed three) if DHCS elects to use a county-based standard, codifies DHCS’ proposed alternative access standard and additionally requires DMHC approval (if the plan is licensed by DMHC), and requires plans to demonstrate to DHCS compliance with the regulatory standards on at least an annual basis.

• 1. Mental Health Parity. The federal Medicaid mental health parity rule applies the Mental Health Parity and Addiction Equity Act of 2008 to Medicaid. The change is intended to create consistency between the commercial and Medicaid markets. The Medicaid parity rule applies parity across different delivery systems, applies parity to alternative benefit plans and state plans, and extends parity protections to LTSS. Parity generally requires that financial requirements and quantitative treatment limitations on mental health and substance use disorder benefits cannot be more restrictive or be applied more stringently than medical/surgical benefits. In addition, non-quantitative treatment limitations on mental health or substance use disorder benefits in processes, strategies, evidentiary standards, or other factors must be comparable to, and applied no more stringently than, limitations applied to medical/surgical benefits in the same classification. Parity applies to all individuals enrolled in a MCMC plan. Once the beneficiary is enrolled in a plan, his/her entire benefit package is subject to parity. Parity does not apply to beneficiaries who are in FFS only or not enrolled in an MCMC plan. The federal parity rule was effective May 31, 2016 with an implementation date of October 2, 2017.
     
  2. Changes to Medicaid fair hearings. The federal rule requires Medicaid managed care plans to have a grievance and appeal system in place for enrollees, and makes several changes to existing processes involving state fair hearings. This bill implements those changes in state law where existing state law is inconsistent with the new federal regulation, or where existing state law is silent. For example, this bill extends the timeframe for a Medi-Cal beneficiary enrolled in a plan to request a fair hearing from 90 days to 120 days in response to the federal regulation. In addition, this bill also contains a restriction required by the federal regulation on the ability of beneficiaries enrolled in a Medicaid managed care plan to directly file an appeal through a state fair hearing. Instead, the rule allows a beneficiary to request a state fair hearing only after receiving notice that the plan upholds an adverse benefit determination, or if the plan fails to adhere to notice and timing requirements in federal rules related to the grievance. This bill would also codify the federal definition of adverse benefit determination, would require DSS to implement the fair hearing-related changes through the adoption of regulations, including through the adoption of emergency regulations until July 1, 2018 (instead of through an all-county information notices), and would require MCMC plans to furnish information to DSS upon notice that a beneficiary has requested a fair hearing. Under the federal rule, these requirements apply to rating periods for contracts starting on or after July 1, 2017.
     
  3. MCMC plan denials. The federal regulations contain requirements for plans related to timing, notice and definition of adverse benefit determination. This bill codifies the federal requirement for timely and adequate written notice, and the federal definition of adverse benefit determination. In addition, this bill includes within the definition of adverse benefit determination existing language from Knox-Keene that would include within that definition when a plan or its contracting provider denies, modifies or delays a health care service eligible for coverage and payment under the plan contract. In addition, this bill would codify appeal timeframes where federal law provides a state option within federal limits by requiring plans to resolve appeals within 30 calendar days, and 72 hours for expedited appeals.
     
  4. Recent CMS Guidance. On June 30, 2017, CMS issued an informational bulletin regarding the provisions of the Medicaid Managed Care Regulations with a July 1, 2017 compliance date. CMS had previously notified states (in March 2017) that it was committed to a review of the managed care regulations in order to prioritize beneficiary outcomes and state priorities, but that any modifications or changes to the Medicaid managed care final rule would generally necessitate rulemaking as required by the federal APA.
     
     In the June 2017 bulletin, CMS stated that while it conducts this review, it intends to use its enforcement discretion to focus on working with states to achieve compliance with the managed care regulations when states are unable to implement new and potentially burdensome requirements of the final rule by the required compliance date, particularly provisions with a compliance deadline of contracts beginning on or after July 1, 2017. CMS indicated this use of its enforcement discretion will be applied based on state-specific facts and circumstances and focused on states’ specific needs.
     
     To implement this targeted enforcement discretion, states will need to identify for CMS those regulations of the final rule that they are unable to implement by the required compliance date. CMS indicates states should work through their normal regional office processes to identify the specific regulations. CMS will work with states on assessing compliance with the specific regulation, including: (1) the specific goals and intent for the regulation; (2) compliance with regulatory standards that were in effect prior to the Medicaid managed care rule publication in 2016; (3) alternatives the state could consider in moving toward compliance and strategies for how states can best mitigate specific risks and concerns with non-compliance; and, (4) developing a timeline for future compliance with the regulatory requirement. Notwithstanding this guidance, CMS states it is unable to permit flexibility for all provisions of the final rule for which compliance is required for contracts beginning on or after July 1, 2017. Specifically, CMS points out it cannot permit flexibility for: (1) the actuarial soundness and payment provisions; (2) the pass-through payment provisions; and, (3) specified MLR provisions.
     
  5. Informational Hearing. On February 28, 2017, the Assembly and Senate Health Committees conducted a joint informational hearing on the implementation of the Federal Medicaid managed care rule in California. The hearing provided an overview of the provisions of the rules that have a significant fiscal impact on California’s MCMC delivery system or where California has policy choices in implementing the rules.
     

1. SUPPORT. The California Association of Public Hospitals and Health Systems (CAPHHS) supports the public hospital-related provisions of this bill to implement critical provisions of the federal Medicaid Managed Care rule related to supplemental Medi-Cal funding for California’s public health care systems. CAPHHS writes that this bill restructures these payments to comply with the regulation, enabling public health care systems to retain more than $1 billion annually in federal Medicaid funding currently provided through supplemental payments drawn down through IGT funded payments made by counties and public hospitals. In order to meet new CMS requirements, public health care system supplemental payments must be restructured. This bill would implement two new payment provisions (directed payments and performance-based quality incentive payments) that would allow public health care systems to leverage supplemental funding, if and only if they achieve clinical and performance metrics. CAPHHS concludes that successful implementation of these two approaches would allow public health care systems to retain critical Medi-Cal funding in order to support their mission and commitment to serving a large Medi-Cal and uninsured population.
   
2. SUPPORT WITH AMENDMENTS. The California Pan-Ethnic Health Network (CPEHN) and Western Center on Law & Poverty (WCLP) write in support and request amendments to set one statewide standard in statute for time, distance and timely access standards. WCLP writes that establishing a single statewide standard, and then allowing for alternative access when demonstrated to be necessary, is a more effective way to establish time and distance standards. WCLP writes in support of the statewide standards proposed by Health Access California ((HAC) described below). CPEHN writes that it is critically important that consumers be well-informed as to their rights to timely access to services. California consumers are mobile, particularly communities of color who have recently been disparately impacted by rising housing costs and displacement. If the time and distance standards vary from county to county, consumers may have difficulty knowing which standard applies to them in any place. It will also be difficult to inform consumers of their rights. WCLP also requests that non-urgent hospital services be included in the time and distance standards. In addition, WCLP requests amendments that require MCMC plans to make the criteria for medical necessity determinations and the reason for any denial of mental health and substance use disorder benefits available to beneficiaries.
   
   CPEHN and WCLP also write that the federal regulations require that network adequacy standards account for “physical access, reasonable accommodations, culturally competent communications, and accessible equipment for Medicaid enrollees with physical or mental disabilities.” CPEHN recommends that this bill include this provision as a requirement for DHCS to consider when allowing for alternative network adequacy standards. WCLP writes that DHCS should monitor plans for this provision of the rule.
   
3. SUPPORT IF AMENDED. HAC writes it would support this bill if it were amended to designate a statewide time and distance standard for each provider type and provide guidance for alternative access standards if a plan is unable to meet the statewide standards. HAC writes that ensuring consumers receive timely access to necessary care is of paramount importance, particularly in the managed care delivery system and notes that statewide time and distance standards for specialty care exist (workers’ compensation and for Department of Insurance-regulated insurers). HAC argues California must ensure that managed care plans have adequate provider networks so consumers can get the care they need when they need it, in a language they understand. Timely access standards ensure consumers do not have to wait a long time to see a doctor, and geographic access requirements (time and distance) ensure consumers do not have to travel unreasonable distances. HAC suggests the following statewide time and distance standards:
4. Primary care (pediatric and adult): 10 miles or 30 minutes, consistent with existing DHCS standards;
5. OB/GYN: 10 miles or 30 minutes for primary care and 30 mile or 60 minutes for specialty care;
6. Behavioral health services (including outpatient substance use disorder treatment services & opioid treatment services): 10 miles or 30 minutes;
7. Core specialists (pediatric and adult): 30 miles or 60 minutes;
8. Hospital services: 10 miles or 30 minutes, consistent with existing standards;
9. Pharmacies: 10 miles or 30 minutes;
10. Pediatric dental: 10 miles or 30 minutes; and,
11. LTSS: DHCS should develop time and distance standards for LTSS in consultation with stakeholders, including consumer advocates.
    
12. OPPOSE UNLESS AMENDED. The California Association of Health Plans has taken an oppose unless amended position and states that the current language in the bill assigns oversight role for the time and distance standards to both the DMHC and DHCS. CAPH believes it is critical for these regulators to align in both the substance and timelines of their requirements on plans to demonstrate compliance. Secondly, CAHP believes the MLR language should be clarified that each MCMC plan will calculate and report an MLR in aggregate across all its enrollees or at the level of the plan’s contract with the state.
13. POLICY QUESTION. This bill is silent on where revenue from a MCMC plan would be used for in the event a MCMC plan had to make a remittance for having an MLR below 85%. In the event a MCMC plan does not meet the proposed standard, should these funds be returned to the Medi-Cal program or be required to be spent on a similar health-related expenditure that furthers the goals and purpose of the Medi-Cal program?
14. RELATED LEGISLATION. AB 205 is identical to this bill. AB 205 is pending in the Senate Health Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

Alzheimer’s Association

California Association for Adult Day Services

California Association of Area Agencies on Aging

California Association of Public Hospitals and Health Systems

California Hospital Association

California Pan-Ethnic Health Network

CalPACE

City and County of San Francisco

Congress of California Seniors

Contra Costa County Board of Supervisors

Justice in Aging

LeadingAge California

MSSP Site Directors Association

National Multiple Sclerosis Society

Riverside County Board of Supervisors

Santa Clara County Board of Supervisors

Urban Counties of California

Western Center on Law & Poverty

Opposition

None on file.

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

 THIRD READING  

Bill No: SB 171

Author: Hernandez (D), et al.

Amended: 5/2/17

Vote: 21

SENATE HEALTH COMMITTEE: 9-0, 4/26/17

AYES: Hernandez, Nguyen, Atkins, Leyva, Mitchell, Monning, Newman, Nielsen, Roth

SENATE APPROPRIATIONS COMMITTEE: 5-1, 5/25/17

AYES: Lara, Beall, Bradford, Hill, Wiener

NOES: Nielsen

NO VOTE RECORDED: Bates

SUBJECT: Medi-Cal: Medi-Cal managed care plans

SOURCE: Author

DIGEST:

This bill requires the Department of Health Care Services (DHCS) to require Medi-Cal managed care plans to enhance contract services payments to designated public hospitals (DPH) by a uniform percentage. This bill requires DHCS, to establish a program under which DPHs may earn performance-based quality incentive payments from Medi-Cal managed care plans. This bill implements a federal option to require a Medi-Cal managed care plans to provide a remittance if the plan fails to meet an 85% medical loss ratio (MLR). This bill requires DHCS to develop time and distance regulatory standard for health care provider types specified in federal regulation to ensure access to medically necessary covered services, and requires the standards to meet or exceed existing standards.

ANALYSIS:

Existing law:

1. Establishes the Medi-Cal program, administered by DHCS, under which health care services are provided to qualified, low-income persons. Establishes a schedule of benefits for Medi-Cal beneficiaries, which includes inpatient and outpatient hospital services. Provides Medi-Cal services through various types of managed care plans.
2. Permits a public entity to elect to transfer public funds to the state to be used solely as the non-federal share of Medi-Cal payments to managed care health plans for the provision of services to Medi-Cal beneficiaries. These transfers are known as intergovernmental transfers (IGTs) and are used to draw down federal Medicaid matching funds. Defines a “public entity” as a DPH, the University of California (UC), or a county or city and county or local hospital authority that is licensed to operate one or more of the DPHs.
3. Establishes, through Knox-Keene Act regulations, time and distance standards (e.g., requiring a primary care provider be within 15 miles or 30 minutes of an enrollee’s work or residence) and appointment availability standards (e.g., 48 hours for urgent appointments that do not require prior authorization, 15 days for specialists for non-urgent appointments) for health plans licensed pursuant to the Knox-Keene Act.
4. Prohibits a person from being entitled to a state fair hearing unless he or she files his or her request for the hearing within 90 days after the order or action. Entitles a person to a fair hearing if he or she files the request more than 90 days after the order or action complained of and there is good cause for filing the request beyond the 90-day period. Permits the director of the Department of Social Services (DSS) to determine whether good cause exists.

This bill:

1. Requires, commencing with the 2017-18 fiscal year, and notwithstanding any other provision of law, DHCS to require Medi-Cal managed care plans to enhance contract services payments to DPHs by a uniform percentage. Requires the applicable percentage for purposes of the directed payments to be uniformly applied across the following classes of DPH systems:
   1. DPHs owned and operated by the UC;
   2. DPHs that include a DPH with a level 1 or level 2 trauma designation that are not UC DPHs; and,
   3. DPHs not identified in a) or b).
2. Requires the applicable uniform percentages for each class and the classification of each DPH to be determined annually by DHCS in consultation with the DPH systems. Prohibits, once DHCS determines the classification for each DPH system for a particular state fiscal year, the classification from being eligible for a change until no sooner than the subsequent state fiscal year. Permits DHCS to adjust or modify the applicable percentages or the classifications, as specified.
3. Requires the directed payment amounts to be determined by multiplying the applicable percentage developed by DHCS by the total amount of contract services payments.
4. Prohibits the required payment enhancements from supplanting amounts that would otherwise be payable by a Medi-Cal managed care plan to a DPH system for an applicable state fiscal year.
5. Requires DHCS, to the extent it determines, in its sole discretion, that a Medi-Cal managed care plan is not compliant with the above requirements to the material detriment of an applicable DPH system and independent of any remedy available to the DPH system, to reduce the default assignment into the Medi-Cal managed care plan with respect to all Medi-Cal managed care beneficiaries by up to 25%, as long as the other plan or plans in the applicable county have the capacity to receive the additional default membership. Prohibits DHCS’ determination whether to exercise discretion from being subject to judicial review. Prohibits these provisions from being construed to preclude or otherwise limit the right of any DPH system to pursue a breach of contract action in connection with these requirements.
6. Requires capitation rates paid by DHCS to Medi-Cal managed care plans to account for the Medi-Cal managed care plan’s obligation to pay the directed payments in accordance with the above requirements.
7. Requires DHCS, effective for state fiscal years beginning with 2017-18, in consultation with the DPH systems and Medi-Cal managed care plans, to establish a program under which DPHs may earn performance-based quality incentive payments from Medi-Cal managed care plans.
8. Requires payments to be earned by each DPH system based on its performance achieving identified targets for quality of care.
9. Permits the non-federal share of the portion of the capitation rates associated with directed payments and the quality incentive payments to consist of voluntary IGT transfer of funds provided by DPHs and their affiliated governmental entities, or other public entities. Requires any IGT of funds made to be considered voluntary for purposes of all federal laws.
10. Implements the above-described provisions only to the extent that any necessary federal approvals are obtained and federal financial participation (FFP) is available and is not otherwise jeopardized.
11. Requires Medi-Cal managed care plans to provide a remittance for an MLR reporting year if the ratio for that MLR reporting year does not met the minimum MLR standard of 85%. Applies this requirement to Medi-Cal managed care plans, primary care case management plans but not dental managed care plans.
12. Requires DHCS, in consultation with the Department of Managed Health Care (DMHC), to develop time and distance regulatory standard in order to ensure access to medically necessary covered services for the provider types specified in federal regulation.
13. Requires the standards to meet or exceed existing time and distance standards in Knox-Keene regulation and Medi-Cal contracts as of January 1, 2016, and to meet or exceed the appointment time standards implemented pursuant to Knox-Keene standards and in standards in contracts with plans.
14. Requires DHCS, in developing the time and distance standards, if DHCS elects a county standard for the time and distance standard, to categorize counties in to at least five or more county categories.
15. Permits DHCS to have varying standards for the same provider type based on geographic areas, subject to the above requirements.
16. Permits DHCS, upon request of a Medi-Cal managed care plan, to allow alternative access standards in circumstances where the applying plan has exhausted all other reasonable options to obtain providers to meet either time and distance or timely access standards, and where the plan has obtained approval from DMHC, if the plan is licensed by the DMHC. Requires DHCS to post any approved alternative access standards on its Internet Web site.
17. Permits DHCS to allow standards other than time and distance when the health care provider travels to the beneficiary or to a community-based setting to deliver services.
18. Requires Medi-Cal managed care plans to demonstrate to DHCS compliance with the regulatory standards on at least an annual basis.
19. Allows a person to request a fair hearing involving a Medi-Cal managed care plan within 120 calendar days (instead of 90 days in existing law) after the order or action. Continues to allow an extension beyond this timeframe where here is good cause for filing the request beyond the 120-calendar day period, and continues to allow the director of DSS to determine whether good cause exists.

Comments

1. Author’s statement. According to the author, in 2016 and early 2017, the federal Centers for Medicare and Medicaid Services (CMS) finalized two Medicaid and Children’s Health Insurance Program managed care regulations that have a significant impact on California’s Medi-Cal program in several areas, including how the state pays Medi-Cal managed care plans, how the plans pay hospitals and other health care providers, the grievance and appeals process for Medi-Cal beneficiaries who are enrolled in plans, and access to health care providers in Medi-Cal managed care plan, Denti-Cal managed care plans, and county specialty mental health networks.

This bill changes how Medi-Cal managed care plan reimburse county and UC hospitals to ensure compliance with the significant changes resulting from the managed care payment requirements of the federal rule while continuing to provide crucial funding support for these safety net providers. This bill requires DHCS to implement the federally required provider access and time and distance standards by requiring the adoption of a regulation in consultation with the DMHC, and implements a federal option to require a rebate if Medi-Cal managed care plans fail to spend at least 85% of premium revenue on health care services (known as an MLR).

1. Support unless amended. Health Access California (HAC) writes it would support this bill if it were amended to set specific time and distance standards, and to allow DHCS to adopt regulations with another standard if they can demonstrate why that standard is more appropriate. HAC argues allowing DHCS to implement sub-regulatory standards until regulations are adopted gives away the power of the Legislature to determine what the standards should be for over 10 million Californians in Medi-Cal managed care. HAC would also like DMHC to also be able to enforce the DHCS-proposed standards.
2. Concerns with this bill. The Local Health Plans of California (LHPC) expresses “concerns” with this bill. LHPC argues the definition of "contract services payments" and "contract services" in this bill must be refined to make it clear that ad hoc agreements are not "contracts" eligible for enhanced payment amounts. LHPC indicates its plans would oppose an enhanced payment model that did not make this distinction, which is necessary for regulatory consistency and to incentivize contracting and therefore robust networks serving the Medi-Cal program. LHPC writes to express concern over financial risks to plans of having over $1 billion in supplemental payments now flow through plans. LHPC writes that its plans are concerned that this bill does not yet contain provisions that would require DHCS to consult with health plans and share information at all stages, provide timely notice of directed payment amounts, the findings and penalties related to noncompliance, and clearly outline DHCS’ obligation to develop actuarially sound rates.

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

According to the Senate Appropriations Committee:

• Ongoing staff costs in millions for DHCS to make the necessary regulatory and system changes to implement the bill (General Fund and federal funds). A complete estimate of the administrative costs to comply with the new federal rule is not available at this time. In the 2016-17 Budget Act and the 2017-18 Budget proposal, DHCS has been granted or requested roughly $18 million for staff and contracts to implement the new rule (of which about $13 million is ongoing costs). In addition, DHCS has dedicated significant existing staff resources to planning for complying with the requirements of the rule.
• Uncertain impact on the overall financing of the Medi-Cal program (General Fund, local funds, federal funds). The new managed care rule makes many changes to the operation of managed care, several of which may impact the overall funding of the program.
  • Funding Medi-Cal services at public hospitals. The new federal rule limits the state’s ability to provide directed payments through Medi-Cal managed care plans to public hospitals. This will require the state, managed care plans, and public hospitals to revise the system for making payments to public hospitals. At this time, the overall impact this will have on financing Medi-Cal services at public hospitals is not known, although the intention of DHCS and the public hospitals is to maintain the existing level of federal funding.
  • MLR. This bill implements a federal option to require Medi-Cal managed care plans to remit to the state if they do not meet a MLR of 85%. Whether this provision will result in future remittances to the state is unknown. In 2015-16, the un-weighted average MLR was 86%, thus some plans were out of compliance with the requirement in this bill.
  • Access to care standards. This bill requires DHCS to adopt standards for access to care in regulation and imposes specific requirements on the standards. It is unknown whether the standards currently under development by DHCS will significantly change the utilization of services in Medi-Cal.

SUPPORT: (Verified 5/25/17)

California Association of Public Hospitals and Health Systems

California Hospital Association

California Pan-Ethnic Health Network

Santa Clara County Board of Supervisors

Urban Counties of California

Western Center on Law and Poverty

OPPOSITION: (Verified 5/25/17)

California Association of Health Plans

ARGUMENTS IN SUPPORT: The California Association of Public Hospitals and Health Systems (CAPHHS) writes in support of the public hospital-related provisions of this bill to address the changes resulting from the federal Medicaid managed care rule. CAPHHS states this bill implements critical provisions of the federal Medicaid managed care rule related to supplemental Medi‐Cal funding for California’s public health care systems by restructuring these payments to comply with the regulation, enabling public health care systems to retain more than $1 billion annually in federal Medicaid funding to help bridge the gap between low base Medi‐Cal rates and the true cost of providing care. In order to meet the new CMS requirements, this bill outlines two important provisions that meet the new federal requirements by implementing an enhanced contracted services payment, which would provide a uniform percentage increase above base Medi-Cal rates, and performance-based quality incentive payments. CAPHHS states successful implementation of these two approaches would allow public health care systems to retain critical Medi-Cal funding in order to support their mission and commitment to serving a large Medi-Cal and uninsured population.

The California Pan-Ethnic Health Network (CPEHN) and Western Center on Law and Poverty (WCLP) write in support and request additional amendments related to requiring an independent medical review option for beneficiaries who do not currently have this option. In addition, CPEHN and WCLP request language that requires the network adequacy standards incorporate additional requirements and additional amendments related to grievance and appeals and time and distance. CPEHN also writes that the federal regulation requires that services be delivered in a “culturally competent manner to all enrollees, including those with limited English proficiency and diverse cultural and ethnic backgrounds, disabilities, and regardless of gender, sexual orientation or gender identity” and this bill should require DHCS to assess compliance with the network adequacy standards in compliance with this requirement by monitoring access for historically underserved subpopulations.

CPEHN also writes that this bill should require DHCS to hold all managed care plans to the same access standard through consistent and equitable monitoring and oversight for all plans that are subject to the federal regulation. WCLP writes that it would like changes to the existing grievance and appeal process to be done through the regulatory process, that language be added allowing beneficiaries to be able to go directly to state fair hearings if plans fail to act promptly, and DHCS be required to work with DSS to clarify that that expedited appeals are not subject to the 10 day advance notice rule and must be resolved in 72 hours per the federal regulation.

ARGUMENTS IN OPPOSITION: The California Association of Health Plans (CAHP) writes that it is opposed unless amended to this bill. CAHP writes that it is concerned that the current language does not reflect a reasonable balance of risk and recourse between plans and public hospital systems. CAHP argues both parties should be able to propose risk-mitigation strategies and seek fair dispute resolution under the new payment model. CAHP also does not want the DHCS-proposed time and distance standards to unduly exceed existing requirements, and requests amendments to have the MLR calculated across all plans’ enrollees.

Prepared by: Scott Bain / HEALTH /

5/27/17 17:47:47

**** END ****

SENATE COMMITTEE ON

Senator Ricardo Lara, Chair

2017 - 2018 Regular Session

SB 171 (Hernandez) - Medi-Cal: Medi-Cal managed care plans

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

Bill Summary:

SB 171 would require the Department of Health Care Services to make several changes to the operation of the Medi-Cal managed care program, to conform to new federal requirements.

Fiscal Impact:

• Ongoing staff costs in millions for the Department of Health Care Services to make the necessary regulatory and system changes to implement the bill (General Fund and federal funds). A complete estimate of the administrative costs to comply with the new federal rule is not available at this time. In the 2016-17 Budget Act and the 2017-18 budget proposal, the Department of Health Care Services has been granted or requested roughly $18 million for staff and contracts to implement the new rule (of which about $13 million is ongoing costs). In addition, the Department has dedicated significant existing staff resources to planning for complying with the requirements of the rule.
• Uncertain impact on the overall financing of the Medi-Cal program (General Fund, local funds, federal funds). The new managed care rule makes many changes to the operation of managed care, several of which may impact the overall funding of the program.
  • Funding Medi-Cal services at public hospitals. The new federal rule limits the state’s ability to provide directed payments through Medi-Cal managed care plans to public hospitals. This will require the state, managed care plans, and public hospitals to revise the system for making payments to public hospitals. At this time, the overall impact this will have on financing Medi-Cal services at public hospitals is not known, although the intention of the Department and the public hospitals is to maintain the existing level of federal funding.
  • Medical loss ratio. The bill would implement a federal option to require Medi-Cal managed care plans to remit to the state if they do not meet a medical loss ratio of 85%. Whether this provision will result in future remittances to the state is unknown. In 2015-16, the unwieghted average medical loss ratio was 86%, thus some plans were out of compliance with the requirement in this bill.
  • Access to care standards. The bill requires the Department to adopt standards for access to care in regulation and imposes specific requirements on the standards. It is unknown whether the standards currently under development by the Department will significantly change the utilization of services in Medi-Cal.

Background:

Under state and federal law, the Department of Health Care Services operates the Medi-Cal program, which provides health care coverage to low income individuals, families, and children. Medi-Cal provides coverage to childless adults and parents with household incomes up to 138% of the federal poverty level and to children with household incomes up to 266% of the federal poverty level. The federal government provides matching funds that vary from 50% to 90% of expenditures depending on the category of beneficiary. About 80% of Medi-Cal beneficiaries are served through the managed care system.

In 2016, the federal Centers for Medicare and Medicaid Services finalized two rules relating the use of managed care by Medicaid programs. Those two rules will require significant changes to how the state provides care and pays for services through managed care.

Public hospital financing. Under current practice, public hospitals provide funding to the state through intergovernmental transfers. The state uses this funding and federal matching funds to increase payments to public hospitals (through Medi-Cal managed care plans). This reduces state funding for Medi-Cal and allows public hospitals to offset some of the uncompensated costs they incur for treating Medi-Cal patients. These payments are determined after the fact by hospitals and managed care plans to ensure that hospitals generate the maximum allowable revenue for services provided to Medi-Cal beneficiaries. In the current system, Medi-Cal managed care plans do not assume risk for those payments.

The new federal rule limits the ability of states to use the type of directed payment currently used to provide supplemental funding to public hospitals. Under the new rule, states will be limited in their ability to require plans to make directed payments to hospitals, particularly in their ability to make retrospective payments.

Access to care standards. Under current law and regulation, the state imposes specified standards on Medi-Cal managed care plans in order to ensure access to covered health care services. These standards are often referred to as “time and distance” standards. Currently, time and distance standards for Medi-Cal managed care plans apply to primary care providers and hospitals, but not specialty care. In addition, there are standards in law (under the Knox-Keene Act) that apply to commercial managed care plans, including some Medi-Cal managed care plans. Those standards limit the wait times patients may experience before seeing certain types of providers.

The Department has released a proposal for complying with the access to care standards in the federal rule.

Proposed Law:

SB 171 would require the Department of Health Care Services to make several changes to the operation of the Medi-Cal managed care program, to conform to new federal requirements.

Significant provisions of the bill would:

• Public hospital financing. The bill would authorize two methods of providing directed payments to providers, a uniform increase in rates for network providers and participation in quality incentive payment programs;
• Medical loss ratio. The bill would require Medi-Cal managed care plans to remit to the state if a plan does not meet an 85% medical loss ratio. This requirement would not apply to dental managed care plans.
• Access to care standards. The bill would require new access to care standards developed by the Department to be adopted in regulation, place requirements on the Department if it uses a county-based standard, codify the Department’s proposed alternative access standards, and require managed care plans to demonstrate compliance annually;
• Changes to grievance and appeals. The bill would increase the time allowed for an individual to request a fair hearing involving a decision by a Medi-Cal managed care plan from 90 to 120 days.

Related Legislation:

AB 205 (Wood) is identical to this bill. That bill is pending in the Assembly Appropriations Committee.

Staff Comments:

The state is required to come into compliance with the requirements of the new federal managed care rules. This bill implements some of the changes in statute necessary for compliance with the rule. Additional changes to statute will also likely be necessary. This bill includes some policy choices relating to compliance with the federal rule, such as requiring remittances when a managed care plan does not meet the medical loss ratio requirement and setting baseline standards for access to care. The bill does not appear to require the Department to impose significant new requirements on Medi-Cal managed care plans that go beyond federal requirements

-- END --

SENATE COMMITTEE ON HEALTH

Senator Ed Hernandez, O.D., Chair

BILL NO: SB 171

SUBJECT: Medi-Cal: Medi-Cal managed care plans

SUMMARY:

Requires the Department of Health Care Services (DHCS) to require Medi-Cal managed care plans to enhance contract services payments to designated public hospitals (DPH) by a uniform percentage. Requires DHCS, to establish a program under which DPHs may earn performance-based quality incentive payments from Medi-Cal managed care plans. Implements a federal option to require a Medi-Cal managed care plans to provide a remittance if the plan fails to meet an 85% medical loss ratio. Requires DHCS to develop time and distance regulatory standard for health care provider types specified in federal regulation to ensure access to medically necessary covered services, and requires the standards to meet or exceed existing standards.

Existing state law:

1. Establishes the Medi-Cal program, administered by DHCS, under which health care services are provided to qualified, low-income persons. Establishes a schedule of benefits for Medi-Cal beneficiaries, which includes inpatient and outpatient hospital services. Provides Medi-Cal services through various types of managed care plans.
2. Permits a public entity to elect to transfer public funds to the state to be used solely as the non-federal share of Medi-Cal payments to managed care health plans for the provision of services to Medi-Cal beneficiaries. These transfers are known as intergovernmental transfers (IGTs) and are used to draw down federal Medicaid matching funds. Defines a “public entity” as a DPH, the University of California, or a county or city and county or local hospital authority that is licensed to operate one or more of the DPHs.
3. Requires DHCS to require Medi-Cal managed care health plans to pay the DPH and other governmental providers affiliated with the transferring public entity for services at amounts that are no less than the total amount the provider would have otherwise been entitled on a fee-for-service (FFS) basis, for the full scope of Medi-Cal services in order to ensure that the implementation of the transfer of seniors and persons with disabilities to plans does not jeopardize the ability of DPHs and their affiliated public providers to continue serving Medi-Cal beneficiaries.
4. Requires Medi-Cal managed care plans serving Medi-Cal Affordable Care Act (ACA) expansion beneficiaries to pay county public hospital health systems for services provided to newly eligible beneficiaries in amounts that are no less than the cost of providing those services, including the cost of network and out-of-network services that are charged to or paid for by county public hospital health systems. Requires the capitation rates paid to Medi-Cal managed care plans for ACA expansion beneficiaries to be determined to reflect this obligation.
5. Conditions the requirements in 3) and 4) above on an IGT to provide the non-federal share of funds.
6. Establishes, through Knox-Keene Act regulations, time and distance standards (e.g., requiring a primary care provider be within 15 miles or 30 minutes of an enrollee’s work or residence) and appointment availability standards (e.g., 48 hours for urgent appointments that do not require prior authorization, 15 days for specialists for non-urgent appointments) for health plans licensed pursuant to the Knox-Keene Act.
   
7. Require an individual be accorded an opportunity for a state fair hearing (an appeal) if:
   
8. Any applicant for or recipient of public social services (including Medi-Cal) is dissatisfied with any action of the county department relating to his or her application for or receipt of public social services;
9. His or her application is not acted upon with reasonable promptness; or,
10. If any person who desires to apply for public social services is refused the opportunity to submit a signed application therefor, and is dissatisfied with that refusal.
    
11. Prohibits a person from being entitled to a state fair hearing unless he or she files his or her request for the hearing within 90 days after the order or action. Entitles a person to a fair hearing if he or she files the request more than 90 days after the order or action complained of and there is good cause for filing the request beyond the 90-day period. Permits the director of the Department of Social Services (DSS) to determine whether good cause exists.

Existing federal Medicaid managed care regulations:

1. Prohibits the state from directing a Medicaid managed care plan’s expenditures under the contract, except the rule permits a state to require a managed care plan to implement value-based purchasing models, adopt a maximum or minimum fee schedule, or a uniform dollar or percentage increase for network providers.
   
2. Requires states to ensure that each Medicaid managed care calculates and reports a medical loss ratio (MLR). (In general terms, a MLR is the percentage of each dollar the plan receives in premiums that the plan spends on health care services, as defined, versus administration, sales, marketing and profit.)
   
3. Requires states to develop plan rates in a way that the plan would reasonably achieve a MLR standard of at least 85% for the rate year.
4. Requires states that contract with Medicaid managed care plans to deliver Medicaid services to develop and enforce network adequacy standards, including time and distance standards for specified provider types, taking into account specified factors such as expected Medicaid enrollment and expected utilization.
   
5. Requires states to ensure that all services covered under its Medicaid program are available and accessible to enrollees of Medicaid managed care plans in a timely manner.
   
6. Authorizes an enrollee to request a state fair hearing only after receiving notice that the Medicaid managed care plan is upholding an adverse benefit determination, and requires the enrollee to request a state fair hearing no later than 120 calendar days from the date of the Medicaid managed care plan’s notice of resolution.

This bill:

1. Requires, commencing with the 2017-18 fiscal year, and notwithstanding any other provision of law, DHCS to require Medi-Cal managed care plans to enhance contract services payments to DPHs by a uniform percentage. Requires the applicable percentage for purposes of the directed payments to be uniformly applied across the following classes of DPH systems:
2. DPHs owned and operated by the University of California (UC);
3. DPHs that include a designated public hospital with a level 1 or level 2 trauma designation that are not UC DPHs; and,
4. DPHs not identified in a) or b).
5. Requires the applicable uniform percentages for each class and the classification of each DPH to be determined annually by DHCS in consultation with the DPH systems. Prohibits, once DHCS determines the classification for each DPH system for a particular state fiscal year, the classification from being eligible for a change until no sooner than the subsequent state fiscal year. Permits DHCS to adjust or modify the applicable percentages or the classifications, as specified.
6. Requires the directed payment amounts to be determined by multiplying the applicable percentage developed by DHCS by the total amount of contract services payments.
   
7. Requires the directed payments to be implemented and documented by Medi-Cal managed care plans and DPH systems in accordance with specified parameters and any guidance issued by DHCS.
   
8. Requires the plan and the DPH system to determine the manner, timing and amount of payment for contracted services, the manner, frequency and amount of distribution.
   
9. Prohibits the required payment enhancements from supplanting amounts that would otherwise be payable by a Medi-Cal managed care plan to a DPH system for an applicable state fiscal year.
   
10. Requires a Medi-Cal managed care plan, in the event a plan subcontracts or otherwise delegates responsibility to a separate entity for either or both the arrangement or payment of services, to ensure that the DPH system receives the payment enhancements, regardless of whether the Medi-Cal managed care plan subcontracted or delegated responsibility for payment of the directed amounts to the subcontracted or delegated entity, and makes the plan liable for any unpaid amounts. 
    
11. Requires Medi-Cal managed care plans to require reporting of amounts paid or payable pursuant to such subcontracted or delegated arrangements as necessary to calculate the amount of such enhancements.
    
12. Requires Medi-Cal managed care plans to annually provide to DHCS an accounting of amounts paid or payable to the DPH systems it contracts with, including both contracted rates and the directed payments, to demonstrate compliance.
    
13. Requires DHCS, to the extent it determines, in its sole discretion, that a Medi-Cal managed care plan is not compliant with these requirements to the material detriment of an applicable DPH system and independent of any remedy available to the DPH system, to reduce the default assignment into the Medi-Cal managed care plan with respect to all Medi-Cal managed care beneficiaries by up to 25%, as long as the other plan or plans in the applicable county have the capacity to receive the additional default membership. Prohibits DHCS’ determination whether to exercise discretion from being subject to judicial review. Prohibits these provisions from being construed to preclude or otherwise limit the right of any DPH system to pursue a breach of contract action in connection with these requirements.
    
14. Requires capitation rates paid by DHCS to Medi-Cal managed care plans to account for the Medi-Cal managed care plan’s obligation to pay the directed payments to DPHs in DPH systems in accordance with the above requirements.
    
15. Requires DHCS, effective for state fiscal years beginning with 2017-18, in consultation with the DPH systems and Medi-Cal managed care plans, to establish a program under which DPHs may earn performance-based quality incentive payments from Medi-Cal managed care plans they contract with.
    
16. Requires payments to be earned by each DPH system based on its performance achieving identified targets for quality of care.
    
17. Requires DHCS, in consultation with DPH systems and Medi-Cal managed care plans, to establish, and provide a method for updating, uniform performance measures for the quality incentive program and parameters for the DPH systems to select the applicable measures. Requires the performance measures to advance at least one goal identified in the state’s Medicaid quality strategy, and prohibits measures that duplicate measures utilized in the PRIME program operated under the state’s Section 1115 Medicaid Waiver.
    
18. Requires each DPH system to submit reports to DHCS containing information required to evaluate its performance on all applicable performance measures, and requires plans to assist the DPHs in collecting information necessary for the annual report.
    
19. Requires DHCS to determine a maximum amount that each class may earn in quality payments for the fiscal year, and to calculate the amount earned by each DPH system based on its performance score. Requires this amount to be paid to the DPH system by its contracted Medi-Cal managed care plans.
    
20. Prohibits a Medi-Cal managed care plan from terminating a contract with the DPH hospital system for the purpose of circumventing the payment obligations under this bill.
    
21. Requires Medi-Cal managed care plans to be responsible for payment of the quality incentive payments.
    
22. Requires DHCS to provide appropriate funding to Medi-Cal managed care plans to account for and enable them to make the quality incentive payments, through incorporation into actuarially sound capitation rates or other federally permissible method. Requires the amounts designated by DHCS for the quality incentive payments to be reserved for the purposes of the quality incentive payment program.
    
23. Requires DHCS, in determining the uniform percentages and the aggregate size of the quality incentive payment program, to consult with DPH systems to establish levels for these payments that, in combination with one another, are projected to result in aggregate payments that will advance the quality and access objectives reflected in prior payment enhancement mechanisms for DPH systems. Permits DHCS, to the extent necessary to meet these objectives or to comply with federal requirements, to adjust or modify either or both the applicable percentages or quality incentive payment program.
    
24. Deems the contract service payments and quality incentive payment program provisions to be incorporated in each contract between a DPH system and a Medi-Cal managed care plan (and its subcontractor or designee, as applicable), and any claim for breach of the aforementioned provisions may be brought directly in a court of competent jurisdiction.
    
25. Permits the non-federal share of the portion of the capitation rates associated with directed payments and the quality incentive payments to consist of voluntary IGT transfer of funds provided by DPHs and their affiliated governmental entities, or other public entities. Requires any IGT of funds made to be considered voluntary for purposes of all federal laws.
    
26. Requires DHCS, when applicable for voluntary IGTs, to develop and maintain a protocol to determine each public entity’s IGT amount in an applicable state fiscal year for purposes of funding the nonfederal share associated with payments under this bill. Requires the protocol developed and maintained to account for any applicable contributions made by public entities to the nonfederal share of Medi-Cal managed care expenditures, including contributions made under other specified provisions of law.
    
27. Implements the above-described provisions only to the extent that any necessary federal approvals are obtained and federal financial participation (FFP) is available and is not otherwise jeopardized.
    
28. Prohibits DHCS, for any state fiscal year that this bill is implemented, from being required to make any payment to Medi-Cal managed care plans pursuant to the following requirements in existing law that plans:
    
29. Pay DPHs FFS payments amount for seniors and persons with disabilities;
30. Pay DPHs cost-based services for the Medi-Cal ACA expansion population; and,
31. Pay all of the rate range increase for the Medi-Cal ACA expansion as additional payments to county public hospital health systems (plans are paid at least at 75% of the rate range available, to the extent FFP is available).
32. Requires DHCS to seek any necessary federal approvals for the directed payments and the quality incentive payments set forth in this bill.
    
33. Requires DHCS to consult with DPH systems with regard to the development and implementation of the directed payment levels and the quality incentive payments.
    
34. Permits the DHCS director, after consultation with DPH systems, to modify the requirements set forth in this bill to the extent necessary to meet federal requirements or to maximize available FFP. Requires the DHCS director, in the event federal approval is only available with significant limitations or modifications, or in the event of changes to the federal Medicaid program that result in a loss of funding currently available to the DPHs, to consult with the DPHs to consider alternative methodologies.
    
35. Permits DHCS to implement, interpret, or make specific this bill by means of all-county letters, plan letters, provider bulletins, or other similar instructions, without taking regulatory action. Requires DHCS to make use of appropriate processes to ensure that affected DPH systems and Medi-Cal managed care plans are timely informed of, and have access to, applicable guidance issued pursuant to this authority, and that this guidance remains publicly available until all payments made are finalized.
    
36. Requires Medi-Cal managed care plans to provide a remittance for an MLR reporting year if the ratio for that MLR reporting year does not met the minimum MLR standard of 85%. Applies this requirement to Medi-Cal managed care plans, primary care case management plans but not dental managed care plans.
    
37. Requires DHCS, in consultation with the Department of Managed Health Care (DMHC), to develop time and distance regulatory standard in order to ensure access to medically necessary covered services for the following provider types specified in federal regulation:
38. Primary care (adult and pediatric);
39. OB/GYN;
40. Behavioral health (mental health and substance use disorder), adult and pediatric;
41. Specialist, adult and pediatric;
42. Hospital;
43. Pharmacy;
44. Pediatric dental;
45. Additional provider types when it promotes the objectives of the Medicaid program, as determined by CMS, for the provider type to be subject to time and distance access standards;
46. Long-term services and supports (LTSS), for plans with contracts which cover LTSS, for LTSS provider types in which an enrollee must travel to the provider to receive services; and,
47. Network adequacy standards other than time and distance standards for LTSS provider types that travel to the enrollee to deliver services.
    
48. Requires the standards to meet or exceed existing time and distance standards in Knox-Keene regulation and Medi-Cal contracts as of January 1, 2016, and to meet or exceed the appointment time standards implemented pursuant to Knox-Keene standards and in standards in contracts with plans.
49. Requires DHCS, in developing the time and distance standards, if DHCS elects a county standard for the time and distance standard, to categorize counties in to at least five or more county categories.
50. Permits DHCS to have varying standards for the same provider type based on geographic areas, subject to the above requirements.
51. Permits DHCS, upon request of a Medi-Cal managed care plan, to allow alternative access standards in circumstances where the applying plan has exhausted all other reasonable options to obtain providers to meet either time and distance or timely access standards, and where the plan has obtained approval from DMHC, if the plan is licensed by the DMHC. Requires DHCS to post any approved alternative access standards on its internet website.
52. Permits DHCS to allow standards other than time and distance when the health care provider travels to the beneficiary or to a community-based setting to deliver services.
53. Requires Medi-Cal managed care plans to demonstrate to DHCS compliance with the regulatory standards on at least an annual basis.
54. Allows a person to request a fair hearing involving a Medi-Cal managed care plan within 120 calendar days (instead of 90 days in existing law) after the order or action. Continues to allow an extension beyond this timeframe where here is good cause for filing the request beyond the 120-calendar day period, and continues to allow the director of DSS to determine whether good cause exists.

FISCAL EFFECT:

This bill has not been analyzed by a fiscal committee.

COMMENTS:

1. Author’s statement. According to the author, in 2016 and early 2017, the federal Centers for Medicare and Medicaid Services (CMS) finalized two Medicaid and Children’s Health Insurance Program (CHIP) managed care regulations that have a significant impact on California’s Medi-Cal program in several areas, including how the state pays Medi-Cal managed care plans, how the plans pay hospitals and other health care providers, the grievance and appeals process for Medi-Cal beneficiaries who are enrolled in plans, and access to health care providers in Medi-Cal managed care plan, Denti-Cal managed care plans, and county specialty mental health networks. The rules set forth requirements that states with Medicaid managed care must meet, options in how states meet those requirements, and gives states flexibility to establish different requirements than those contained in the federal rule.
   
   This bill would implement several provisions of the federal rules to bring California law into compliance with the rule, including one provision related to grievances and appeals for enrollees of Medicaid managed care plans. In addition, this bill would change how Medi-Cal managed care plan reimburse county and UC hospitals to ensure compliance with the significant changes resulting from the managed care payment requirements of the federal rule while continuing to provide crucial funding support for these safety net providers. This bill would require DHCS to implement the federally required provider access and time and distance standards by requiring the adoption of a regulation in consultation with the DMHC, and would implement a federal option to require a rebate if Medi-Cal managed care plans fail to spend at least 85% of premium revenue on health care services (known as an MLR).
2. Medi-Cal Managed Care. The Medi-Cal program is projected to cover 14.1 million Californians each month in 2016-17, at a cost of $100 billion in total funds ($19.6 billion General Fund [GF]). DHCS administers Medi-Cal through two types of delivery systems: managed care and FFS.
   
   DHCS contracts with 22 Medi-Cal managed care plans across California, 56 county specialty mental health plans, and two primary care case management plans (AIDS Healthcare Foundation [AHF] and Family Mosaic). Approximately 79% of the 14.1 million Medi-Cal beneficiaries (11 million) receive care through a Medi-Cal managed care plan, a significant shift from December 2011, when only approximately 45% of beneficiaries were enrolled in Medi-Cal managed care. In California, there are six primary models of managed care, as follows:
   
3. County Organized Health Systems (COHS) – In 22 counties, COHS operate and in general, there is only one plan organized by the county board of supervisors: Del Norte, Humboldt, Lake, Lassen, Marin, Mendocino, Merced, Modoc, Monterey, Napa, Orange, San Luis Obispo, San Mateo, Santa Barbara, Santa Cruz, Shasta, Siskiyou, Solano, Sonoma, Trinity, Ventura and Yolo. In December 2016, there were 2.2 million Medi-Cal beneficiaries enrolled in COHS plans (COHS plans can subcontract with other plans).
4. Two-Plan – Fourteen counties operate a model where there are two plans (one commercial and one county-organized local initiative): Alameda, Contra Costa, Fresno, Kern, Kings, Los Angeles, Madera, Riverside, San Bernardino, San Francisco, San Joaquin, Santa Clara, Stanislaus, and Tulare. In December 2016, there were 6.9 million Medi-Cal beneficiaries enrolled in the two-plan model plans.
5. Geographic Managed Care (GMC) – In two counties (San Diego and Sacramento), there is a GMC model, where four or five plans participate depending on the county. In December 2016, there were 1.2 million Medi-Cal beneficiaries enrolled in the two-plan model plans.
6. Regional – In 18 more rural counties, there are two commercial plans: Alpine, Amador, Butte, Calaveras, Colusa, El Dorado, Glenn, Inyo, Mariposa, Mono, Nevada, Placer, Plumas, Sierra, Sutter, Tehama, Tuolumne and Yuba. In December 2016, there were 300,151 Medi-Cal beneficiaries enrolled in the regional model plans.
7. Imperial – In Imperial county, there are two commercial plans. In December 2016, there were 75,137 Medi-Cal beneficiaries enrolled in those plans.
8. San Benito – In San Benito county, there is one commercial plan, and beneficiaries can choose either the plan or Medi-Cal FFS (Medi-Cal FFS is not affected by the managed care rule changes). In December 2016, there were 83,229 Medi-Cal beneficiaries enrolled in the commercial plan.

In addition, the two primary care case management entities contracting with DHCS (AHF in Los Angeles and Family Mosaic in San Francisco) are also subject to the rule, but have limited enrollment. AHF has 726 Medi-Cal beneficiaries enrolled, while Family Mosaic had 26 Medi-Cal beneficiaries as of December 2016.

Dental services provided through Medi-Cal are known as Denti-Cal, and are primarily provided through FFS, except in two counties (Sacramento and Los Angeles). In Sacramento County, enrollment in a Denti-Cal managed care plan is mandatory for Medi-Cal beneficiaries. In Los Angeles County, enrollment in a Denti-Cal managed care plan is optional for beneficiaries. Denti-Cal managed care plans are also subject to the federal rule. According to a 2016 DHCS report, between the two counties, there are approximately 932,000 beneficiaries receiving care under Denti-Cal managed care. The provisions of the federal rule also apply to the 56 county specialty mental health plans that provide mental health services to Medi-Cal beneficiaries with a severe mental illness (two counties are served by one plan).

1. Medicaid managed care rule and public hospital Medi-Cal funding from plans. Some of the most significant changes in the federal regulations are a prohibition (with exceptions) against states directing Medicaid managed care plans’ expenditures under the contract with the state, a requirement that permissible directed payments be uniform and be for network providers, and a requirement for a prospective payment to plans (instead of a “rate range” payment with retrospective payments allowed after the rate year). The effect of these changes is to require a change in how the state pays Medi-Cal managed care plans, and how payments from plans to public hospitals (county and UC hospitals) are made using IGTs. Under the federal rule, existing supplemental payments from plans to hospitals using funds from IGTs and associated federal matching funds are considered directed payments that are not permitted under one of the permissible directed payment provisions in federal regulation. The federal rule only allows the state to require the plan to make the following directed payments:
   
2. Implement value-based purchasing models for provider reimbursement, such as pay-for-performance arrangements, bundled payments, or other service payment models intended to recognize value or outcomes over volume of services;
3. Participate in a multi-payer or Medicaid-specific delivery system reform or performance improvement initiative;
4. Adopt a minimum fee schedule for network providers that provide a particular service under the contract;
5. Provide a uniform dollar or percentage increase for network providers that provide a particular service under the contract; or,
6. Adopt a maximum fee schedule for network providers that provide a particular service under the contract, so long as the plan retains the ability to reasonably manage risk and has discretion in accomplishing the goals of the contract.
   

In addition, any directed payments must be developed in accordance with actuarial soundness rate requirements, generally accepted actuarial principles and practices, and have written approval prior to implementation. To obtain written approval, a state must demonstrate, in writing that the arrangement is based on the utilization and delivery of services, directs expenditures equally, advances one of the goals and objectives of the state’s quality strategy, has an evaluation plan, is not renewed automatically and does not condition network participation in contract arrangements on the provider entering into or adhering to IGT agreements.

The rule also affects how the state pays Medi-Cal managed care plans under a provision that requires states to prospectively certify the final capitation rate paid per rate category of aid (COA, an example of a COA rate category would be the rate for a child, an adult and aged/disabled individuals) under each risk contract and document the underlying data, assumptions and methodologies supporting that specific capitation rate. Under current practice, DHCS now publishes three Medi-Cal plan rates (referred to as a “rate range”), but typically pays plans rates at the lower bound of the rate range. Below is a example of a rate range for an aged and disabled non-dual eligible for a particular COHS plan for six months of 2014:

Category of Aid Lower Bound Midpoint Upper Bound

Aged and disabled non-dual $977 $1,000 $1023

Public providers (such as DPHs) transfer funds to fund the non-federal share of the rate through an IGT to receive a rate range payment increase through the managed care plan up to the upper bound of the rate range (in the example above, the difference between $1023 – $977.26 = $46 x the Medi-Cal beneficiaries would be used to make an IGT to draw down federal matching funds). The use of rate ranges has enabled DHCS to limit GF spending and to draw down additional federal funds to support safety net and public providers while using local IGT funds as the required federal match.

The requirement for a prospective rate paid to plans and the directed payment restrictions pose risks for both public hospitals and Medi-Cal managed care plans and the state. Under current practice, counties and public providers make retrospective IGTs at the end or following a fiscal year when the amount of “rate range” room has been identified, and the county and public providers know what total fund amounts they will receive back in return. The requirement of the rule that state payments to plans be made prospectively at a specific rate, and that plan payments to providers be uniform and to network providers means public providers and counties will have to make an IGT prospectively as part of the prospective payment rate to the plan. Counties and public providers currently make those IGTs knowing the amount of funding they will receive back. Under the rule, the amount providers will receive back in payment could be different if hospital utilization is higher or lower than the amount the IGT was based. For example, if a county makes an IGT based on projected utilization of 1,000 days, but actual utilization is 800 days, the county “loses out” on the amount of funding for the 200 day difference. Similarly, if actual utilization by the public hospital ends up being 1,200 days, the Medi-Cal managed care plan would be responsible for the extra 200 days of costs when the IGT was intended to cover only 1,000 days.

This bill would implement two permissible directed payment options under the federal rule: a uniform percentage increase for network providers, and participation in quality incentive payment programs.

The directed payment provisions apply to rating periods for contracts starting on or after July 1, 2017.

1. Medical loss ratio (MLR). The May 2016 rule requires states to ensure that each managed care plan calculate and report a MLR. In general terms, an MLR is the percentage of each dollar the plan receives in premiums that the plan spends on health care services, as defined, versus administration, sales, marketing and profit. In addition to requiring plans to calculate and report an MLR, states must develop plan rates in a way that the plan would reasonably achieve a MLR standard of at least 85% for the rate year. The MLR requirement applies to contracts starting on or after July 1, 2017.
   

The federal rule permits states to require Medi-Cal managed care plans to meet a minimum MLR, provided the minimum MLR is equal to or higher than 85% (the standard used for projecting soundness) and the MLR must be calculated and reported for each MLR reporting year by the Medi-Cal managed care plan that is consistent with this federal rule. In addition, the rule gives states the option of requiring a remittance if plans do not meet the MLR.

The ACA required states to establish an MLR for health plans serving commercial populations. Dental plans are exempt from the ACA-required MLR. For plans in the large group market, the ACA-required MLR is 85% or a higher percentage determined by the state through regulation. For individual and small group plans, the MLR is 80% or a higher percentage determined by the state through regulation. The federal Department of Health and Human Services (DHHS) secretary can adjust small group and individual market MLR if he or she determines that the 80% requirement may destabilize the individual market in a state.

If a plan fails to meet the federal MLR requirements, rebates are required to be issued to the plans’ customers. California does not impose a MLR on full-service Medi-Cal managed care plans, except for a federally required MLR for the Medicaid optional expansion population. California has a contractually required dental “minimum” loss ratio for dental managed care plans of 70%. Federal rebates from the ACA-required MLR (reported to DMHC), indicates, from reporting year 2011 through 2015, 10 plans have issued rebates in the following dollar amounts:

• Individual market: $64 million
• Small group market: total $138.2 million
• Large group market: total $3.3 million

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

1. Medicaid managed care access to care standards in federal rule. California has time and distance standards in statute, regulation and contract for Medi-Cal managed care plans for primary care physicians and hospitals but not specialists and LTSS providers.
   
   Medi-Cal requires in its managed care contracts that a primary care physician be within 10 miles or 30 minutes of the beneficiary’s residence, and that a hospital be available within 15 miles or 30 minutes.
   
   In addition, California has appointment time elapsed standards for physicians in Knox-Keene regulations, as follows:
   

Urgent Appointments Wait Time

For services that do not need prior approval 48 hours
For services that do need prior approval 96 hours

Non-urgent appointments Wait Time
Primary care appointment 10 business days
Specialist appointment 15 business days
Appointment with a non-MD mental health provider 10 business days
Appointment for a services to diagnose/treat a health conditions 15 business days

On February 2, 2017, DHCS released its proposed “Medicaid Managed Care Final Rule: Network Adequacy Policy Proposal” for public comment. The DHCS policy proposal uses existing standards in Knox-Keene Act or Medi-Cal contract or regulation where those standards are available, and establishes different time and distance standards for new provider categories based on county size. DHCS uses three county size categories, consisting of Los Angeles County, a second category with 27 medium counties and a third category with 27 small and rural counties. Public comments on the DHCS proposal were due to DHCS on February 28, 2017 and DHCS intends to finalize its proposal this year.

The language in this bill requires the standards be ultimately adopted in regulation (after initial implementation through all plan letter), requires DHCS to use at least five county categories (instead of DHCS’ proposed three) if DHCS elects to use a county-based standard, codifies DHCS’ proposed alternative access standard and additionally requires DMHC approval (if the plan is licensed by DMHC), and requires plans to demonstrate to DHCS compliance with the regulatory standards on at least an annual basis.

1. Changes to Medicaid grievance and appeals. The federal rule requires Medicaid managed care plans to have a grievance and appeal system in place for enrollees, and makes several changes to existing processes. This bill makes one change extending the timeframe for a Medi-Cal beneficiary enrolled in a plan to request a fair hearing.
   
   Other changes needed to existing grievance and appeals requirements include a provision of the rule that restricts plans to only having one level of appeal for enrollees, and a new restriction on the ability of beneficiaries enrolled in a managed care plan to directly file an appeal through a state fair hearing. Instead, the rule allows a beneficiary to request a state fair hearing only after receiving notice that the plan upholds the adverse benefit determination, or if the plan fails to adhere to notice and timing requirements in federal rules related to the grievance. Additional amendments are needed to state law to implement the new federal grievance and appeal requirements.
   

These requirements apply to rating periods for contracts starting on or after July 1, 2017.

1. Related legislation. AB 205 (Wood) is identical to this bill. AB 205 is currently scheduled to be heard in the Assembly Health Committee on April 25, 2016.
   
2. Support. The California Association of Public Hospitals and Health Systems (CAPHHS) writes in support of the public hospital-related provisions of this bill to address the changes resulting from the federal Medicaid managed care rule. CAPHHS states this bill
   would implement critical provisions of the federal Medicaid managed care rule related to supplemental Medi‐Cal funding for California’s public health care systems by restructuring these payments to comply with the regulation, enabling public health care systems to retain more than $1 billion annually in federal Medicaid funding to help bridge the gap between low base Medi‐Cal rates and the true cost of providing care. CAPHHS states that, though the supplemental payments do not fully bridge this gap, they serve as a critical source of funding for systems that would otherwise have significant budget shortfalls. In order to meet the new CMS requirements, public health care system supplemental payments must be restructured, and this bill outlines two important provisions that meet the new federal guidelines of by implementing an enhanced contracted services payment, which would provide a uniform percentage increase above the base Medi-Cal rates, and performance-based quality incentive payments, which would allow public health care systems to leverage additional funding if and only if they achieve clinical and performance metrics. CAPHHS states successful implementation of these two approaches would allow public health care systems to retain critical Medi-Cal funding in order to support their mission and commitment to serving a large Medi-Cal and uninsured population.
3. Support with amendments. The California Pan-Ethnic Health Network (CPEHN) and Western Center on Law & Poverty (WCLP) write in support and requests additional amendments. CPEHN and WCLP support the requirement for a regulatory process for establishment of the time and distance regulations, and urges the Legislature ensure robust engagement of stakeholders throughout this process. CPHEN writes that the federal regulation requires that network adequacy standards account for “physical access, reasonable accommodations, culturally competent communications, and accessible equipment for Medicaid enrollees with physical or mental disabilities.” CPEHN recommends that this bill include this provision as a requirement for DHCS to consider when setting network adequacy standards. CPEHN also writes that the federal regulation requires that services be delivered in a “culturally competent manner to all enrollees, including those with limited English proficiency and diverse cultural and ethnic backgrounds, disabilities, and regardless of gender, sexual orientation or gender identity” and this bill should require DHCS to assess compliance with the network adequacy standards in compliance with this requirement by monitoring access for historically underserved subpopulations.
   
   CPHEN also writes that this bill should require DHCS to hold all managed care plans to the same access standard through consistent and equitable monitoring and oversight for all plans that are subject to the federal regulation. WCLP writes that it would like changes to the existing grievance and appeal process to be done through the regulatory process, that language be added allowing beneficiaries to be able to go directly to state fair hearings if plans fail to act promptly, and DHCS be required to work with DSS to clarify that that expedited appeals are not subject to the 10 day advance notice rule and must be resolved in 72 hours per the federal regulation.
   
   Finally, CPEHN and WCLP write that the federal regulation allows states to implement an external medical review as part of the beneficiary appeal process, and it encourages the Legislature to codify an Independent Medical Review (IMR) type process for county mental health plans, county organized delivery systems of substance use disorder treatment, and COHS plans as these plans do not currently have an IMR process because they are not Knox-Keene licensed.
   
4. Support if amended. Health Access California (HAC) writes it would support this bill if it were amended to set specific time and distance standards and allow DHCS to adopt regulations with another standard if they can demonstrate why that standard is more appropriate. HAC suggests specific standards for specialists and women’s health care services (60 minutes or 30 miles for 90% of enrollees), behavioral health, pharmacy and pediatric dental (30 minutes or 15 miles for at least 90% of enrollees) and suggests the authors consult with stakeholders on other provider standards. HAC argues allowing DHCS to implement sub-regulatory standards until regulations are adopted gives away the power of the Legislature to determine what the standards should be for over 10 million Californians in Medi-Cal managed care. HAC argues allowing DHCS to have varying standards for provider types based on geographic areas is unnecessary because the bill gives DHCS the discretion to allow for alternative access standards if requested by the plan. HAC also objects to allowing DHCS to adopt a county-based standard for time and distance because it would allow for too much variation across the state, and that having standards by county lines does not account for differences in population density and provider availability within a county. HAC also requests language in this bill from the federal rule requiring states to consider the ability of providers to offer reasonable accommodation in terms of language, disability and cultural competency when setting time and distance standards, as well as the means of transportation used by Medi-Cal beneficiaries. Finally, HAC recommends the bill be clarified to permit the use of telemedicine to be subject to existing state laws and regulations governing the use of telemedicine. HAC indicates it supports the proposed efforts to restructure supplemental payments and requiring the time and distance standards and appointment wait time standards to meet or exceed existing law.
   
5. Concerns. The Local Health Plans of California (LHPC) writes to provide its comments and concerns on this bill. LHPC writes that the access regulation presents an opportunity for DHCS and DMHC administrative efficiency by having plans align their requirements and processes so that implementation, reporting, monitoring and assessment of network adequacy for Medi-Cal managed care are more coordinated and administratively efficient than plans have historically experienced.

LHPC indicates it supports the requiring DHCS to categorize time and distance standards in at least five or more county categories. LHPC states that, while it has been suggested that a statewide or other more simple standard should be used instead, a "simple" approach to access would not reflect the vast differences in California's geography, would be subject to many alternative access requests, and would set unrealistic expectations.

With regard to the hospital financing provisions, LHPC argues that the definition of "contract services payments" and "contract services" in this bill must be refined to make it clear that ad hoc agreements are not "contracts" eligible for enhanced payment amounts. LHPC indicates its plans would oppose an enhanced payment model that did not make this distinction, which is necessary for regulatory consistency and to incentivize contracting and therefore robust networks serving the Medi-Cal program.

Finally, LHPC writes to express concern over financial risks to plans of having over $1 billion in supplemental payments now flow through plans. LHPC writes that its plans are concerned that this bill does not yet contain provisions that would require DHCS to consult with health plans and share information at all stages, provide timely notice of directed payment amounts, the findings and penalties related to noncompliance, and clearly outline DHCS’ obligation to develop actuarially sound rates.

1. Author’s amendments. The access-related provisions of this bill inadvertently excluded county specialty mental health plans and county Drug Medi-Cal plans from the proposed access requirements even though these entities are subject to the requirements of the federal rule. Amendments are needed to include these entities.
   
2. Policy question: This bill is silent on where revenue from a Medi-Cal managed care plan would be used for in the event a plan had to make a remittance for having an MLR below 85%. In the event a plan does not meet the proposed standard, should these funds be returned to the Medi-Cal program or otherwise be required to be spent on a similar health-related expenditure that furthers the goals and purpose of the Medi-Cal program?

SUPPORT AND OPPOSITION:

Support: California Association of Public Hospitals and Health Systems

California Pan-Ethnic Health Network (with amendments)

California Hospital Association

Santa Clara County Board of Supervisors

Western Center on Law and Poverty (with amendments)

Oppose: None received

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