Existing federal law defines a voluntary employees beneficiary association as an organization composed of a voluntary association of employees that provides for the payment of life, sick, accident, or similar benefits to members or their dependents, or designated beneficiaries. Existing federal law defines a welfare plan as any plan, fund, or program established or maintained by an employer or employee organization, or both, for the purpose of providing participants or their beneficiaries specified benefits, such as medical, surgical, or hospital care or benefits. Existing law further defines a multiemployer plan as a plan to which more than one employer is required to contribute, that is maintained pursuant to one or more collective bargaining agreements between one or more employee organizations and more than one employer, and that meets other specified requirements.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care, and makes the willful violation of the act a crime. Existing law exempts specified persons or plans from the requirements of the act and authorizes the Director of the Department of Managed Health Care to exempt additional specified persons or plans if the director finds, among other things, that the exemption is in the public interest. Under existing law, upon the request of the Director of Health Care Services, the director must exempt a county-operated pilot program contracting with the State Department of Health Care Services, and may exempt a noncounty-operated pilot program, subject to any conditions the Director of Health Care Services deems appropriate. Existing law also exempts a health care service plan operated by a city, county, city and county, public entity, political subdivision, or public joint labor management trust that satisfies certain criteria, including that the plan requires providers to be reimbursed solely on a fee-for-service basis.

This bill would authorize the director, no later than May 1, 2020, to authorize 2 pilot programs, one in northern California and one in southern California, under which providers approved by the department may undertake risk-bearing arrangements with a voluntary employees beneficiary association with enrollment of more than 100,000 lives, notwithstanding the fee-for-service requirement described above, or a trust fund that is a welfare plan and a multiemployer plan with enrollment of more than 25,000 lives, if certain criteria are met, including that each risk-bearing provider is registered with the department as a risk-based organization and holds or will obtain a limited or restricted license, as applicable. The bill would require the association or trust fund and each health care provider participating in each pilot program to report to the department information regarding cost savings and clinical patient outcomes compared to a fee-for-service payment model, and would require the department to report those findings to the Legislature by June 1, 2026. The bill would require pilot program participants to reimburse the department for reasonable regulatory cost of up to $500,000. The bill would repeal these provisions on January 1, 2029.

GOVERNOR'S VETO

GV Bill Id:AB 1249

Author:(Maienschein)

As Enrolled Ver:September 17, 2019

2/3 vote

SUMMARY:

Allows the Department of Managed Health Care (DMHC) director to authorize for five years one pilot program in northern California, and one pilot program in southern California, whereby health care providers approved by DMHC may undertake risk-bearing arrangements with a voluntary employees' beneficiary association (VEBA), as defined, with enrollment of greater than 100,000 lives, or a trust fund that is a welfare plan, as defined, and a multiemployer plan, as defined, with enrollment of greater than 25,000 lives to demonstrate the control of costs for health care services and the improvement of health outcomes and quality of services when compared against a sole fee-for-service provider reimbursement model, as specified.

Sunsets these provisions on January 1, 2029.

The Senate Amendments:

1. Authorizes the DMHC director no later than May 1, 2020, to authorize one pilot program in northern California and one pilot program in southern California, whereby providers approved by DMHC may undertake risk-bearing arrangements with a VEBA, as defined, with enrollment of greater than 100,000 lives, or a trust fund that is a welfare plan, as defined, and a multiemployer plan, as defined, with enrollment of greater than 25,000 lives for the period of January 1, 2021, to December 31, 2025, if specified criteria are met.
2. Requires the global and risk-bearing providers participating in the pilot to be approved by DMHC.
3. Allows the DMHC to authorize a public or private agency to receive the information specified in this bill and monitor the pilot project under the data currently used by the Integrated Healthcare Association's "Align. Measure. Perform." program and the California Regional Health Care Cost & Quality Atlas.
4. Requires the pilot participants to reimburse DMHC for reasonable regulatory costs of up to $500,000, as specified.

Governor's Veto Message:

This bill would authorize a pilot program that would exempt risk-bearing provider groups taking on global risk from full licensure under the Knox-Keene Act. This proposed pilot project would undermine the fundamental purpose of the Knox-Keene Act by permitting such entities to operate in the State without providing the strong consumer protections guaranteed under the Act.

COMMENTS:

DMHC Licensure Requirements. According to a 2018 State Health and Value Strategies report entitled, Case Studies: State Examples of Safeguarding Financial Stability of Provider Risk-Bearing Organizations, California's Knox-Keene Act is the legal framework through which health care entities in the state are governed. The long-standing practice of providers accepting financial risk in California, and the bankruptcies of large provider groups in the 1990s, led DMHC to adopt prescriptive regulations governing health plans and provider RBOs. The state has adopted different requirements for entities based on the scope of services for which they accept financial risk and the entities with which they contract. The Knox-Keene Act requires licensure by DMHC of health plans that accept global risk, defined as risk for both institutional and professional services, for the provision of health care services. DMHC is also authorized to exempt entities from Knox-Keene Act requirements under certain circumstances.

According to the Author:

According to the author, labor union trusts cannot utilize value-based payment mechanisms with the provider networks in their self-funded plan networks. This results in higher health care costs that could be avoided. Independent, impartial research on health care cost drivers and delivery system reform conducted by the [University of California,] Berkeley School of Public Health and the Integrated Healthcare Association consistently show that the solution to rising health care costs is to increase the percentage of health care that is delivered through clinically integrated providers that share the financial risk with health plans, government and employer payers. To date, this kind of health care financing and delivery model has been used in the fully-insured employer-sponsored HMO, Medicare Advantage and Medi-Cal Managed Care market segments.

Arguments in Support:

America's Physician Groups (APG) cites a Health Affairs publication that provided evidence that integrated provider networks paid on a risk-based model controlled costs at a 9% average lower rate than non-integrated systems. At the same time, the data relied upon in the study proved that integrated systems outperformed their non-organized counterparts in 9 out of 10 quality measures. APG also states that California law prohibits the use of the most advanced provider payment models that yield these superior results. According to APG, the Knox-Keene Act would require duplicative licensure for employer-sponsored benefit plans that are currently organized under federal ERISA law for them to pay providers on anything other than a fee-for-service (FFS), unit-cost basis. Since one out of five Californians now receive their healthcare through these employer plans, a population of over 8 million people is prevented from the benefit of these cost and quality-focused healthcare delivery models. The California Schools Voluntary Employees Benefit Association writes that direct contracting between large groups, like VEBA, and accountable provider organizations, has become one of the most effective ways to accomplish health care cost control. State Building and Construction Trades Council, AFL-CIO, states that this bill would address a major shortcoming in California's existing law by empowering Taft-Hartley Health and Welfare Trust Funds to bypass HMOs and contract directly with health care providers, such as physician groups and hospitals. While union trust funds are pre-empted from state regulation under ERISA and can contract directly with health care providers today on a FFS basis, California law is in essence a de-facto restriction on trust funds by prohibiting providers from contracting on a capitated basis with any organization that does not hold a limited Knox-Keene Act license.

Arguments in Opposition:

The California Association of Health Plans and the Association of California Life and Health Insurance Companies are opposed to this bill because it requires DMHC to exempt two pilot projects from the provisions of the Knox-Keene Act which regulates state-licensed health plans in California. These exemptions create unfair competitive advantages and will leave consumers without important consumer protections. California's Knox-Keene Act licensed health plans are tightly regulated and comply with a vast array of requirements that protect the market and the consumers of health services. Among many other things, fully licensed health plans are not only required to deliver basic health care services, they must also meet financial solvency requirements, ensure timely access to services, implement consumer grievances processes and participate in independent medical reviews. The Department of Finance is opposed to a previous version of this bill because to the extent state administrative costs are not recovered from pilot sponsors, this bill would increase Managed Care Fund costs beyond what was included in the state's fiscal plan.

FISCAL COMMENTS:

According to the Senate Appropriations Committee, for the DMHC, the author's amendments indicate costs could be reimbursed or paid for by pilot participants. To the extent funding is not secured, the DMHC would have to cover program costs through fees assessed on health plans, specifically: cost pressures of up to $85,000 (Managed Care Fund [MCF]) and 0.5 personnel year (PY) in fiscal year (FY) 2019-20, $214,000 (MCF) and 1.0 PY in FY 2020-21, $394,000 (MCF) and 1.1 PYs in FY 2021-22, $391,000 (MCF) and 1.1 PYs in FYs 2022-23 through FY 2024-25, $488,000 (MCF) and 1.2 PYs in FY 2025-26, $50,000 (MCF) and 0.3 PY in FY 2026-27, and ongoing.

VOTES:

ASM HEALTH: 14-0-1

YES: Wood, Mayes, Aguiar-Curry, Bonta, Burke, Carrillo, Flora, Limón, McCarty, Nazarian, Ramos, Rodriguez, Santiago, Waldron

ABS, ABST OR NV: Bigelow

ASM APPROPRIATIONS: 16-0-2

YES: Gonzalez, Bloom, Bonta, Brough, Calderon, Carrillo, Chau, Diep, Eggman, Gabriel, Eduardo Garcia, Maienschein, Obernolte, Petrie-Norris, Quirk, Robert Rivas

ABS, ABST OR NV: Bigelow, Fong

ASSEMBLY FLOOR: 76-0-4

YES: Arambula, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, O'Donnell, Obernolte, Patterson, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

ABS, ABST OR NV: Aguiar-Curry, Cooley, Fong, Eduardo Garcia

SENATE FLOOR: 31-8-1

YES: Allen, Archuleta, Atkins, Beall, Bradford, Caballero, Dodd, Durazo, Galgiani, Glazer, Lena Gonzalez, Hertzberg, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Rubio, Skinner, Stern, Stone, Umberg, Wieckowski, Wiener, Wilk

NO: Bates, Borgeas, Chang, Grove, Jones, Moorlach, Morrell, Nielsen

ABS, ABST OR NV: Dahle

ASSEMBLY FLOOR: 77-0-2

YES: Arambula, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Daly, Diep, Eggman, Flora, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie‑Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

ABS, ABST OR NV: Aguiar-Curry, Fong

UPDATED:

VERSION: September 17, 2019

CONSULTANT: Kristene Mapile / HEALTH / (916) 319-2097 FN: 0002484

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 1249

Author:(Maienschein)

As Amended Ver:August 30, 2019

Majority vote

SUMMARY:

Allows the Department of Managed Health Care (DMHC) director to authorize for five years one pilot program in northern California, and one pilot program in southern California, whereby health care providers approved by DMHC may undertake risk-bearing arrangements with a voluntary employees' beneficiary association (VEBA), as defined, with enrollment of greater than 100,000 lives, or a trust fund that is a welfare plan, as defined, and a multiemployer plan, as defined, with enrollment of greater than 25,000 lives to demonstrate the control of costs for health care services and the improvement of health outcomes and quality of services when compared against a sole fee-for-service provider reimbursement model, as specified.

Sunsets these provisions on January 1, 2029.

The Senate Amendments:

1. Authorizes the DMHC director no later than May 1, 2020, to authorize one pilot program in northern California and one pilot program in southern California, whereby providers approved by DMHC may undertake risk-bearing arrangements with a VEBA, as defined, with enrollment of greater than 100,000 lives, or a trust fund that is a welfare plan, as defined, and a multiemployer plan, as defined, with enrollment of greater than 25,000 lives for the period of January 1, 2021, to December 31, 2025, if specified criteria are met.
2. Requires the global and risk-bearing providers participating in the pilot to be approved by DMHC.
3. Allows the DMHC to authorize a public or private agency to receive the information specified in this bill and monitor the pilot project under the data currently used by the Integrated Healthcare Association's "Align. Measure. Perform." program and the California Regional Health Care Cost & Quality Atlas.
4. Requires the pilot participants to reimburse DMHC for reasonable regulatory costs of up to $500,000, as specified.

COMMENTS:

DMHC Licensure Requirements. According to a 2018 State Health and Value Strategies report entitled, Case Studies: State Examples of Safeguarding Financial Stability of Provider Risk-Bearing Organizations, California's Knox-Keene Act is the legal framework through which health care entities in the state are governed. The long-standing practice of providers accepting financial risk in California, and the bankruptcies of large provider groups in the 1990s, led DMHC to adopt prescriptive regulations governing health plans and provider RBOs. The state has adopted different requirements for entities based on the scope of services for which they accept financial risk and the entities with which they contract. The Knox-Keene Act requires licensure by DMHC of health plans that accept global risk, defined as risk for both institutional and professional services, for the provision of health care services. DMHC is also authorized to exempt entities from Knox-Keene Act requirements under certain circumstances

According to the Author:

According to the author, labor union trusts cannot utilize value-based payment mechanisms with the provider networks in their self-funded plan networks. This results in higher health care costs that could be avoided. Independent, impartial research on health care cost drivers and delivery system reform conducted by the [University of California,] Berkeley School of Public Health and the Integrated Healthcare Association consistently show that the solution to rising health care costs is to increase the percentage of health care that is delivered through clinically integrated providers that share the financial risk with health plans, government and employer payers. To date, this kind of health care financing and delivery model has been used in the fully-insured employer-sponsored HMO, Medicare Advantage and Medi-Cal Managed Care market segments.

Arguments in Support:

America's Physician Groups (APG) cites a Health Affairs publication that provided evidence that integrated provider networks paid on a risk-based model controlled costs at a 9% average lower rate than non-integrated systems. At the same time, the data relied upon in the study proved that integrated systems outperformed their non-organized counterparts in 9 out of 10 quality measures. APG also states that California law prohibits the use of the most advanced provider payment models that yield these superior results. According to APG, the Knox-Keene Act would require duplicative licensure for employer-sponsored benefit plans that are currently organized under federal ERISA law for them to pay providers on anything other than a fee-for-service (FFS), unit-cost basis. Since one out of five Californians now receive their healthcare through these employer plans, a population of over 8 million people is prevented from the benefit of these cost and quality-focused healthcare delivery models. The California Schools Voluntary Employees Benefit Association writes that direct contracting between large groups, like VEBA, and accountable provider organizations, has become one of the most effective ways to accomplish health care cost control. State Building and Construction Trades Council, AFL-CIO, states that this bill would address a major shortcoming in California's existing law by empowering Taft-Hartley Health and Welfare Trust Funds to bypass HMOs and contract directly with health care providers, such as physician groups and hospitals. While union trust funds are pre-empted from state regulation under ERISA and can contract directly with health care providers today on a FFS basis, California law is in essence a de-facto restriction on trust funds by prohibiting providers from contracting on a capitated basis with any organization that does not hold a limited Knox-Keene Act license.

Arguments in Opposition:

The California Association of Health Plans and the Association of California Life and Health Insurance Companies are opposed to this bill because it requires DMHC to exempt two pilot projects from the provisions of the Knox-Keene Act which regulates state-licensed health plans in California. These exemptions create unfair competitive advantages and will leave consumers without important consumer protections. California's Knox-Keene Act licensed health plans are tightly regulated and comply with a vast array of requirements that protect the market and the consumers of health services. Among many other things, fully licensed health plans are not only required to deliver basic health care services, they must also meet financial solvency requirements, ensure timely access to services, implement consumer grievances processes and participate in independent medical reviews. The Department of Finance is opposed to a previous version of this bill because to the extent state administrative costs are not recovered from pilot sponsors, this bill would increase Managed Care Fund costs beyond what was included in the state's fiscal plan.

FISCAL COMMENTS:

According to the Senate Appropriations Committee, for the DMHC, the author's amendments indicate costs could be reimbursed or paid for by pilot participants. To the extent funding is not secured, the DMHC would have to cover program costs through fees assessed on health plans, specifically: cost pressures of up to $85,000 (Managed Care Fund [MCF]) and 0.5 personnel year (PY) in fiscal year (FY) 2019-20, $214,000 (MCF) and 1.0 PY in FY 2020-21, $394,000 (MCF) and 1.1 PYs in FY 2021-22, $391,000 (MCF) and 1.1 PYs in FYs 2022-23 through FY 2024-25, $488,000 (MCF) and 1.2 PYs in FY 2025-26, $50,000 (MCF) and 0.3 PY in FY 2026-27, and ongoing.

VOTES:

ASM HEALTH: 14-0-1

YES: Wood, Mayes, Aguiar-Curry, Bonta, Burke, Carrillo, Flora, Limón, McCarty, Nazarian, Ramos, Rodriguez, Santiago, Waldron

ABS, ABST OR NV: Bigelow

ASM APPROPRIATIONS: 16-0-2

YES: Gonzalez, Bloom, Bonta, Brough, Calderon, Carrillo, Chau, Diep, Eggman, Gabriel, Eduardo Garcia, Maienschein, Obernolte, Petrie-Norris, Quirk, Robert Rivas

ABS, ABST OR NV: Bigelow, Fong

ASSEMBLY FLOOR: 76-0-4

YES: Arambula, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, O'Donnell, Obernolte, Patterson, Petrie-Norris, Quirk, Quirk‑Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

ABS, ABST OR NV: Aguiar-Curry, Cooley, Fong, Eduardo Garcia

SENATE FLOOR: 31-8-1

YES: Allen, Archuleta, Atkins, Beall, Bradford, Caballero, Dodd, Durazo, Galgiani, Glazer, Lena Gonzalez, Hertzberg, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Rubio, Skinner, Stern, Stone, Umberg, Wieckowski, Wiener, Wilk

NO: Bates, Borgeas, Chang, Grove, Jones, Moorlach, Morrell, Nielsen

ABS, ABST OR NV: Dahle

UPDATED:

VERSION: August 30, 2019

CONSULTANT: Kristene Mapile / HEALTH / (916) 319-2097 FN: 0002328

 THIRD READING  

Bill No: AB 1249

Author: Maienschein (D)

Amended: 8/30/19 in Senate

Vote: 21

SENATE HEALTH COMMITTEE: 8-0, 7/10/19

AYES: Pan, Stone, Lena Gonzalez, Hurtado, Leyva, Mitchell, Monning, Rubio

NO VOTE RECORDED: Grove

SENATE APPROPRIATIONS COMMITTEE: 5-2, 8/30/19

AYES: Portantino, Bradford, Durazo, Hill, Wieckowski

NOES: Bates, Jones

ASSEMBLY FLOOR: 76-0, 5/29/19 - See last page for vote

SUBJECT: Health care service plans: regulations: exemptions

SOURCE: America’s Physician Groups

California Schools Voluntary Employees Benefits Association

DIGEST:

This bill authorizes the Department of Managed Health Care (DMHC) director to authorize for five years one pilot program in northern California, and one pilot program in southern California, whereby health care providers approved by DMHC may undertake risk-bearing arrangements with a voluntary employees’ beneficiary association (VEBA), as defined, with enrollment of greater than 100,000 lives, or a trust fund that is a welfare plan, as defined, and a multiemployer plan, as defined, with enrollment of greater than 25,000 lives to demonstrate the control of costs for health care services and the improvement of health outcomes and quality of services when compared against a sole fee-for-service provider reimbursement model, as specified.

ANALYSIS:

Existing law:

1. Establishes DMHC to regulate health care service plans (health plans) under the Knox-Keene Health Care Service Plan Act (Knox-Keene Act) [HSC §1340, et seq.]
2. Permits the DMHC director to exempt from the Knox-Keene Act any class of persons or plan contracts if the DMHC director finds the action to be in the public interest and not detrimental to the protection of subscribers, enrollees, or persons regulated under the Knox-Keene Act, and that the regulation of the persons or plan contracts is not essential to the purposes of the Knox-Keene Act. [HSC §1343]
3. Makes it unlawful for any person to engage in business as a health plan in California or to receive advance or periodic consideration in connection with a plan from, or, on behalf of persons in California, unless such person has first secured from the DMHC director a license, then in effect, as a plan or unless such person is exempted, as specified. A person licensed pursuant to the Knox-Keene Act need not be licensed pursuant to the Insurance Code to operate a health plan or specialized health plan unless the plan is operated by an insurer, in which case, requires the insurer to also be licensed by the Insurance Commissioner. [HSC §1349]
4. Exempts a health plan, including a self-insured reimbursement plan that pays for or reimburses any part of the cost of health care services, operated by specified government entities (cities, counties, political subdivisions, etc) or public joint labor management trust that satisfies specified criteria including that providers are reimbursed solely on a fee-for-service basis and not at risk in contracting arrangements, reimburses at least part of the cost of all basic health care services, as defined, benefits are determined in collective bargaining, and maintains a fiscally sound operation. [HSC §1349.2]

This bill:

1. Authorizes the DMHC director no later than May 1, 2020, to authorize one pilot program in northern California and one pilot program in southern California, whereby providers approved by DMHC may undertake risk-bearing arrangements with a VEBA, as defined, with enrollment of greater than 100,000 lives, or a trust fund that is a welfare plan, as defined, and a multiemployer plan, as defined, with enrollment of greater than 25,000 lives for the period of January 1, 2021, to December 31, 2025, if specified criteria are met.
2. States the purpose of the pilot program is to demonstrate the control of costs for health care services and the improvement of health outcomes and quality of services when compared against a sole fee-for-service provider reimbursement model.
3. Prohibits the term of each contract between the VEBA or trust fund and health care provider from exceeding the pilot period.
4. Requires the application to include a copy of each contract between the VEBA or trust and a participating health care provider.
5. States that this bill does not exempt a health care provider that contracts with a VEBA or trust fund under the pilot from financial solvency standards and DMHC regulations, as specified, or any other provision of the Knox-Keene Act required by DMHC as part of the pilot.
6. Requires the global and risk-bearing providers participating in the pilot to be approved by DMHC.
7. Requires DMHC to submit a report to the Legislature before June 1, 2026, regarding the costs and clinical patient outcomes of the pilot compared to fee-for-service payment models.
8. Requires the pilot participants to reimburse DMHC for reasonable regulatory costs of up to $500,000, as specified.
9. Sunsets this bill on January 1, 2029.

Comments

1. Author’s statement. According to the author, labor union trusts cannot utilize value-based payment mechanisms with the provider networks in their self-funded plan networks. This results in higher health care costs that could be avoided. Independent, impartial research on health care cost drivers and delivery system reform conducted by the U.C. Berkeley School of Public Health and the Integrated Healthcare Association consistently show that the solution to rising health care costs is to increase the percentage of health care that is delivered through clinically integrated providers that share the financial risk with health plans, government and employer payers. To date, this kind of health care financing and delivery model has been used in the fully-insured employer-sponsored HMO, Medicare Advantage and Medi-Cal Managed Care market segments.
2. DMHC. According to DMHC, in 2017, 75 full service health plans were licensed by DMHC that covered more than 26 million Californians. This included approximately 13.2 million commercial enrollees and approximately 13.1 million government enrollees. DMHC assesses and monitors health plan networks and delivery systems for compliance with the Knox-Keene Act, and evaluates compliance through onsite surveys (audits) of health plan operations performed every three years. DMHC also conducts non-routine surveys when a specific issue or problem requires a focused review of a health plan’s operations. The surveys examine health plan practices related to access, utilization management, quality improvement, continuity and coordination of care, language access and enrollee grievances and appeals. DMHC monitors provider networks and the accessibility of services to enrollees by reviewing the geographic proximity of in-network providers to enrollee residences or work locations, provider-to-patient ratios and timely access to care. DMHC reviews health plan financial statements and filings, and analyzes health plan reserves, financial management systems, and administrative arrangements. DMHC does not license provider organizations, but it monitors the financial solvency of Risk-Bearing Organizations (RBO). RBOs are provider groups that, in their contracts with health plans, pay claims and assume financial risk for the cost of all health care services (inpatient and outpatient) by accepting a fixed monthly payment for each enrolled person assigned to the RBO. This arrangement is typically referred to as “capitation.” RBOs are subject to financial reserve requirements and regular financial reporting. DMHC monitors the financial stability of RBOs by analyzing financial filings, conducting financial examinations, reviewing claims payment practices and developing and monitoring corrective action plans (CAPs). There are 184 RBOs required to file survey reports. At the end of 2018 there were 21 RBO with CAPs.
3. Global risk regulations. On October 27, 2017, DMHC noticed intent for rulemaking to clarify licensure requirements for health plans, specifically requiring licensure for a person who accepts global risk (both institutional and professional risk) for services to subscribers or enrollees receiving “advance or periodic consideration” from or on behalf of subscribers or enrollees. The proposed regulation also set out requirements for a restricted license for entities that do not market directly to consumers or employers but otherwise meet the statutory definition of a health plan. In addition, the proposed regulation stated specific criteria DMHC may apply in considering a request for exemption from licensure requirements. On October 8, 2018, the Office of Administrative Law rejected the regulation on the basis of clarity and incorrect procedure. The regulation was approved after four revisions and four comment periods on March 5, 2019, and took effect on July 1, 2019.

According to DMHC in their statement of reasons, existing law requires a health plan to assume “full financial risk” for the provision of covered health care benefits to enrollees or subscribers. However, “full financial risk” is not defined. As a result, provider groups that contract with health plans or other organizations to provide health care services to enrollees assume at least some degree of risk for both professional and institutional (hospital) health care services (professional and institutional risk together is considered “global risk”). These provider groups otherwise meet the definition of a health plan by arranging for health care services for health plan enrollees and accepting at least a portion of global risk. Without a clear definition of what types and levels of risk may be assumed, entities that meet the definition of a health plan may be operating without a license. This is a violation of the law, which makes it unlawful to receive advance or periodic consideration in connection with a health plan without first securing a license or an exemption. In 2015, the California Court of Appeal, Second District, held that “the level of financial risk under a capitation agreement that causes a ‘risk bearing organization’ … to become a ‘health care service plan’ … is precisely the type of regulatory determination involving complex economic policy that should be made by DMHC…” Hambrick v. Healthcare Partners Medical Group, Inc., (2015) 238 Cal.App.4th 124, 149. Regulation is necessary to set the level of assumption of financial risk that triggers a requirement to obtain licensure. Additionally, there are entities that contract only with other health plans to provide services to that health plan’s enrollees and subscribers that do not pose as great a risk to the stability of the health care delivery system because their overall impact on the health care market is limited. However, they still meet the definition of a health plan under the Knox-Keene Act. The regulation provides a separate “restricted license” for these entities thereby limiting the confusion these entities have about the need for a license and the type of regulation that will be incurred.

1. Employee Retirement Income Security Act of 1974 (ERISA). ERISA preempts state regulation of employer-provided health benefit plans. The trust fund pilot participant is an ERISA plan and cannot be subject to Knox-Keene licensure. The VEBA is not an ERISA plan and currently has an exemption from the Knox-Keene Act because it reimburses providers on a fee-for-service basis.

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

According to the Senate Appropriations Committee:

DMHC. Staff notes the author’s amendments indicate costs could be reimbursed or paid for by pilot participants. To the extent funding is not secured, the department would have to cover program costs through fees assessed on health plans, specifically: cost pressures of up to $85,000 (Managed Care Fund [MCF]) and 0.5 PY in FY 2019-20, $214,000 (MCF) and 1.0 PY in FY 2020-21, $394,000 (MCF) and 1.1 PYs in FY 2021-22, $391,000 (MCF) and 1.1 PYs in FYs 2022-23 through FY 2024-25, $488,000 (MCF) and 1.2 PYs in FY 2025-26, $50,000 (MCF) and 0.3 PY in FY 2026-27, and ongoing.

SUPPORT: (Verified 8/26/19)

America’s Physician Groups (co-source)

California Schools Voluntary Employees Benefits Association (co-source)

Agilon Health

AllCare Independent Physician Association

American Federation of Teachers Guild, Local 1931

Brown & Toland Physicians

California Labor Federation

California School Boards Association

California School Employees Association, AFL-CIO

California State Association of Electrical Workers

California State Pipe Trades Council

California Teachers Association

Coalition of California Utility Employees

DaVita Healthcare Partners

International Brotherhood of Electrical Workers, Local Union 302

International Brotherhood of Electrical Workers, Local Union 332

International Brotherhood of Electrical Workers, Local Union 428

International Brotherhood of Electrical Workers, Local Union 47

International Brotherhood of Electrical Workers, Local Union 551

International Brotherhood of Electrical Workers, Local Union 569

International Brotherhood of Electrical Workers, Local Union 595

International Brotherhood of Electrical Workers, Local Union 6

International Union of Elevator Constructors

Los Angeles Unified School District

MemorialCare Medical Foundation

Plumbers & Pipefitters Local Union 342

Plumbers & Pipefitters Local Union 447

Plumbers & Pipefitters Local Union 467

Plumbers & Pipefitters Local Union 484

Providence St. Joseph Healthcare, Southern California

Riverside Physician Network

Sansum Clinic

Scripps Health

Sharp Rees-Stealy Medical Group

State Building and Construction Trades Council, AFL-CIO

UA Local 398

United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry

Western States Council of Sheet Metal Workers

OPPOSITION: (Verified 8/26/19)

Association of California Life and Health Insurance Companies

California Association of Health Plans

Department of Managed Health Care

ARGUMENTS IN SUPPORT: The California Labor Federation writes that the VEBA and self-insured union trust funds are governed by federal law and regulated by the U.S. Department of Labor and Internal Revenue Service. They have a fiduciary duty to act solely in the best interest of enrollees in the plan and they are legally bound by that responsibility. The VEBA has been an innovator in developing programs that both contain the rising cost of health care, but also improve health outcomes and steer members to the highest-quality of providers possible. The goal of the pilot program is to allow the VEBA and another union trust fund to contract directly with providers, cutting out the health plan intermediary, using risk-based payments, rather than fee-for-service. The health care system in California is moving away from fee-for-service toward integrated care with payment methods that incentivize quality and appropriate care, not volume. This pilot program is designed to test if that model can prove significant savings and health outcome improvements. The America’s Physician Groups writes that transformation is being held-back by a 30-year old law that requires state licensure for all payers that are responsible for one out of every five Californians. The California Schools Voluntary Employees Benefits Association believes direct contracting between large employer groups, such as VEBA, and accountable care organizations, has become one of the most effective ways to keep premiums low while improving employee health. The California State Association of Electrical Workers, Coalition of California Utility Employees, California State Pipe Trades Council, International Union of Elevator Constructors and Western States Council of Sheet Metal Workers believes this bill addresses a major shortcoming in California’s existing law by empowering Taft-Hartley Health and Welfare Trust Funds to by-pass Health Maintenance Organizations and contract directly with health care providers, such as physician groups and hospitals.

ARGUMENTS IN OPPOSITION: The California Association of Health Plans and the Association of California Life and Health Insurance Companies write that these exemptions from the Knox-Keene Act create unfair competitive advantages and will leave consumers without important consumer protections. California’s Knox-Keene licensed health plans are tightly regulated and comply with a vast array of requirements that protect the market and consumers of health services. Among many other things, fully licensed health plans are not only required to deliver basic health care services, they must also meet financial solvency requirements, ensure timely access to services, implement consumer grievances processes and participate in independent medical review. DMHC has strong concerns that allowing restricted health plans to contract with a VEBA or a trust fund without the involvement of a fully-licensed health plan, that provides both the consumer and financial protections guaranteed in the Knox-Keene Act, would negatively impact consumers.

ASSEMBLY FLOOR: 76-0, 5/29/19

AYES: Arambula, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Aguiar-Curry, Cooley, Fong, Eduardo Garcia

Prepared by: Teri Boughton / HEALTH / (916) 651-4111

9/3/19 11:30:50

**** END ****

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

AB 1249 (Maienschein) - Health care service plans: regulations: exemptions

Bill Summary:

Assembly Bill 1249 would authorize the Department of Managed Health Care (DMHC) Director to authorize, no later than May 1, 2020, two pilot programs, for the period of January 1, 2021, to December 31, 2025, inclusive, whereby specified providers may undertake risk-bearing arrangements with a voluntary employees’ beneficiary association (VEBA), or a trust fund that is a welfare plan, and a multiemployer plan, if specified criteria are met. Would require DMHC to submit a legislative report by June 1, 2026.

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

The following information is revised to reflect amendments

adopted by the committee on August 30, 2019

Fiscal Impact:

• Department of Managed Health Care (DMHC). Staff notes the author’s amendments indicate costs could be reimbursed or paid for by pilot participants. To the extent funding is not secured, the department would have to cover program costs through fees assessed on health plans, specifically: cost pressures of up to $85,000 (Managed Care Fund [MCF]) and 0.5 PY in FY 2019-20, $214,000 (MCF) and 1.0 PY in FY 2020-21, $394,000 (MCF) and 1.1 PYs in FY 2021-22, $391,000 (MCF) and 1.1 PYs in FYs 2022-23 through FY 2024-25, $488,000 (MCF) and 1.2 PYs in FY 2025-26, $50,000 (MCF) and 0.3 PY in FY 2026-27, and ongoing.

Author Amendments:

The author’s amendments would require pilot participants to reimburse the department for regulatory costs, up to $500,000 for commissioning a specified report; developing an application process for the pilot programs; and for monitoring compliance.

-- END --

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

AB 1249 (Maienschein) - Health care service plans: regulations: exemptions

Bill Summary:

Assembly Bill 1249 would authorize the Department of Managed Health Care (DMHC) Director to authorize, no later than May 1, 2020, two pilot programs, for the period of January 1, 2021, to December 31, 2025, inclusive, whereby specified providers may undertake risk-bearing arrangements with a voluntary employees’ beneficiary association (VEBA), or a trust fund that is a welfare plan, and a multiemployer plan, if specified criteria are met. Would require DMHC to submit a legislative report by June 1, 2026.

Fiscal Impact:

• Department of Managed Health Care (DMHC). $85,000 (Managed Care Fund [MCF]) and 0.5 PY in FY 2019-20, $214,000 (MCF) and 1.0 PY in FY 2020-21, $394,000 (MCF) and 1.1 PYs in FY 2021-22, $391,000 (MCF) and 1.1 PYs in FYs 2022-23 through FY 2024-25, $488,000 (MCF) and 1.2 PYs in FY 2025-26, $50,000 (MCF) and 0.3 PY in FY 2026-27, and ongoing. The Managed Care Fund (MCF) is covered through fees assessed on health plans. For more detail on the costs by division and anticipated workload, please see Staff Comments.  
• Department of Insurance (CDI). No fiscal impact.

Background:

The DMHC assesses and monitors health plan networks and delivery systems for compliance with the Knox-Keene Act, and evaluates compliance through surveys on health plan practices related to access, utilization management, quality improvement, continuity and coordination of care, language access, and enrollee grievances and appeals.

Currently, VEBAs can contract directly with providers on a fee-for-service basis. However, many integrated physician groups contract with payers for a capitated rate. A contract could put the physician group at risk for costs of the services, which would normally require the VEBA to be licensed as a health care plan and to assume “global risk” (professional and institutional risk). Additionally, some entities contract with other health plans to provide services to enrollees and subscribers that do not pose as great of a risk because their overall impact on the health care market is limited. However, they still would meet the definition of a health plan. This bill would provide an exception to this requirement on a pilot basis for two large VEBAs or trust funds, and would authorize one pilot in Northern and Southern California.

Proposed Law:

AB 1249 would authorize the DMHC Director, no later than May 1, 2020, to authorize one pilot program in northern California, and one pilot program in southern California, whereby providers approved by the department may undertake risk-bearing arrangements with a VEBA, as defined, with enrollment of greater than 100,000 lives, or a trust fund that is a welfare plan, as defined, and a multiemployer plan, as defined, with enrollment of greater than 25,000 lives, for the period of January 1, 2021, to December 31, 2025, inclusive, if all specified criteria are met. In addition, the bill:

• Specifies it does not exempt a health care provider that contracts with a VEBA or trust fund as part of a pilot program from the financial solvency requirements of state law and department regulations.
• Requires the DMHC to approve the global and risk-bearing providers participating in a pilot program.
• Requires the DMHC, after the termination of both pilot programs, and before June 1, 2026, to submit a report to the Legislature regarding the costs and clinical patient outcomes of the pilot programs compared to fee-for-service payment models.
• Authorizes the department’s reasonable expenses to be reimbursed as negotiated with the pilot sponsors.
• Includes legislative intent regarding the purpose of the pilot program to demonstrate the control of costs for health care services and the improvement of health outcomes and quality of service when compared against a sole fee-for-service provider reimbursement model.
• Sunsets and repeals the bill’s provisions on January 1, 2029.

Staff Comments:

The DMHC anticipates the following workload impact:

• Office of Financial Review (OFR). $17,000 and 0.1 PY in FY 2019-20, $126,000 and 0.5 PY in FY 2020-21, $301,000 and 0.5 PY in FYs 2021-22 through FY 2024-25, $398,000 and 0.5 PY in FY 2025-26 for short-term increased workload associated with an increase on health plan submission volume. These amounts include consultant funding in the amount of $32,000 in FY 2020-21 to assist with the development of the reporting template and methodology, and $211,000 in FYs 2021-22 through 2024-25, and $291,000 in FY 2025-26, to review reported clinical information and prepare the legislative report.
• Help Center (HC). $13,000 and 0.1 PY in FY 2019-20, $14,000 and 0.1 PY in FY 2020-21, $13,000 and 0.1 PY in FY 2021-22, and ongoing, to address anticipated increase in consumer complaints.
• Office of Plan Licensing (OPL). $55,000 and 0.3 PY in FY 2019-20, $22,000 and 0.1 PY in FY 2020-21, $21,000 and 0.1 PY in FY 2021-22, and ongoing, to develop an application process and review exemption criteria for compliance.
• Office of Enforcement (OE). $17,000 and 0.1 PY in FY 2021-22, $16,000 and 0.1 PY in FY 2022-23, and ongoing, for workload to address enforcement referrals.
• Office of Legal Services (OLS). $33,000 and 0.2 PY in FY 2020-21 only for short-term workload to conduct legal research and prepare legal memoranda.
• Office of Administrative Services (OAS). $42,000 and 0.3 PY in FY 2021-22 and $40,000 and 0.3 PY in FY 2022-23 through FY 2025-26 only for short-term workload to provide administrative support related to the reimbursement requirements.
• Office of Technology and Innovation (OTI). $19,000 and 0.1 PY in FY 2020-21 only for short-term workload to develop a mechanism for receiving the voluntary employees’ beneficiary associations (VEBA) submissions and the related reporting activities.

-- END --

SENATE COMMITTEE ON HEALTH

Senator Dr. Richard Pan, Chair

BILL NO: AB 1249

SUBJECT: Health care service plans: regulations: exemptions

SUMMARY:

Requires the Department of Managed Health Care director to authorize for five years one pilot program in northern California, and one pilot program in southern California, under which a voluntary employees’ beneficiary association with enrollment of greater than 100,000 lives, or a trust fund that is a welfare plan and a multiemployer plan with enrollment of greater than 25,000 lives is exempt from the Knox-Keene Act.

Existing law:

1. Establishes the Department of Managed Health Care (DMHC) to regulate health care service plans (health plans) under the Knox-Keene Health Care Service Plan Act (Knox-Keene Act) and the California Department of Insurance (CDI) to regulate health and other insurance under the Insurance Code. [HSC §1340, et seq. and INS §106, et seq.]
   
2. Permits the DMHC director to exempt from the Knox-Keene Act any class of persons or plan contracts if the DMHC director finds the action to be in the public interest and not detrimental to the protection of subscribers, enrollees, or persons regulated under the Knox-Keene Act, and that the regulation of the persons or plan contracts is not essential to the purposes of the Knox-Keene Act. [HSC §1343]
   
3. Defines a health plan as:
   1. Any person who undertakes to arrange for the provision of health care services to subscribers or enrollees, or to pay for or to reimburse any part of the cost for those services, in return for a prepaid or periodic charge paid by or on behalf of the subscribers or enrollees; or,
   2. Any person, whether located within or outside of California, who solicits or contracts with a subscriber or enrollee in California to pay for or reimburse any part of the cost of, or who undertakes to arrange or arranges for, the provision of health care services that are to be provided wholly or in part in a foreign country in return for a prepaid or periodic charge paid by or on behalf of the subscriber or enrollee. [HSC §1345]
      
4. Makes it unlawful for any person to engage in business as a health plan in California or to receive advance or periodic consideration in connection with a plan from, or, on behalf of persons in California, unless such person has first secured from the DMHC director a license, then in effect, as a plan or unless such person is exempted, as specified. A person licensed pursuant to the Knox-Keene Act need not be licensed pursuant to the Insurance Code to operate a health plan or specialized health plan unless the plan is operated by an insurer, in which case, requires the insurer to also be licensed by the Insurance Commissioner. [HSC §1349]
   
5. Exempts a health plan, including a self-insured reimbursement plan that pays for or reimburses any part of the cost of health care services, operated by specified government entities (cities, counties, political subdivisions, etc) or public joint labor management trust that satisfies specified criteria including that providers are reimbursed solely on a fee-for-service basis and not at risk in contracting arrangements, reimburses at least part of the cost of all basic health care services, as defined, benefits are determined in collective bargaining, and maintains a fiscally sound operation. [HSC §1349.2]
   
6. Establishes requirements for applicants for Knox-Keene licensure as a health plan or specialized health plan including disclosure of provider contracts, a statement describing the plan, method of providing health care services and physical facilities, financial statements, marketing methods, service area, procedures and programs for internal quality review, and other provisions. [HSC §1351]
   
7. Requires a health plan to demonstrate that it is fiscally sound and has assumed full financial risk on a prospective basis for the provision of covered health care services, as specified. [HSC §1375.1]
8. Requires every contract between a health plan and risk-bearing organization to include provisions concerning administrative and financial capacity of the RBO. [HSC §1375.4]
   
9. Requires, for contracts issued, amended or renewed on or after July 1, 2019, any person who assumes global risk to obtain a license to operate a health plan. Defines global risk as a prepaid or periodic charge from or on behalf of enrollees in return for the assumption of both professional and institutional risk. [Title 28, CCR §1300.49]
10. Requires the DMHC director to grant an exemption from 4) above to any person upon review and a finding that the action is in the public interest and not detrimental to the protection of subscribers, enrollees or persons regulated under the Knox-Keene Act. [Title 28, CCR §1300.49]
    
11. Requires a person requesting an exemption to submit specified information to the DMHC director, including documents of financial viability and projected financial viability, financial statements and projected changes that have or are expected to occur, total percentage of annualized income of institutional risk assumed and how it will be assumed, contracts for the assumption of global risk, estimated number of subscribers and enrollees, geographic service area, any other information the person believes is appropriate or relevant. [Title 28, CCR §1300.49]
    
12. Permits a restricted health plan to contract with and accept global risk from only a full service health plan or specialized health plan to provide or arrange health care services for that entity’s subscribers or enrollees. Requires an applicant seeking licensure as a restricted health plan to file specified documents, and meet specified network adequacy requirements. [Title 28, CCR §1300.49]
    
13. Establishes the following definitions:
    1. “Institutional risk” means the assumption of the cost for the provision of hospital inpatient, hospital outpatient, or hospital ancillary services to subscribers or enrollees undertaken by a person, other than services performed pursuant to the person’s own license, as specified, in return for a prepaid or periodic charge paid by or on behalf of the subscriber or enrollee;
    2. “Prepaid or periodic charge” means any amount of compensation, either at the start or end of a predetermined period, for assuming the risk, or arranging for others to assume the risk, of delivering or arranging for the delivery of the contracted-for health care services for subscribers or enrollees that may be fixed either in amount or percentage of savings or losses in which the entity shares;
    3. “Professional risk” means the assumption of the cost for the provision of physician, ancillary, or pharmacy services undertaken by physicians or other licensed or certified providers to subscribers or enrollees in return for a prepaid or periodic charge paid by or on behalf of the subscriber or enrollee; and,
    4. “Restricted health plan” means a person with a health plan license issued by DMHC for the provision of, arranging payment, or reimbursement for the provision of, health care services to subscribers or enrollees or another full service or specialized health plan under a contract or other arrangement whereby the person assumes both professional and institutional risk but does not directly market, solicit, or sell health plan contracts.

This bill:

1. Requires the DMHC director to authorize one pilot program, by May 1, 2020, in northern California and one pilot program in southern California, under which voluntary employees’ beneficiary association (VEBA), as defined, with enrollment of greater than 100,000 lives, or a trust fund that is a welfare plan, as defined, and a multiemployer plan, as defined, with enrollment of greater than 25,000 lives is exempt from the Knox-Keene Act for the period of January 1, 2021 to December 31, 2025.
   
2. States the purpose of the pilot program is to demonstrate the control of costs for health care services and the improvement of health outcomes and quality of services when compared against a sole fee-for-service provider reimbursement model.
   
3. Requires the VEBA or trust fund to enter into a contract with one or more health care providers under which each provider agrees to accept risk-based or global risk payment.
   
4. Requires each global risk-bearing provider to hold or agree to obtain a limited or restricted license, as specified.
   
5. Requires each risk-bearing provider to continue to comply with applicable financial solvency standards and audit requirements under the Knox-Keene Act, including, but not limited to, financial reporting on a quarterly basis, during the term of the pilot.
   
6. Requires the contract between the VEBA or trust fund and each health care provider to include:
   
   1. Provisions dividing financial responsibility between the parties and defining which party is financially responsible for service rendered;
   2. A delegation agreement;
   3. Provisions regarding the process by which each party will determine the appropriateness of:
      1. Assurances that the RBO, limited licensee, or restricted licensee, as applicable, has the organizational and administrative capacity to provide services to covered employees, and that medical decisions are rendered by qualified medical providers, unhindered by fiscal and administrative management;
      2. Basic health care services;
      3. Prescription drug benefits;
      4. Continuity of care;
      5. Standards for network adequacy and timely access to care, including, but not limited to, access to specialty care;
      6. Language assistance programs;
      7. Procedures for filing consumer grievances and appeals, including, but not limited to, independent medical review,
      8. Prohibitions against deceptive marketing;
      9. Requirements regarding the submission of claims by providers and the timely processing of provider claims;
      10. Mechanisms for resolving provider disputes; and,
      11. Requirements regarding utilization review or utilization management.
          
7. Prohibits the term of each contract between the VEBA or trust fund and health care provider from exceeding the pilot period.
   
8. Requires each health care provider that has entered into a contract with the VEBA or trust fund to be a party to the pilot application submitted to DMHC. Requires the application to include a copy of each contract between the VEBA or trust and a participating health care provider.
   
9. Requires the VEBA or trust and each health care provider participating in the pilot to agree to collect and report to DMHC, in each year of the pilot, information regarding the comparative cost savings when compared to fee-for-service payment, performance measurements for clinical patient outcomes, and any other information required by DMHC.
   
10. Permits DMHC to authorize a public or private agency to receive the information specified in f) and monitor the pilot under the data standard applicable to an accountable care organization.
    
11. States that this bill does not exempt a health care provider that contracts with a VEBA or trust fund under the pilot from financial solvency standards and DMHC regulations, as specified.
    
12. Requires DMHC to submit a report to the Legislature before June 1, 2026 regarding the costs and clinical patient outcomes of the pilot compared to fee-for-service payment models.
    
13. Sunsets this section on January 1, 2029.

FISCAL EFFECT:

According to the Assembly Appropriations Committee, costs to DMHC of approximately $160,000 in fiscal year 2019-20 and $450,000 to $500,000 ongoing thereafter until 2026 to develop an application process and review exemption criteria for compliance with the requirements, to review new license applications and conduct routine exams of a greater number of risk-bearing organizations that would seek licenses as risk-bearing organizations, to address consumer complaints, and for legal and information technology support. DMHC will also incur an additional $200,000 in 2026 for an evaluation of the pilot and report to the Legislature (Managed Care Fund).

PRIOR VOTES:

COMMENTS:

1. Author’s statement. According to the author, labor union trusts cannot utilize value-based payment mechanisms with the provider networks in their self-funded plan networks. This results in higher health care costs that could be avoided. Independent, impartial research on health care cost drivers and delivery system reform conducted by the U.C. Berkeley School of Public Health and the Integrated Healthcare Association consistently show that the solution to rising health care costs is to increase the percentage of health care that is delivered through clinically integrated providers that share the financial risk with health plans, government and employer payers. To date, this kind of health care financing and delivery model has been used in the fully-insured employer-sponsored HMO, Medicare Advantage and Medi-Cal Managed Care market segments.
   
2. Background on DMHC. According to DMHC, in 2017, 75 full service health plans were licensed by DMHC that covered more than 26 million Californians. This included approximately 13.2 million commercial enrollees and approximately 13.1 million government enrollees. DMHC assesses and monitors health plan networks and delivery systems for compliance with the Knox-Keene Act, and evaluates compliance through onsite surveys (audits) of health plan operations performed every three years. DMHC also conducts non-routine surveys when a specific issue or problem requires a focused review of a health plan’s operations. The surveys examine health plan practices related to access, utilization management, quality improvement, continuity and coordination of care, language access and enrollee grievances and appeals. DMHC monitors provider networks and the accessibility of services to enrollees by reviewing the geographic proximity of in-network providers to enrollee residences or work locations, provider-to-patient ratios and timely access to care. DMHC reviews health plan financial statements and filings, and analyzes health plan reserves, financial management systems, and administrative arrangements. DMHC does not license provider organizations, but it monitors the financial solvency of Risk-Bearing Organizations (RBO). RBOs are provider groups that, in their contracts with health plans, pay claims and assume financial risk for the cost of all health care services (inpatient and outpatient) by accepting a fixed monthly payment for each enrolled person assigned to the RBO. This arrangement is typically referred to as “capitation.” RBOs are subject to financial reserve requirements and regular financial reporting. DMHC monitors the financial stability of RBOs by analyzing financial filings, conducting financial examinations, reviewing claims payment practices and developing and monitoring corrective action plans (CAPs). There are 184 RBOs required to file survey reports. At the end of 2018 there were 21 RBO with CAPs.
   
3. Global risk regulations. On October 27, 2017, DMHC noticed intent for rulemaking to clarify licensure requirements for health plans, specifically requiring licensure for a person who accepts global risk (both institutional and professional risk) for services to subscribers or enrollees receiving “advance or periodic consideration” from or on behalf of subscribers or enrollees. The proposed regulation also set out requirements for a restricted license for entities that do not market directly to consumers or employers but otherwise meet the statutory definition of a health plan. In addition, the proposed regulation stated specific criteria DMHC may apply in considering a request for exemption from licensure requirements. On October 8, 2018 the Office of Administrative Law rejected the regulation on the basis of clarity and incorrect procedure. The regulation was approved after four revisions and four comment periods on March 5, 2019 and took effect on July 1, 2019.
   
   According to DMHC in their statement of reasons, existing law requires a health plan to assume “full financial risk” for the provision of covered health care benefits to enrollees or subscribers. However, “full financial risk” is not defined. As a result, provider groups that contract with health plans or other organizations to provide health care services to enrollees assume at least some degree of risk for both professional and institutional (hospital) health care services (professional and institutional risk together is considered “global risk”). These provider groups otherwise meet the definition of a health plan by arranging for health care services for health plan enrollees and accepting at least a portion of global risk. Without a clear definition of what types and levels of risk may be assumed, entities that meet the definition of a health plan may be operating without a license. This is a violation of the law, which makes it unlawful to receive advance or periodic consideration in connection with a health plan without first securing a license or an exemption. In 2015, the California Court of Appeal, Second District, held that “the level of financial risk under a capitation agreement that causes a ‘risk bearing organization’ … to become a ‘health care service plan’ … is precisely the type of regulatory determination involving complex economic policy that should be made by DMHC…” Hambrick v. Healthcare Partners Medical Group, Inc., (2015) 238 Cal.App.4th 124, 149. Regulation is necessary to set the level of assumption of financial risk that triggers a requirement to obtain licensure. Additionally, there are entities that contract only with other health plans to provide services to that health plan’s enrollees and subscribers that do not pose as great a risk to the stability of the health care delivery system because their overall impact on the health care market is limited. However, they still meet the definition of a health plan under the Knox-Keene Act. The regulation provides a separate “restricted license” for these entities thereby limiting the confusion these entities have about the need for a license and the type of regulation that will be incurred.
4. Employee Retirement Income Security Act of 1974 (ERISA). ERISA preempts state regulation of employer-provided health benefit plans. The trust fund pilot participant is an ERISA plan and cannot be subject to Knox-Keene licensure. The VEBA is not an ERISA plan and currently has an exemption from the Knox-Keene Act because it reimburses providers on a fee-for-service basis.
5. Related legislation. SB 714 (Umberg) requires DMHC to establish guidelines that identify payment arrangements which may be exempt from the Knox-Keene Act. SB 714 is set to be heard in the Assembly Health Committee on July 9, 2019.
6. Prior legislation. SB 260 (Speier, Chapter 529, Statutes of 1999) requires "risk-bearing provider organizations," which are health care providers paid a fixed rate and in turn, financially responsible for care provided to their patients, to register with the Department of Corporations (DOC) [predecessor to DMHC] and submit quarterly financial statements. Directs the DOC to establish a rating system for the organizations based on data from the statements submitted, and directs the registering organizations to pay an annual fee to a newly-established Health Care Guarantee Fund, which is made responsible for the cost of care in the event a provider organization insolvency. Imposes a moratorium on the issuance of Knox-Keene licenses to risk-bearing provider organizations.
   
7. Support. The California Labor Federation writes that the VEBA and self-insured union trust funds are governed by federal law and regulated by the U.S. Department of Labor and Internal Revenue Service. They have a fiduciary duty to act solely in the best interest of enrollees in the plan and they are legally bound by that responsibility. The VEBA has been an innovator in developing programs that both contain the rising cost of health care, but also improve health outcomes and steer members to the highest-quality of providers possible. The goal of the pilot program is to allow the VEBA and another union trust fund to contract directly with providers, cutting out the health plan intermediary, using risk-based payments, rather than fee-for-service. The health care system in California is moving away from fee-for-service toward integrated care with payment methods that incentivize quality and appropriate care, not volume. This pilot program is designed to test if that model can prove significant savings and health outcome improvements. The America’s Physician Groups writes that transformation is being held-back by a 30-year old law that requires state licensure for all payers that are responsible for one out of every five Californians. The California Schools Voluntary Employees Benefits Association believes direct contracting between large employer groups, such as VEBA, and accountable care organizations, has become one of the most effective ways to keep premiums low while improving employee health. The California State Association of Electrical Workers, Coalition of California Utility Employees, California State Pipe Trades Council, International Union of Elevator Constructors and Western States Council of Sheet Metal Workers believes this bill addresses a major shortcoming in California’s existing law by empowering Taft-Hartley Health and Welfare Trust Funds to by-pass Health Maintenance Organizations and contract directly with health care providers, such as physician groups and hospitals.
   
8. Opposition unless amended. Health Access California requests amendments to assure all of the Knox-Keene Act consumer protections apply to the physician groups while allowing the pilot program to test the use of risk-based contracts. SynerMed, a physician group, was the object of a cease-and-desist order imposed by DMHC on the contracting health plans because SynerMed denied access to specialists such as cardiologists, radiologists, oncologists, hematologists, and other essential specialists. This is not a failure that happened in the distant past: it happened in December 2017. At least one consumer has contacted Health Access about the loss of life of their loved one which they believe resulted from SynerMed’s denial of access. This bill has the potential to allow the physician groups engaged in the pilot program to do the same thing all over again and DMHC would be powerless to stop them, discipline them or fine them for the harm caused to consumers.
   
9. Opposition. The California Association of Health Plans and the Association of California Life and Health Insurance Companies write that these exemptions from the Knox-Keene Act create unfair competitive advantages and will leave consumers without important consumer protections. California’s Knox-Keene licensed health plans are tightly regulated and comply with a vast array of requirements that protect the market and consumers of health services. Among many other things, fully licensed health plans are not only required to deliver basic health care services, they must also meet financial solvency requirements, ensure timely access to services, implement consumer grievances processes and participate in independent medical review.
   
10. Policy comments and potential amendments. It is unclear why this bill is drafted in this manner as a labor trust is an ERISA plan and cannot be subject to Knox-Keene licensure. However, it appears a VEBA could be subject to the Knox-Keene Act as under current law, VEBA is exempt because it reimburses providers on a fee-for-service basis. A main component of the pilot is the ability of provider organizations to accept risk based payments. Those risk arrangements would likely be subject to Knox-Keene Act requirements in particular under recent global risk regulations promulgated by DMHC. The Committee may wish to amend this bill to permit, rather than require, DMHC to authorize the pilot program and ensure that DMHC has the authority to determine the providers that can participate in the pilot program. It is appropriately DMHC’s role to determine which Knox-Keene Act provisions should apply to risk-bearing providers. Data and information necessary for DMHC to make a determination to monitor those providers must be provided in a manner and frequency determined by DMHC. Since DMHC is funded by fees on its licensees that are ultimately passed on to individuals and businesses that purchase health plan services, the Committee may wish to request the expenses of DMHC’s workload be reimbursed by the pilot sponsors. The Chair also requests amendments to ensure members are protected should a risk bearing provider become financially insolvent during the pilot.

SUPPORT AND OPPOSITION:

Support: America’s Physician Groups (cosponsor)

California Schools Voluntary Employees Benefits Association (cosponsor)

Agilon health

AllCare Independent Physician Association

American Federation of Teachers Guild, Local 1931

Brown & Toland Physicians

California Labor Federation

California School Boards Association

California School Employees Association, AFL-CIO

California State Association of Electrical Workers

California State Pipe Trades Council

California Teachers Association

Coalition of California Utility Employees

DaVita Healthcare Partners

International Brotherhood of Electrical Workers, Local Union 302

International Brotherhood of Electrical Workers, Local Union 332

International Brotherhood of Electrical Workers, Local Union 428

International Brotherhood of Electrical Workers, Local Union 47

International Brotherhood of Electrical Workers, Local Union 551

International Brotherhood of Electrical Workers, Local Union 569

International Brotherhood of Electrical Workers, Local Union 595

International Brotherhood of Electrical Workers, Local Union 6

International Union of Elevator Constructors

Los Angeles Unified School District

MemorialCare Medical Foundation

Plumbers & Pipefitters Local Union 342

Plumbers & Pipefitters Local Union 447

Plumbers & Pipefitters Local Union 467

Plumbers & Pipefitters Local Union 484

Providence St. Joseph Healthcare, Southern California

Riverside Physician Network

Sansum Clinic

Scripps Health

Sharp Rees-Stealy Medical Group

State Building and Construction Trades Council, AFL-CIO

UA Local 398

United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry

Western States Council of Sheet Metal Workers

Oppose: Association of California Life and Health Insurance Companies

California Association of Health Plans

Health Access California (unless amended)

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 1249

Author:(Maienschein)

As Amended Ver:May 1, 2019

Majority vote

SUMMARY:

Requires the Department of Managed Health Care (DMHC) Director, by May 1, 2020, to authorize two pilot programs, one in northern California and one in southern California, under which a voluntary employees' beneficiary association (VEBA) with enrollment of more than 100,000 lives, or a trust fund as described, would be exempt from licensure under existing law for a period of five years, if the VEBA or trust fund has entered into one or more contracts with a health care provider that uses risk-based or global risk payment and meets other criteria, including that the provider is registered with the DMHC as a risk-based organization (RBO), or is a limited or restricted licensee. Requires the VEBA or trust fund and each health care provider participating in each pilot program to report to DMHC information regarding cost savings and clinical patient outcomes compared to a fee-for-service (FFS) payment model, and requires the DMHC to report those findings to the Legislature by June 1, 2026. Sunsets these provisions on January 1, 2029.

Major Provisions

COMMENTS:

DMHC Licensure Requirements. According to a 2018 State Health and Value Strategies report entitled, Case Studies: State Examples of Safeguarding Financial Stability of Provider Risk-Bearing Organizations, California's Knox-Keene Act is the legal framework through which health care entities in the state are governed. The long-standing practice of providers accepting financial risk in California, and the bankruptcies of large provider groups in the 1990s, led DMHC to adopt prescriptive regulations governing health plans and provider RBOs. The state has adopted different requirements for entities based on the scope of services for which they accept financial risk and the entities with which they contract. The Knox-Keene Act requires licensure by DMHC of health plans that accept global risk, defined as risk for both institutional and professional services, for the provision of health care services. DMHC is also authorized to exempt entities from Knox-Keene Act requirements under certain circumstances.

According to the Author:

Employers that provide healthcare benefits to their employees struggle to contain costs and obtain the best quality of care on behalf of their employees' working families. There is a growing movement to pair employer health benefit plans with organized, integrated providers in a more aligned relationship to produce better care at lower cost. This bill would provide two pilots, one in the southern portion of the state and the other in the northern section that would operate for a period of five years. At the end of the period, the participants would report on the outcomes of the two pilots to inform the Legislature on promising models of health care financing and delivery that would achieve the Triple Aim, better care, at lower cost, with improved patient experience.

Arguments in Support:

America's Physician Groups (APG), a cosponsor of this bill, cites a Health Affairs publication that provided evidence that integrated provider networks paid on a risk-based model controlled costs at a 9% average lower rate than non-integrated systems. At the same time, the data relied upon in the study proved that integrated systems outperformed their non-organized counterparts in 9 out of 10 quality measures. APG also states that California law prohibits the use of the most advanced provider payment models that yield these superior results. According to APG, the Knox-Keene Act would require duplicative licensure for employer-sponsored benefit plans that are currently organized under federal ERISA law for them to pay providers on anything other than a FFS, unit-cost basis. Since one out of five Californians now receive their healthcare through these employer plans, a population of over 8 million people is prevented from the benefit of these cost and quality-focused healthcare delivery models.

The California Schools Voluntary Employees Benefit Association, a cosponsor of this bill, writes that direct contracting between large groups, like VEBA, and accountable provider organizations, has become one of the most effective ways to accomplish health care cost control. State Building and Construction Trades Council, AFL-CIO, states that this bill would address a major shortcoming in California's existing law by empowering Taft-Hartley Health and Welfare Trust Funds to bypass HMOs and contract directly with health care providers, such as physician groups and hospitals. While union trust funds are pre-empted from state regulation under ERISA and can contract directly with health care providers today on a FFS basis, California law is in essence a de-facto restriction on trust funds by prohibiting providers from contracting on a capitated basis with any organization that does not hold a limited Knox-Keene license.

Arguments in Opposition:

The California Association of Health Plans and the Association of California Life and Health Insurance Companies are opposed to this bill because it requires DMHC to exempt two pilot projects from the provisions of the Knox-Keene Act which regulates state-licensed health plans in California. These exemptions create unfair competitive advantages and will leave consumers without important consumer protections. California's Knox-Keene Act licensed health plans are tightly regulated and comply with a vast array of requirements that protect the market and the consumers of health services. Among many other things, fully licensed health plans are not only required to deliver basic health care services, they must also meet financial solvency requirements, ensure timely access to services, implement consumer grievances processes and participate in independent medical reviews.

Health Access California is opposed unless amended, as this bill could be amended to allow a VEBA or other public employee plan to contract with physicians or physician groups using risk-based payment with all of the other consumer protections of the Knox-Keene Act remaining in place. Fixing this narrow problem would allow the pilot project to proceed – without depriving consumers of basic protections.

FISCAL COMMENTS:

According to the Assembly Appropriations Committee, costs to DMHC of approximately $160,000 in fiscal year 2019-20 and $450,000 to $500,000 ongoing thereafter until 2026 to develop an application process and review exemption criteria for compliance with the requirements, to review new license applications and conduct routine exams of a greater number of risk-bearing organizations that would seek licenses as risk-bearing organizations, to address consumer complaints, and for legal and information technology support. DMHC will also incur an additional $200,000 in 2026 for an evaluation of the pilot and report to the Legislature Managed Care Fund).

VOTES:

ASM HEALTH: 14-0-1

YES: Wood, Mayes, Aguiar-Curry, Bonta, Burke, Carrillo, Flora, Limón, McCarty, Nazarian, Ramos, Rodriguez, Santiago, Waldron

ABS, ABST OR NV: Bigelow

ASM APPROPRIATIONS: 16-0-2

YES: Gonzalez, Bloom, Bonta, Brough, Calderon, Carrillo, Chau, Diep, Eggman, Gabriel, Eduardo Garcia, Maienschein, Obernolte, Petrie-Norris, Quirk, Robert Rivas

ABS, ABST OR NV: Bigelow, Fong

UPDATED:

VERSION: May 1, 2019

CONSULTANT: Kristene Mapile / HEALTH / (916) 319-2097 FN: 0000697

Date of Hearing: May 16, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 1249

Author:(Maienschein) – As Amended Ver:May 1, 2019

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

SUMMARY:

This bill requires the Department of Managed Health Care (DMHC) to conduct a five-year pilot program whereby two voluntary employees’ beneficiary associations (VEBAs) with enrollment of more than 100,000 lives, or trust funds as described, would be allowed to pay providers through a risk-based contract without being licensed as a health plan or insurer and be exempt from licensure for the period of January 1, 2021, to December 31, 2025. It also requires DMHC to report on the pilot.

FISCAL EFFECT:

Costs to DMHC of approximately $160,000 in fiscal year 2019-20 and $450,000 to $500,000 ongoing thereafter until 2026 to develop an application process and review exemption criteria for compliance with the requirements, to review new license applications and conduct routine exams of a greater number of risk-bearing organizations that would seek licenses as risk-bearing organizations, to address consumer complaints, and for legal and information technology support. DMHC will also incur an additional $200,000 in 2026 for an evaluation of the pilot and report to the Legislature Managed Care Fund).

COMMENTS:

1. Purpose. According to the author, employers that provide healthcare benefits to their employees struggle to contain costs and obtain the best quality of care on behalf of their employees’ working families. This pilot hopes to create better care, at lower cost, with improved patient experience by allowing contracting with integrated physician groups.
2. Background. Currently, VEBAs can contract directly with providers on a fee-for-service basis. However, many integrated physician groups contract with payers for a “capitation” rate (such as a per-member, per-month rate) for a set of services. Because a contract puts the physician group at risk for the costs of the services, meaning the VEBA is passing on some of the risk to the contractor, this would normally require the VEBA to be licensed as a health care plan. This bill provides an exception to this requirement on a pilot basis for two large VEBAs or trust funds and authorizes one pilot in southern California and one in northern California.
3. Support and Opposition. This bill is supported by building trades organizations and educational employee association trust funds, as well as America’s Physician Groups, which represents integrated provider groups. Health plans and insurers oppose this bill, stating exemptions create unfair competitive advantages.

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

Date of Hearing: April 23, 2019

ASSEMBLY COMMITTEE ON HEALTH

Jim Wood, Chair

ABPCA Bill Id:AB 1249

Author:Maienschein – As Amended Ver:March 18, 2019

SUBJECT: Health care service plans: regulations: exemptions.

SUMMARY: Requires the Department of Managed Health Care (DMHC) Director, by May 1, 2020, to authorize two pilot programs, one in northern California and one in southern California, under which a voluntary employees’ beneficiary association (VEBA) with enrollment of more than 100,000 lives, or a trust fund as described, would be exempt from licensure under existing law for a period of five years, if the VEBA or trust fund has entered into one or more contracts with a health care provider that uses risk-based or global risk payment and meets other criteria, including that the provider is registered with the DMHC as a risk-based organization (RBO), or limited or restricted licensee. Requires the VEBA or trust fund and each health care provider participating in each pilot program to report to DMHC information regarding cost savings and clinical patient outcomes compared to a fee-for-service (FFS) payment model, and requires the DMHC to report those findings to the Legislature by June 1, 2026. Sunsets these provisions on January 1, 2029. Specifically, this bill:

1. Requires the DMHC Director, by May 1, 2020, to authorize one pilot program in northern California, and one pilot program in southern California, under which a VEBA, as defined, with enrollment of greater than 100,000 lives, or a trust fund, as described, be exempted from existing law from January 1, 2021, to December 31, 2025, if all of the following criteria are met:
   1. The purpose of the pilot program is to demonstrate the control of costs for health care services and the improvement of health outcomes and quality of service when compared against a sole FFS provider reimbursement model; and,
   2. The VEBA or trust fund has entered into a contract with one or more health care providers that meet all of the following requirements:
      1. The health care provider utilizes risk-based or global risk payment;
      2. The health care provider is currently registered with the DMHC, or will become registered through the pilot program application, as a RBO, limited licensee, or restricted licensee; and,
      3. The health care provider agrees to report on any payments within the normal course of reporting made by the provider to the DMHC on a quarterly and annual basis.
2. Specifies that the term of each contract between the VEBA or trust fund and a health care provider does not exceed the period of the pilot program.
3. Specifies that each health care provider that has entered into a contract with the VEBA or trust fund is a party to the pilot program application submitted to DMHC.
4. Requires the VEBA or trust fund and each health care provider participating in the pilot program to agree to collect and report to DMHC, in each year of the pilot program, information regarding the comparative cost savings when compared to FFS payment and performance measurements for clinical patient outcomes.
5. Requires the DMHC, after the termination of both pilot programs, and before June 1, 2026, to submit a report to the Legislature regarding the costs and clinical patient outcomes of the pilot programs compared to FFS payment models. Requires this report to be submitted in compliance with existing law.
6. Sunsets the provisions in this bill on January 1, 2029.

EXISTING LAW:

Licensure Requirements

1. Establishes DMHC to regulate health care service plans (health plans) and to ensure that health plans provide enrollees with access to quality health care services and protect and promote the interests of enrollees and sets forth application requirements for licensure as a health plan under the Knox-Keene Health Care Service Plan Act of 1975 (Knox-Keene Act).  
2. Defines a health plan or specialized health plan as either of the following: a) any person who undertakes to arrange for the provision of health care services to subscribers or enrollees, or to pay for, or to reimburse any part of the cost for those services, in return for a prepaid or periodic charge paid by or on behalf of the subscribers or enrollees; or, b) any person, whether located within or outside of this state, who solicits or contracts with a subscriber or enrollee in this state to pay for or reimburse any part of the cost of, or who undertakes to arrange or arranges for, the provision of health care services that are to be provided wholly or in part in a foreign country in return for a prepaid or periodic charge paid by or on behalf of the subscriber or enrollee.
3. Requires health plans to ensure that all services be readily available at reasonable times to each enrollee consistent with good professional practice, and to the extent feasible, to make all services readily accessible to all enrollees consistent with existing law on timely access to health care services. 
4. Requires health plans to maintain the organizational and administrative capacity to provide services to subscribers and enrollees.
5. Requires health plans to demonstrate to the DMHC Director that it maintains a fiscally sound operation and adequate provision against the risk of insolvency. Requires the DMHC Director, in determining whether a health plan’s operation is fiscally sound, to consider the financial soundness of the plan's arrangements for health care services, the schedule of rates and charges used by the plan, and its agreements with providers for the provision of health care services.
6. Requires health plans, if a plan maintains capitation or risk sharing contracts, to ensure that each contracting provider has the administrative and financial capacity to meet its contractual obligations. Defines RBO as a professional medical corporation or other form of corporation controlled by physicians that delivers, furnishes or otherwise arranges for or provides health care services that does all of the following: a) contracts directly with a health plan or arranges for healthcare services for health plan enrollees; b) receives compensation for those services on any capitated or fixed periodic basis; and, c) is responsible for the processing and payment of claims made by providers for services rendered by those providers on behalf of health plans that are covered under the capitation or fixed periodic payment arrangement.
7. Requires each health plan licensed to, at all times, have and maintain a tangible net equity (TNE) at least equal to the greater of: a) $1 million; b) the sum of 2% of the first $150 million of annualized premium revenues plus one percent of annualized premium revenues in excess of $150 million; or, c) an amount equal to the sum of: i) 8% of the first $150 million of annualized health care expenditures except those paid on a capitated basis or managed hospital payment basis; ii) plus 4% of the annualized health care expenditures, except those paid on a capitated basis or managed hospital payment basis, which are in excess of $150 million; iii) plus 4% of annualized hospital expenditures paid on a managed hospital payment basis.
   
8. Authorizes DMHC to exempt certain plans from the Knox-Keene Act, including a self-insured reimbursement plan that pays for or reimburses any part of the cost of health care services, operated by any city, county, city and county, public entity, policy subdivision, or public joint labor management trust that satisfies specified criteria. Exempts any county-operated pilot program contracting with the State Department of Health Care Services, as specified.

Knox-Keene Act Consumer Protections

1. Requires a health plan to ensure that there is at least one full-time equivalent primary care physician (PCP) for every 2,000 enrollees, and permits the number of enrollees per PCP to be increased by up to 1,000 additional enrollees for each full-time equivalent nonphysician medical practitioner supervised by that PCP. 
2. Requires DMHC, in developing timely access standards, to consider clinical appropriateness, the nature of the specialty, the urgency of care, and the requirements of other provisions of law, including provisions governing utilization review that may affect timeliness of access.
3. Requires DMHC to develop and adopt regulations to ensure that enrollees have access to health care services in a timely manner and consider the following as indicators of timeliness of access to care:
   1. Waiting times for appointments with physicians, including primary care and specialty physicians;
   2. Timeliness of care in an episode of illness, including the timeliness of referrals and obtaining other services, if needed; and,
   3. Waiting time to speak to a physician, registered nurse, or other qualified health professional acting within his or her scope of practice who is trained to screen or triage an enrollee who may need care.
4. Requires health plans and health insurers to cover the completion of covered services by a terminated provider, if requested by an enrollee or insured for the treatment of certain conditions, and if the provider and plan agree on terms and reimbursement, as specified. Requires health plans to cover the completion of covered services by non-participating providers for new enrollees under similar circumstances.
   
5. Requires DMHC to develop and adopt regulations establishing standards and requirements to provide health plan enrollees with appropriate access to language assistance in obtaining health care services, including that health plans have notices advising the availability of free language assistance and other outreach materials that are provided to enrollees.
6. Requires a health plan to establish and maintain a grievance system under which enrollees may submit their grievances to the plan.  
7. Requires health plans to demonstrate that medical decisions are rendered by qualified medical providers, unhindered by fiscal and administrative management.
8. Requires a health plan or insurer to have written policies and procedures establishing the process by which the plan prospectively, retrospectively, or concurrently reviews and approves, modifies, delays, or denies, based in whole or in part on medical necessity, requests by providers of health care services for plan enrollees or insureds. Requires these policies and procedures to ensure that decisions based on the medical necessity of proposed health care services are consistent with criteria or guidelines that are supported by clinical principles and processes. Requires these policies and procedures, as specified, to be filed with the DMHC Director or California Department of Insurance (CDI) Commissioner for review and approval, and to be disclosed by the plan to providers and enrollees, and by the plan to the public upon request.
9. Requires a health plan or insurer to employ or designate a medical director who holds an unrestricted license to practice medicine in this state, as specified, or if the plan is a specialized health plan, a clinical director with California licensure in a clinical area appropriate to the type of care provided by the specialized health care service plan. Requires the medical director or clinical director to ensure that the process by which the plan reviews and approves, modifies, or denies, based in whole or in part on medical necessity, requests by providers prior to, retrospectively, or concurrent with the provision of health care services to enrollees.

Federal Law

1. Establishes the Patient Protection and Affordable Care Act (ACA), which enacts various health care coverage market reforms. 
2. Establishes the Employee Retirement Income Security Act (ERISA) of 1974, to among other provisions, prohibits states from enforcing laws related to private-sector employee health benefit plans.
3. Defines trust fund as to include payments held in trust for the purpose of paying, either from principal or income or both, for the benefit of employees, their families and dependents, for medical or hospital care, pensions on retirement or death of employees, compensation for injuries or illness resulting from occupational activity or insurance to provide any of the foregoing, or unemployment benefits or life insurance, disability and sickness insurance, or accident insurance.
4. Defines VEBA as providing for the payment of life, sick, accident, or other benefits to the members of such association or their dependents or designated beneficiaries, if no part of the net earnings of such association inures to the benefit of any private shareholder or individual.

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

COMMENTS:

1. PURPOSE OF THIS BILL. According to the author, employers that provide healthcare benefits to their employees struggle to contain costs and obtain the best quality of care on behalf of their employees’ working families. There is a growing movement to pair employer health benefit plans with organized, integrated providers in a more aligned relationship to produce better care at lower cost. This bill would provide two pilots, one in the southern portion of the state and the other in the northern section that would operate for a period of five years. At the end of the period, the participants would report on the outcomes of the two pilots to inform the Legislature on promising models of health care financing and delivery that would achieve the Triple Aim, better care, at lower cost, with improved patient experience.
2. BACKGROUND.
   1. California’s regulation of health insurance. The business of health insurance in California is subject to a complex patchwork of federal and state regulations. Different rules apply depending on whether insurance coverage is purchased directly by individuals or on behalf of a group, as in job-based health insurance.
      
      In California, regulation and oversight of fully insured employee health benefit plans is split between two state departments, the DMHC and the CDI. DMHC primarily regulates health maintenance organizations (HMOs), but also has jurisdiction over some preferred provider organization (PPO) plans. CDI has jurisdiction over all other types of health insurance, including plans that offer traditional health insurance products, such as indemnity plans, and some PPO plans.
      
      There are essentially three relevant regulatory frameworks for health insurance state regulation by DMHC, by CDI, and regulation of self-insured employee health benefit plans by the federal Department of Labor
   2. Health care in California. According to a 2018 University of California report, “A Path to Universal Coverage and Unified Health Care Financing in California,” California experienced dramatic expansions of coverage under the ACA. Prior to the ACA, the number of uninsured residents approached 7 million, or about 17% of the non-elderly population; post-ACA, it has fallen to around to 3 million (about 7%). California embraced the Medicaid expansion available under the ACA. In addition, in 2016, California expanded Medi-Cal to all children, regardless of immigration status, using state funds. As a result of these and other policy and administrative actions, Medi-Cal enrollment is now approaching 14 million. Coverage through employment continues to be the dominant source of coverage for Californians, accounting for about 17.5 million people. About 6 million Californians with employer-sponsored coverage are in self-insured arrangements subject to ERISA and over which the state has limited regulatory oversight. ERISA prevents states from directly regulating private employer health insurance arrangements. In particular, ERISA prevents states from imposing a mandate that private employers offer or pay for health insurance. ERISA also prevents states from imposing taxes on private employer-sponsored plans. California has a long history of heavy reliance on managed care arrangements, including incentives or restrictions related to provider network, in both public and private health plans. More than 60 % of insured Californians are enrolled in HMO plans, a higher share than most other states. Among California Medicare enrollees, 41% are in Medicare Advantage managed care plans, and approximately 80% of Medi-Cal enrollees are in managed care plans.
   3. DMHC Licensure Requirements. According to a 2018 State Health and Value Strategies report entitled, “Case Studies: State Examples of Safeguarding Financial Stability of Provider Risk-Bearing Organizations,” California’s Knox-Keene Act is the legal framework through which health care entities in the state are governed. The long-standing practice of providers accepting financial risk in California, and the bankruptcies of large provider groups in the 1990s, led DMHC to adopt prescriptive regulations governing health plans and provider RBOs. The state has adopted different requirements for entities based on the scope of services for which they accept financial risk and the entities with which they contract. The Knox-Keene Act requires licensure by DMHC of health plans that accept global risk, defined as risk for both institutional and professional services, for the provision of health care services. DMHC is also authorized to exempt entities from Knox-Keene Act requirements under certain circumstances.
      1. Risk Regulations. DMHC had recently finalized regulations seeking to clarify the level of financial risk that would trigger health plan licensure. The regulations proposed different categories of licensure, including “full” and “restricted.” Traditional health insurance plans would be required to obtain a full license to operate. Entities that accept global risk as a subcontractor to a fully-licensed health plan could obtain a restricted license. A restricted licensee would not be subject to rules concerning marketing and enrollment. Entities that have a small market share and/or operate in well-served areas could be granted an exemption from California’s licensure requirements as those dynamics reduce the risk of disrupting the delivery of care in the event of insolvency.
      2. RBOs. An entity in California that only takes financial risk within the scope of its professional license (e.g., primary care capitation) is required to register as an RBO. DMHC retains limited oversight of RBOs; most of the direct oversight is delegated to the health plans with which RBOs contract. RBOs are required to submit quarterly and annual reports to DMHC so the DMHC can evaluate their financial condition. DMHC has established minimum solvency requirements for RBOs. The current regulation imposes solvency requirements on organizations that enter into “risk arrangements,” which are defined to include the following:
         1. “Risk-sharing” as any compensation arrangement between an organization and a plan under which the organization shares the risk of financial gain or loss with the plan; and,
         2. “Risk-shifting” as a contractual arrangement between an organization and a plan under which the plan pays the organization on a fixed, periodic, or capitated basis, and the financial risk for the cost of services provided pursuant to the contractual arrangement is assumed by the organization.

Additionally, DMHC had recently issued proposed regulations to amend the financial solvency standards of RBOs. The proposed regulations aim to clarify standards around delegated contracting arrangements and TNE and would permit an organization to identify a financial guarantor (“sponsoring agency”) to meet the financial solvency standards on behalf of an RBO. DMHC sought to adopt a definition of a “sub-delegating organization” to make sure arrangements between an entity that contracts with a health plan, but delegates risk or services to another entity that does not hold a contract with a health plan, is governed by the same solvency regulations. Sub-delegating organizations would be required to report on the risk-sharing arrangements they hold with organizations, and indicate whether they provide stop-loss insurance to their contractors, as well as the details of such insurance.

DMHC publishes on its website a list of RBOs that have completed the financial reports and whether or not they have met each of the solvency requirements; a list of RBOs that failed to comply with the financial reporting requirements is also posted on the website. A corrective action plan will be required of RBOs, through contracted health plan(s) or sub-delegating organizations, which fail to meet the minimum solvency standards and/or fail to comply with the reporting requirements. As of August 2018, California had issued 21 restricted licenses and registered 185 RBOs.

1. SUPPORT. America’s Physician Groups (APG), a cosponsor of this bill, cites a Health Affairs publication that provided evidence that integrated provider networks paid on a risk-based model controlled costs at a 9% average lower rate than non-integrated systems. At the same time, the data relied upon in the study proved that integrated systems outperformed their non-organized counterparts in 9 out of 10 quality measures. The data was taken from the California HealthCare Foundation’s sponsored Regional Cost and Quality Atlas, which draws information from care provided to 29 million Californians in 2013 and 2015. APG also states that California law prohibits the use of the most advanced provider payment models that yield these superior results. According to APG, the Knox-Keene Act would require duplicative licensure for employer-sponsored benefit plans that are currently organized under federal ERISA law for them to pay providers on anything other than a FFS, unit-cost basis. Since one out of five Californians now receive their healthcare through these employer plans, a population of over 8 million people is prevented from the benefit of these cost and quality-focused healthcare delivery models.

The California Schools Voluntary Employees Benefit Association, a cosponsor of this bill, writes that direct contracting between large groups, like VEBA, and accountable provider organizations, has become one of the most effective ways to accomplish health care cost control.

State Building and Construction Trades Council, AFL-CIO, states that this bill would address a major shortcoming in California's existing law by empowering Taft-Hartley Health and Welfare Trust Funds to bypass HMOs and contract directly with health care providers, such as physician groups and hospitals. While union trust funds are pre-empted from state regulation under ERISA and can contract directly with health care providers today on a FFS basis, California law is in essence a de-facto restriction on trust funds by prohibiting providers from contracting on a capitated basis with any organization that does not hold a limited Knox-Keene license.

1. OPPOSE UNLESS AMENDED. Health Access California (HAC) opposes this bill, as it would exempt a pilot project from every consumer protection in the Knox-Keene Act, unless it is amended to assure those consumer protections while allowing the pilot project to test the use of risk-based contracts. HAC identifies a partial list of consumer protections that would be lost under this bill including: basic health care services; medically necessary prescription drugs; access to medically necessary specialists; financial solvency so that doctors and hospitals are paid; block transfer and continuity of care; deceptive marketing prohibitions; language access requirements; and, timely access standards. HAC states that this bill could be amended to allow a VEBA or other public employee plan to contract with physicians or physician groups using risk-based payment with sufficient protections for financial solvency. Fixing this narrow problem would allow the pilot project to proceed, without depriving consumers of basic protections.
2. OPPOSITION. The California Association of Health Plans (CAHP) and the Association of California Life and Health Insurance Companies (ACLHIC) are opposed to this bill because it requires DMHC to exempt two pilot projects from the provisions of the Knox-Keene Act which regulates state-licensed health plans in California. These exemptions create unfair competitive advantages and will leave consumers without important consumer protections. California’s Knox-Keene Act licensed health plans are tightly regulated and comply with a vast array of requirements that protect the market and the consumers of health services. Among many other things, fully licensed health plans are not only required to deliver basic health care services, they must also meet financial solvency requirements, ensure timely access to services, implement consumer grievances processes and participate in independent medical reviews.
3. RELATED LEGISLATION. SB 714 (Umberg) requires the DMHC Director, if the DMHC Director determines it is in the public interest and not detrimental to the protection of subscribers, enrollees, or persons regulated under existing law, to exempt from the requirements of existing law, a person who meets specified criteria relating to risk-based payment arrangements, including that the person’s annual revenue, TNE, or cash on hand from payments for health care services is no more than 25% at risk, as defined. Requires a person requesting an exemption pursuant to this bill to be exempt from existing law while the request is pending and during any administrative or judicial review of the DMHC Director’s denial of a request for exemption. Allows an exemption granted under this bill to continue indefinitely, if there is no material change in the nature of payment arrangements. Exempts from existing law any of the specified payment arrangements if the arrangement was established on or before January 1, 2020, except as specified. SB 714 is pending in Senate Health Committee.
4. PREVIOUS LEGISLATION.
   1. SB 261 (Speier) of 2003 would have required a contract between a health plan and a RBO to include provisions indicating if the organization meets specified financial solvency standards and would have required the plan to notify the director if the RBO fails to perform a duty under its contract. SB 261 would have required the regulations adopted by the DMHC Director to specify information that the DMHC Director is required to disclose and to authorize the DMHC Director to disclose certain information submitted by a RBO in designated circumstances. SB 261 would have required a RBO to register with the DMHC Director annually and would prohibit a plan from contracting with a RBO that fails to comply with this requirement. Would have required a RBO to report on a quarterly basis, the name and specialty of each physician and surgeon who is its employee or contractor to the hospital where the physician and surgeon has admitting privileges. The Governor vetoed SB 261 who indicated that the issues raised in SB 261 can be addressed during the regulatory process in a way that balances the integrity of the health care marketplace against public access to important financial data.
   2. SB 260 (Speier), Chapter 529, Statutes of 1999, requires every health plan that contracts with a RBO to submit a quarterly survey listing all its contracting organizations, including the organizations’ names, addresses, contact persons, telephone numbers, and number of enrollees assigned to the organization as of the last day of the quarter being reported and not more than 45 days after the close of each subsequent calendar quarter. Requires every plan, along with the quarterly report, to submit an annual survey report due by May 15 of each year, containing specific information, as required. Establishes the Financial Solvency Standards Board, within the DMHC, composed of 8 members, one of whom is the DMHC Director and 7 of whom are appointed by DMHC Director. Requires the board to take specified actions with regard to financial solvency and standards affecting the delivery of health care services. Prohibits, until January 1, 2002, a license with waivers or limited license, on or after January 1, 2000, from being issued to any person for provision of, or the arranging, payment, or reimbursement for the provision of, health care services to enrollees of another plan under certain risk-assuming contracts. Prohibits any licensed health plan, on and after January 1, 2000, from contracting with any person, with certain exceptions, for the assumption of financial risk with respect to certain health care services and any other form of global capitation.
5. AUTHOR AMENDMENTS. To address concerns regarding the language exempting provider organizations from the Knox-Keene Act, the author has agreed to amend this bill as follows:
   1. Clarify that the contracting RBO, limited licensee, or restricted licensee is subject to the financial oversight of the DMHC.
   2. The state has limited authority over self-funded plans. Thus, in order to protect consumers and establish transparency, the Committee recommends that the following be discussed in the contracts between the VEBA and/or trust fund and the provider organization:
      1. Assurance that the RBO/limited licensee/restricted licensee have the organization and administrative capacity to provide services to covered employees; and that medical decisions are rendered by qualified medical providers, unhindered by fiscal and administrative management;
      2. Basic health care services;
      3. Prescription drug benefits;
      4. Continuity of care;
      5. Network adequacy and timely access to care standards, including access to specialty providers;
      6. Grievance and appeals, including independent medical review;
      7. Deceptive marketing prohibitions;
      8. Language assistance programs;
      9. Submission of claims and timeliness of claims processing requirements;
      10. Provider dispute resolution mechanism; and,
      11. Utilization review or utilization management requirements.
6. POLICY COMMENTS. Financial solvency of RBOs. Under existing law, RBOs and restricted licensees are only permitted to contract with fully licensed health plans. The requirement that these entities contract with a fully licensed health plan is the primary source of the DMHC’s oversight of these entities to ensure financial solvency and protect consumers.  The fully licensed health plan is responsible for ensuring access and the consumer protections as set forth in existing law.  While the fully licensed health plan can delegate functions to an RBO or a restricted licenses, the health plan is ultimately responsible for ensuring Knox-Keene Act compliance, as the health plan accepting global risk for both institutional and professional services. It is unclear whether the DMHC’s limited oversight over the RBOs will now include the global risk payment described in this bill as it applies to the two pilot programs. As this bill moves forward, the Committee may wish to consider whether this limited oversight is sufficient for consumers.

REGISTERED SUPPORT / OPPOSITION:

Support

America's Physician Groups (cosponsor)
California Schools VEBA (cosponsor)
California State Association Of Electrical Workers (cosponsor)
California State Pipe Trades Council (cosponsor)
Agilon Health
Allcare IPA
Brown & Toland Physicians
California Teachers Association
Coalition Of California Utility Employees
Da Vita Healthcare Partners Inc.
IBEW Local Union 569
International Union of Elevator Constructors, Local 18
International Union of Elevator Constructors, Local 8
MemorialCare Medical Foundation
Providence St. Joseph Health
Riverside Physician Network
Sansum Clinic
Scripps Health
Sharp Rees-Stealy Medical Centers
State Building and Construction Trades Council Of California
Western States Council Sheet Metal, Air, Rail and Transportation

Oppose

Association of California Life & Health Insurance Companies
California Association of Health Plans

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