Assembly Budget Subcommittee No. 1 on Health

There we go. All right, good afternoon. This is the Assembly budget Subcommitee Number One on Health. I am Dr. Aquila Weber, the new Chair, and I'd like to welcome everyone for coming today. This is the first sub one hearing of 2024, and the focus of today's hearing is on the various proposals related to the managed care organization, also known as the MCO Tax, that are contained in the Governor's Budget.

As a part of the first panel, we have asked DHCS to present all four MCO tax related proposals and the LAO to share their analysis and recommendations on these proposals. Panel two is for key stakeholders to share their reactions and feedback to their proposals. Before we begin, I would like to see if any of my colleagues have any opening remarks that they would like to make.

Okay, so we will go ahead and begin with our first panel, which includes Michelle Baass, the Director of the Department of Healthcare Services, Rafael Davtian, Deputy Director of Healthcare Financing at the Department of Healthcare Services, and I do apologize if I said your last name incorrectly, Aditya Voleti, Staff Finance Budget Analyst with the Department of Finance, and Jason Constantouros, Principal Fiscal and Policy Analyst with the Legislative Analyst Office. We will hear from all of the panelists and then we will take questions from Members of the Subcommitee. Director Bass, please begin.

Department of Healthcare Services. The Governor's Budget includes four proposals related to the managed care organization tax and really in kind of two ways to think about it. The first is really given the state's budget fiscal shortfall, the Governor's Budget includes changes to the MCO to use these dollars to sustain and maintain the Medi-Cal program, again given the state's fiscal situation. And then second, the Governor's Budget proposes to maintain its commitment to the MCO Tax related rate increases as agreed upon in last year's budget.

We know these rate increases will drive greater access to provider participation in the Medi-Cal program. In terms of the proposal to use MCO to sustain and maintain the Medi-Cal program. The budget proposes first to amend the MCO Tax that was approved by the federal government in December to achieve an additional $1.5 billion in tax revenue, MCO tax revenue compared to the approved MCO tax, and these dollars, $1.5 billion from 2024, 25, and 26 total, will be used to support the Medi-Cal program.

We are seeking early action from the Legislature so that we can submit this proposal to CMS by the end of March so that the tax change can be effective the beginning of the quarter, January 1, 2024, so we can achieve maximum new revenue. This proposal maintains our ability to meet federal requirements for provider fees and we do not think that there are opportunities to go higher in terms of the MCO Tax. That was one of the questions in the agenda.

There are certain rules and requirements that we must meet to get approval from the federal government, and bringing in this additional 1.5 billion we think is the maximum amount that we can do with the amendment. Additionally, we are proposing to shift about $3 billion from the Medi-Cal Provider Payment Reserve Fund to the General Fund across the current year and the budget year. As part of the 23 Budget Act, these funds were generally intended to be used to support rate increases in 2028 and 2029.

However, given the budget shortfall and to not cut the Medi-Cal program, these funds will be used in the current year and budget year to support the existing Medi-Cal program. Discussions regarding the revenue source to sustain budget year plus three rate increases would now occur a year earlier. Second, in terms of the administration's proposal to the MCO Tax related targeted rate increases as agreed upon in last year's budget and in trailer bill phase, one of these rate increases were effective January 1, 2024.

We brought primary care, maternity care, and non specialty mental health services to 87.5% of Medicare. In addition, we eliminated the AB 97 provider payment reductions related to those services and incorporated applicable Proposition 56 supplemental payments into the base. Additionally, as required by law, the Governor's Budget includes our proposal for the second phase of these rate increases that begin January 1, 2025.

All of the categories and terms of these rate increases were included as part of last year's trailer bill and as part of the agreement as part of the 2023 Budget Act. I'll speak a little bit in terms of these categories of rate increases and provide some additional details as part of this. So professional services, so this is for primary care, maternity care, non specialty behavioral health, and specialty care services.

We are proposing to increase some of those rates to up to 100% of Medicare and all the way up to 80% of Medicare. So 100% for primary care, specialty office visits, preventive services, and care management, maternal care service, non specialty mental health services, vaccine administration, vision services, and then 90% of Medicare for ED physician visits, 80% of Medicare for other procedure codes commonly used by primary care specialists and ED providers.

We also proposed to include hearing aids and audiology services within this domain and increase the benefit capped on hearing aids. We also proposed, as part of these rate increases to adopt the Medicare localities. There are 32 localities as part of the Medicare rate structure to set medical rates to the target percent of Medicare applicable in that locality. This will improve the alignment of Medi-Cal rates to local cost differences in future years.

The Department proposes to main geographic rates in relation to the Medicare rate in effect for the locality. We also propose to use 800 million of the MCO Tax revenue or the Provider Reserve Fund to be used to draw down additional federal dollars, so 200 million total for equity adjustments to these rates.

We want to look kind of with an equity index to look at health profession shortage areas, look at areas that are designated rural frontier urban health deserts and also look at the healthy places index quartiles 1 and 2 to develop a mechanism to pay providers in these areas initial bump with regard to ensuring that they have the resources to provide for the Medi-Cal community. In terms of outpatient and ED facility services, we are targeting annual investments of 245,000,000 from the Provider Payment Reserve Fund for community and hospital outpatient services.

This includes hospitals and ambulatory surgical centers. We propose to transition these services to an outpatient prospective payment system starting in 2027 and as part of the transition for 2025 and 2026, provide a 10% rate increase for these services. For abortion services effective January 1, 2025 we are proposing investments of 90 million in the Provider Reserve Fund, 75 million for base rate increases and 15 million to continue the abortion supplemental payment program.

We are proposing to increase rates for abortions to 1,150, including folding in existing Proposition 56 supplemental payments. We propose to vary these rates based on the geographical Medicare regions and to continue the abortion supplemental payment program through the period of the MCO Tax.

In terms of ground emergency medical transportation services, we are targeting investments of 50 million from the MCO Medical Provider Reserve Fund, proposing to increase base rates to 50% to 60% of Medicare as part of this eliminating the AB 97 reduction and in future years to maintain Medi-Cal base rates in relation to the Medicare rates as well. With regard to our designated public hospitals, we are targeting investments of 150,000,000 of the Reserve Fund, bringing it to about 375,000,000 total fund for designated public hospitals.

We are proposing to transition from the cost based certified public expenditure approach to paying our public hospitals to a DRG or diagnostic related group methodology. So, moving from a cost base to a DRG methodology, we are also proposing additional payments to reconcile public hospitals to 100% of cost if certain conditions are met.

We continue to engage with the California Public Hospital on this proposal and their concerns related to the settling of cost reconciliation, having good discussions on that. In terms of our federally qualified health centers and rural health centers, effective January 1, 2025, we are targeting investments of 50 million from the Medi-Cal Provider Reserve Fund and 100 million total for services and supports for our FQHCs and rural health centers.

We are adding these dollars to the existing supplemental payment program for non hospital 340B community clinics, but proposing to change it to a directed managed care program versus a fee for service kind of based supplemental program for efficiencies and in partnership with our clinics who also are looking for this kind of more efficient way to pay for these services. And then finally, just one of the questions in the agenda of the remaining AB 97 reductions.

The 2025 targeted rate increases eliminates all of the AB 97 reductions for physicians and ground emergency medical transportation. The remaining AB 97 reductions are for clinical labs. It's about 7 million General Fund annually, pharmacy medical supplies, about 7 million General Fund annually, and then miscellaneous provider types at about 1 million annually. I will now turn it over to my colleague, Deputy Director Rafael Davtian, to answer some of the other questions in the agenda.

Thank you, Director Baass. Thank you, Director Baass. Thank you, Chair and Members of the Committee. Rafael Davtian, Deputy Director for Health Care Financing at the Department of Health Care Services. I'll take a few moments just to address some of the questions that arose with respect to the existing FQHC supplemental payment program and the DPHDRG proposal within the Governor's Budget.

So with respect to the FQHE supplemental payment program, the agenda had posed a question regarding payment issues, payment challenges that the current program has experienced and essentially asking how the proposed new program would address some of those. So there have been some payment challenges, payment difficulties with the existing program. It is a fee for service supplemental payment methodology that is based on that includes an interim and final payment component or final payment methodology, as well as ultimately is a pool based methodology.

So the methodology is designed to expend a particular pool amount. What we are proposing as part of the Governor's Budget to transition that program to a managed care direct to payment program, which would entail rolling over the existing value of the current fee for service supplemental payment program plus adding the additional 50 million in MCO Tax funded investments that Director Baass indicated and establishing a program that includes both a utilization based and a utilization based component as well as a performance based payment component.

The additional flexibilities and administrative simplification of the managed care program would allow us to allow the Department to direct managed care plans to reimburse FQHCs and NRHCs for eligible visits as the services are provided, and then to have an additional reconciliation to the targeted pool amount at the end, essentially a balancer through the performance based methodology.

And so we are hoping that through that transition, and anticipating that through that transition, we will be able to address some of the payment challenges that we have seen with the current program as well as accelerate the flow of payments, the flow of cash to our FQHC and RHC partners. With respect to the DPH DRG proposal sharing just a couple of details. One question on the agenda was whether we believe that the proposed DRG investments of 150,000,000 annually will be sufficient to cover hospitals' existing costs.

So we have modeled a range of different estimates, but as Director Baass indicated, really are intending to work closely continue working closely with the California Association of Public Hospitals and our designated public hospital partners to evaluate the extent to which these investments will be sufficient to meeting a portion or the entirety of DPH's costs.

Those models and analyses are heavily dependent on assumptions related to enrollment and utilization, which are currently being heavily impacted both by recent coverage expansions as well as by the ongoing redeterminations following the end of the public health emergency. And so we are expecting that we will have significantly more clarity on those enrollment and utilization components in the coming months. And then to the question regarding the impact of the proposal on cost based supplemental payments to DPHs.

The Medi-Cal program includes a number of cost based or other supplemental payment programs for designated public hospitals. This proposal, this DPHDRG proposal really does not affect those except for the existing reimbursement methodology that is in place for inpatient services in the fee for service delivery system for DPHS today. Under that methodology, DPHS receive an interim per diem rate and then are subsequently reconciled to 100% of cost. But that is a CPE based methodology where the certified public expenditure constitutes the non federal share.

What we are proposing is to transition that interim payment from a per diem to a DRG methodology and to leverage MCO Tax funds to leverage state funds for the non federal share of that payment, and then additionally, if certain conditions are met related to the sufficiency of that reimbursement and meeting public hospital costs, to eventually sunset the cost-based reconciliation methodology following a phased approach that is designed to ensure that we do not jeopardize DPH finances. Thank you.

Aditya Voleti, Department of Finance. No further comments at this time, but happy to answer questions as they arise.

Good afternoon, Committee. Jason Constantouros with the Legislative Analyst Office. You have a lot of issues to grapple with in your agenda today. It might be helpful just to work for some visual guides in your agenda. So if you turn to page two of your agenda, that summarizes the four key proposals on today's agenda. For the purposes of just keeping things sort of meeting time constraints, I'll focus my comments on the first three proposals, which are the most significant proposals on today's agenda.

But I am available to answer any questions that come up on any parts of the agenda. So again, looking at page two, starting with the first proposal. The first proposal is around increasing the size of the MCO Tax and generating an additional one and a half $1.0 billion. If you turn to page three of your agenda, there is a table on the top of page three that summarizes the MCO tax rates.

It summarizes the tax rates as they were enacted in last year's package and then the proposed increase in the tax rates under the Governor's Budget. And generally, our assessment here is that this proposal is a merit consideration. The MCO Tax is a tax that's designed so that most of the cost is covered by the Medi-Cal program instead of by private insurance, and it covers that cost largely by drawing down additional federal funds.

So this is a tax increase that has the benefit of drawing down additional federal funding, imposing a relatively minor cost on taxpayers in California, and does not come with reducing core ongoing programs in the Medi-Cal program. So given those things, we think this proposal warrants consideration and recommend adopting it. That said, we do want to note that under state law, the tax increase is conditioned on receiving federal approval. The Administration has said that the pros increase fits within these federal rules, and that's very plausible.

There was room within last year's MCO Tax package within the federal limits. But we do recommend that the Administration provide the Legislature an updated analysis demonstrating that it fits within these rules prior to the Legislature enacting it. Turning to the second proposal, the second proposal involves the proposed shift out of the Medi-Cal Provider Payment Reserve to help provide additional support to offset General Fund spending in Medi-Cal.

And again, if you want a basic illustration of this, figure on the same page three in your agenda, on the bottom of that page, there is a table that summarizes how the MCO Tax funds are used under last year's package and then as proposed by the Governor's Budget. And in that top line, you can see that the Administration is proposing to reduce the amount that goes into the Provider Payment Reserve from around 11 billion to around 8 billion.

That provides an additional $3 billion to help offset General Fund spending. And generally we find this proposal also merits consideration. As the Administration stated, the intent here is not to affect the annual cost of the proposed augmentations, but rather advance the timeline to when the reserve is depleted. So under last year's package, that timeline was anticipated to be around at the end of 2029. And under the administration's proposal, the administration projects that that would advance it to around mid 2028 when the reserve is depleted.

Now, when the reserve is depleted, there is an anticipated shortfall in the MCO Tax package. So to sustain the augmentations on an ongoing basis, the General Fund would have to address that shortfall or the Legislature would have to identify another revenue source. And we think given the very real budget problem facing the state in the near term, we think this proposal merits consideration.

That said, we also think it would be prudent for the Legislature to begin thinking about the long term viability of the package and to start thinking about that shortfall. That's a point I'm also going to return to when I get to the third proposal. And speaking about the third proposal, I'll turn to that now. So the third proposal involves the proposed package of provider payment increases in Medi-Cal. Again, this is an expansive proposal, involves many different areas of Medi-Cal.

If you're looking for some visual references, page six on your agenda is a reasonable starting point. It shows the different allocations of funding to each area within Medi-Cal. But there are two key points that we think are worth keeping in mind here about the proposal. The first is that the Administration is not simply proposing to increase provider payments, but also proposing to change the way Medi-Cal pays providers in many ways.

So, for example, adopting the approach taken in Medicare for physician services or adopting a new prospective payment system for certain hospital services. And the second key point to keep in mind about the proposal is that it's still being developed. Parts of it are somewhat conceptual. For example, the Administration proposes to adopt equity adjustments, but hasn't yet finalized how that equity adjustment exactly would look.

Also, the Administration proposes to transition to prospective payment systems, but proposes a few years to research that and develop it further before it becomes online. So this is an area where the Legislature's understanding of the package is going to continue to evolve in the coming months. To help guide legislative decision making, we offered some key points for the Legislature to keep in mind. Those key points are summarized on pages 17 and 18 of your agenda.

And again, I know you have a lot of ground to cover today. So rather than go through every point, I want to touch on three key parts of those points. The first is that this is an area where the Legislature has many opportunities to consider new ways to expand Medi-Cal and to consider changes in the ways Medi-Cal pace providers.

So we think it's reasonable the Legislature seriously weigh its options and where it sees the highest needs and where it sees opportunities to change provider payment. The methodology to pay providers in cases where the Legislature thinks it's warranted to change the way Medi-Cal pays providers, we recommend it focus on approaches that makes the system more rational. As an example, Medi-Cal's current approach for paying for physician services is somewhat outdated.

It's based on a system that goes back to the 1960s, and several rates, or many rates within that system, have not been adjusted for many years for things like inflation. The Administration is proposing to tie these payments to the way Medicare pays providers, and Medicare is more regularly adjusted. It does include inflationary adjustments or tends to year over year. So on net, that's a proposal that could make the system more rational and more responsive to changes in the economy and changes in services.

That said, in many other cases, the details really matter here. So, for example, a prospective payment system for hospital services that could provide a better basis for paying for services, but the details matter to ensure that that system provides the right kinds of incentives. Similarly, the Administration spoke about a proposal to increase supplemental or to provide an additional supplemental payment in the managed care system for clinics. That's another system that could have merit.

It just depends exactly on how the payments would be allocated and also emphasized that the Administration indicates that there will be proposed trailer bill legislation to effectuate many of these changes, but that hasn't been released either. So some of these details could be answered in the coming months once we get more trailer bill legislation. The second point I want to emphasize is that implementation and legislative oversight are key issues here.

So the Administration is proposing many different changes in the Medi-Cal program, and given its expansive nature, there could be risks associated with implementation that could result in delays or delays in when providers receive payments. I will say that when we wrote our analysis, we reached out to many stakeholders, and many stakeholders at the time could provide us very limited information because the proposal had only been recently released. So this is an area where the Legislature's understanding will also continue to evolve.

So we recommend the Legislature work with the Department, work with stakeholders to understand the potential implementation issues and challenges. If the Legislature finds issues with the intended timeline, it has options. It could, for example, stretch out the period or phase in the period in which changes happen over more years and allow for more time for providers and managed care plans and the Department to effectuate these changes.

We also think that additional reporting in the proposal will be warranted to better track the implementation and the impact of the payment. So we recommend some reporting language as well. And then finally, I want to return to my point about the long term financial sustainability of the MCO Tax package. Now, the Administration anticipates there to be a shortfall in the MCO Tax package, and that shortfall is the result of the next MCO Tax potentially being smaller than this one.

And so because it could be smaller than this one, that would mean that existing funding in the MCO Tax would not be enough to cover the full cost of the augmentations. This is not a certain outcome, but there's potential.

The Federal Government has publicly said that it intends to change rules around adopting taxes like the MCO Tax, and depending on those rule changes, those could impact the size of the future MCO Tax. Now, absent finding another revenue source that would fall on the General Fund to backfill any shortfall in the package. However, as we've noted in other publications, the Governor's Budget and our office as well, projects there to be deficits in the out years.

And typically when there are deficits, the General Fund doesn't have much capacity to absorb new costs. Were that to happen, the Legislature could face pressure to undo some of the changes in the package, and that could be very disruptive, particularly to providers and managed care plans that had spent the next few years adjusting to the new payment system. So we recommend the Legislature, if it is seriously considering doing ongoing augmentations and permanent changes in the way Medi-Cal pays providers.

We recommend it adopt a budget package that anticipates that that anticipates their next MCO Tax to be smaller and to better build capacity in the General Fund to absorb any shortfalls in the future. Again, there are many other components of the proposal available to answer questions as needed. Thank you.

Thank you. Do either of my colleagues have any questions? Assembly Member Patterson.

Director Baass, I want to call your attention to the pediatric day healthcare providers. And these are medically fragile kids. They're developmentally disabled. I have such a provider in Fresno, Loretta's Little Miracles. My understanding is that the PDHC providers are not included in the MCO Tax and apparently will not be receiving targeted rate increases. Is that correct?

Yes, that is correct.

They were not part of the trailer bill language last year, the trailer bill language last year, AB 119, that was passed by the Legislature as part of last year's budget act that governed the proposals and kind of the categories of spending for the targeted rate increases. So our proposal this year as part of Governor's Budget follows what we were required to submit to the Legislature as part of Governor's Budget and the categories of rate increases.

Why?

Do you understand that these pediatric day care health facilities are right on the edge of closing? Do you realize how serious not being included in this is? And do you realize how serious is for these medically fragile kids? What would it take to get PDHC in the MCO?

It's not part of the administration's proposal. And this is the Governor's Budget proposal related to the managed care organization tax targeted rate increases. This is our proposal. And I know there's lots of deliberation that happens through the budget process, and so I would leave it at kind of this is our proposal at this time.

Well, I just want you to know that I have close personal relationships and friendships with parents and with those little kids and Loretta's Little Miracles. It is beyond unconscionable to me that we would let these places close. They are the lifeline to parents who can still work, still get wonderful care. And I have been in those places. I've held those children, and I can tell you that the parents, and it's not just the one in Fresno, these are up and down the State of California.

So I'm going to just make this very clear. Under no circumstances will I support your plan on the floor for the tax increase if it does not include some help for these PDHCs. I know you need two thirds, but I will not vote for it. To leave these kids out is unconscionable. Now, I'm willing to work with you. I'm willing to figure out ways, but if this thing comes to the floor and they're not in it, I will not vote for it under any circumstances.

Thank you. Assembly Member Bonta.

Thank you, Chair. So first, I want to thank you all for, I think, coming forward with a very creative solution to be able to address the extensive need that we have. I know that there has been a lot of work put into this, and I want to appreciate you all meeting with me previously and answering a lot of my questions before.

I did want to highlight the concern, I think, that was raised by LAO around essentially kind of pushing forward the depletion of the reserve by 2028 instead of 2029. Also compounded by the fact that the federal government has already indicated to us that the MCO Tax will be smaller moving forward. That sounds to me, like, we are deferring a significant challenge, kind of a structural revenue challenge that we need to address. So any insights that either LAO or DOF or the Department has around how we might be able to address that.

So I will say the federal government, to make this change so that we have to have a smaller MCO that would require federal regulation changes, and so it would not be kind of an immediate change because they would have to change the regulations for us to not be able to kind of do a similar MCO in 2027.

So I think we have some time, if the feds do propose this, they've been saying this for years now, that they want to close the loophole with regard to the way the tax structure works. And so I think at this point, we know if they do make the change, we will have probably two years or so at least, to kind of understand that change before the federal rule takes effect. But it is not a guarantee because they do need to make a change.

Yeah, I just also wanted to emphasize a couple of build upon some of the points that were made by the Administration there. The first is that this is an area that doesn't make it challenging for budget planning purposes. The future is uncertain. It depends on the federal government putting forth regulations and then enacting them and then the regulations. The impacts of the MCO Tax are very dependent on what those regulations could be.

So there's a lot of areas of uncertainty here, but generally, as we see it, the most fundamental way the Legislature can ensure budget capacity is really part of its overall budget deliberations and sort of ensuring that it has an out your plan, to the extent that there is a smaller tax, ensure there's capacity to backfill that shortfall.

Thank you. I want to move on a bit to the rate methodology. So I appreciate that DHCs is proposing not just the rate increase, but the methodology around that, just to kind of bring it back to real time. I happen to have a lot of FQHCs in my district. I've visited with them for years. One of the critical concerns that they have is the methodology associated with their payment. This is something that we hear not only from the FQHCs, but providers.

Anyone who's dealing with CalAIM is a very complicated system where they don't have the ability to actually, with very narrow margins, kind of front the state in terms of payment. So to the Department, why have you chosen to restructure the way Medi-Cal pays certain providers? Are these proposed changes informed by stakeholder input? And if not kind of more robustly, how will that happen, and how will these changes benefit the program?

So with regard to the proposal related to our FQHCs and rural health centers, we work very closely with the providers on that piece of it. So we are proposing to augment an existing program and really kind of keep the program as it is, but augment it and pay for it a little bit more efficiently through a directed payment versus a fee for service utilization. It really is a mechanism by how we kind of pay for it.

The current process is pretty manual, and by doing it via the managed care directed, it becomes a little bit more automated, but really maintaining the existing program and adding additional dollars to it. So it's really not a change to how they get this piece of this program's funds, but it's an augmentation.

I think what I've heard is that there needs to be a change to it. So I'm hoping that we can work to.

I think the change they want is to turn it into a directed payment, which we are proposing to do.

Great. Thank you. I want to address the equity payments. I'm very intrigued and excited about this idea of ensuring that we have a way to be able to support different physicians and non physicians through this different professional service code. I am curious, though, about how we will measure the overall outcomes associated with these proposed equity payments and what the specific metrics we will use to demonstrate that these payments have the intended outcome that we hope. And also, is the formula intended to close racial disparities in access to care?

I can take this one. So, to your first question with respect to measurement, I think that's an area, as part of broader conversations with our stakeholder partners regarding equity, that is an area that we would look to have further conversations about.

One of the challenges that we need to address when it comes to evaluation is really attempting to disentangle the impact of one particular component of this proposal versus others, as well as more broadly disentangling the impact from larger changes, either in the Medi-Cal program, for example, the transformation that CalAIM brought about and continues to bring about, as well as other initiatives within Medi-Cal, and then broader changes in the healthcare, in the healthcare space.

But it is something that we have heard feedback on and would look to continue to explore and discuss with our stakeholder partners. In terms of the mechanism for the equity adjustment and whether that would look to capture, for example, racial disparities, we are envisioning an equity adjustment that leverages a multitude of data sources to essentially develop a composite index.

Those data sources would look at a variety of factors such as healthcare worker shortages within a particular geographic area designation, urban versus rural versus frontier designations, but also broader measures of social drivers of health, such as the Healthy Places Index, which we have looked at closely and highlighted as one potential option within our policy paper to really be able to bring together multiple sources of data that get at the issue of equity and help identify those areas of the state or those parts of the state that have the largest equity needs in terms of health.

Looking forward to that. And I know that our Chair has been leading the Legislature for a very long time, particularly around the social drivers of health index, and so I'm thankful that that will be considered, and I'm sure timing will dictate a lot of this. I have just one other question and then I'll move to the Chair and maybe answer some after if things don't come up. I'm particularly interested in the Distressed Hospital Loan Program.

So we know that we allocated 200 million across the Distressed Hospital Loan Program in the small and rural hospitals for seismic relief associated with the MCO Tax. It was one time fund for sure. My understanding is that those two programs have been fully expended and we have several hospitals that didn't necessarily receive a loan program that fully meets the need that they have. And we have a whole set of hospitals that either did not qualify or did not receive funding from the first tranche of funding.

My main concern is that I've talked to some legislators and providers where essentially there could be a situation where we have people traveling up to 2 hours for hospital care should their particular hospital close for having not received any funding related to the Just Hospital Loan Program. I'm particularly concerned about it as relates to maternity wards and the lack of access to be able to have that available.

So just want to put on the table for your consideration that we have a broader conversation around the Distressed Hospital Loan Program as we prioritize the expenditures. And if there's any comment that you can make right now about that, it would be helpful.

Do you have a colleague from the Department of Healthcare Access and Information who runs the Distressed Hospital Loan Program?

All right, good afternoon. Scott Christman, Chief Deputy Director, Department of Healthcare Access and Information. If helpful, I just was going to give a quick update with details. So, in all, we received 30 applications and 17 hospitals were provided with loan awards. This was last year. So as of today, 13 of the 16 hospitals have completed the loan transaction documents with SHAFA. Our partners and disbursements have been made totaling 222.4 million. So what's remaining? Specifically, three loans and a total amount of 70.1 million.

One transaction with Sonoma Valley should be closed in the next few weeks. And then the two remaining transactions, one for Hazel Hawkins Memorial Hospital and one for Madeira Community Hospital. Both of those hospitals are in bankruptcy, so there's an additional sort of set of processes to get through the bankruptcy court, taking more time. But beyond that, yes, the program was sort of fully subscribed, and that has been the outcome. Again, as we know, Madeira Community Hospital remains closed.

We're working with them right now, evaluating their financial turnaround plan and working together on a reopening plan there. That's essentially the status of the program as of today. Is there a particular answer or particular question I get?

Well, I know for Madeira Hospital, and there's another hospital in there. There was a bridge loan provided to Madeira Hospital to be able to kind of support the loan program. I'm sure that that will be an ongoing effort. I just want to be sure that we don't have a situation where we have hospitals in the mix that are rural in particular or that serve a critical community need.

Where we have a situation where we have an oversubscribed, fully spent out Distressed Hospital Loan Program Fund and no way to be able to address a concern around lack of access to care. We cannot, in the State of California, have people traveling for 2 hours to be able to get to a hospital. This is very personal for me. Both of my children were born, or all three of my children were born, in less than one and a half hours.

My children would have been born in a car if I had to travel 2 hours to get to a hospital. So I just want to make sure that we have some visibility into how we're going to address that need.

Yeah, please.

With respect to the bankruptcy, there is now an approved program to get out of bankruptcy by the court, and so it's essential that all of the presumptions in the negotiations. The organization has a history of coming in and getting closed hospitals back up in rural areas. This comes with the board of directors, of the hospital's approval, the board of supervisors' approval.

There had been disputes and sort of bickering and sort of political nonsense that went on early on in this, but there is now a settled understanding that the process that is coming out of bankruptcy is a solid one that has support of the hospital board as well as the board of supervisors. And I was engaged in helping my colleagues there on the hospital board. Many of them are people that I've known for years.

As well as the board of supervisors in pointing to this organization's history of being able to achieve these re-openings of smaller rural hospitals. And so there is a movement now out of bankruptcy. And so I echo the hope here that what promises were made are going to have to be promises that are kept, and this fund will be a part of a solution that has universal acceptance. The board, the court, the board of the hospital.

And so I just want to say, we better get to the finish line and have the funds that were anticipated all along. And so I join my colleague with those kinds of concerns. I don't think there's any other rural hospital in the State of California that is more significant to a larger amount of people than Madeira, because what's happening is all of the Madeira patients up in that whole area, they're getting sent down to Fresno, and it's just not working.

But there is an organization that has a history of coming in and saving and reopening those hospitals. It's coming out of bankruptcy. The judge has already approved it, just a matter of processing it out and through. And part of that is going to have to be to access the funds necessary, frankly, to keep them going, buy down some of the costs and the indebtedness and those kinds of things.

But there is a robust plan to do it, and I have confidence that the organizers of it, the court, has looked at it and signed off on it. We are having progress there of significance, and I don't want anything to get in the way of it. So I'm singing with you.

I don't mean to interrupt. I want to thank my colleagues for bringing that up. I think the issue with hospital closure is real. It is one that those in the healthcare profession have been discussing for a very long time. Grateful for the Hospital Distress Loan. But we know that that one time funding is not necessarily going to sustain all of our hospitals like we need it to.

But I also want to remind everyone here that we do have another hearing specifically on hospital financing and the Hospital Distress Loan on March 11. So we will be able to dig a little deeper into this at that hearing. But I'm sorry, go ahead.

Matt Aguilera, Department of Finance. I just wanted to make a couple of points. One, that, as the Chair had mentioned, the one time funding that was provided, provided material support to those hospitals that were most in need through that competitive process. And my second point would be that, as you're aware, the General Fund outlook has not been favorable since January. So we're going to have competing demands for scarce resources during this budget cycle. Thank you.

I recognize that. I just think that when you destroy, well, when we allow for our hospital infrastructure to be decimated in particular areas, it's much easier to try to keep a hospital open than it is to have it close and then reopen. And so part of this is just kind of understanding the implications in particular areas. I'll move on from the point.

I just wanted to highlight that for me, this is a very critical concern that I'm hoping we will continue to work in partnership with the Administration on moving forward. And with that, I will hold the rest of my questions here.

Well, first of all, I want to thank everyone on the panel. Given the time, I will cut down my questions to just a few. There was a question that was in the packet that wasn't really completely addressed dealing with the issues currently with accurate payments going out in a timely way with existing supplement payment pool. Understand that the proposal will help the future, but right now, how are we going to address the problems that we're having right now before we implement these new proposals? Do we have any thoughts on how we're going to address the current problem?

In particular, I think with respect to your broader question of addressing those payment challenges, essentially between now and the implementation of the new program, when those payments take over, we are working closely with our provider partners, including with California Primary Care Association, to really understand the challenges that community clinics are facing with respect within the context of this program and to try to identify and resolve those once they arise, but also to try to identify and address them before they arise if possible. So we do intend to continue those active conversations as part of the larger ongoing discussions to transition the program into a managed care directive payment.

Thank you. I would strongly encourage continued conversation so that you can proactively prevent the problems rather than having to retroactively fix them. Another question I had is we talked about the hearing aids. Will the rates for the hearing aid coverage for the children's program increase to track with the proposed crease in medical rates for the hearing aids.

For hearing aids? We are proposing to effectively increase the cap, the individual cap on hearing aids that is in place currently because hearing aids do not have, there's not really a Medicare equivalent for hearing aids. We're not able to exactly benchmark hearing aids to a particular percent of Medicare, but instead are proposing to raise the existing statutory cap on hearing aids for, for individuals.

So there is a current issue with our hearing. zero, go ahead.

Sorry. Yes, I think I missed part of your question. And yes, there is an increase for the hearing aids for a children's program.

So it will track.

Misunderstood your question.

Thank you. Piggybacking on Assemblymember Bonta the issue of equity payments is a very novel idea. I have two questions around it. One, have you all seen anything else like this in the country, any other state doing something like this in the country? And two, when you develop your measures of outcome, what are you looking at? What would be the outcomes that you're looking for, and how often are you going to be reporting to the legislature on such outcomes?

So I would say our reporting on outcomes related to disparities in health equities. As the deputy director mentioned, there are many initiatives that the department is undertaking with regard to reducing disparities.

So the ability to isolate kind of this program or this initiative or this program and this initiative, it will be very difficult I'm not sure, even if possible, because we have a lot of, we have the health equity and practice transformation grants, we have our comprehensive quality strategy and all the work we're doing with our managed care plans. And so we will report on these metrics annually, but not necessarily related just to these targeted rate increases in the health equity bump.

It is kind of a broader conversation of every effort that the department is doing to reduce disparities across the state. And really kind of, we just came out with our medical managed care quality and sanctions. And reporting on some of these data is kind of from an equity lens perspective and how we're watching the data and how we're making progress to achieve our bold goals for 2025 with regard to reducing some of these specific metrics.

Okay, then can you go into further detail when you talk about your proposed equity payments? What exactly are you referring to then, if it's so complicated that you can't really single out to determine. Okay, these are the outcomes that we're looking for. So can you please explain to me what do you mean by your proposed Equity Payment Plan?

For example, let's just use, for example, primary care rates. We're proposing to bring those to 100% of Medicare, applying an equity enhancement on top of that. Some of those rates might get to, let's just say, for example, 110% of Medicare, recognizing that maybe a small provider practice, inner city or kind of an urban health desert may be serving 90% medical members and so they're not able to cross subsidize. We want to grow their participation in the medical space.

We want them to have the funding that they need to support the medical Members in their community. So it's this recognition that some providers in our communities may need a higher bump. They may need to get more than 100% of Medicare just because of kind of the communities that they are embedded in.

So are you envisioning that this is something that the clinics, hospitals, providers would have to apply for, or is it something that you all would recognize and say, hey, this clinic over here has a really imbalanced payer mix. They may be on the brink. Maybe we need to give them a little extra. How are you envisioning that?

That's it. Kind of of the factors that we're going to try to look at and we're going to be engaging with stakeholders. But our initial thinking is looking at health profession shortage areas, rural frontier, urban health designation Healthy places index quartile 1 and 2, and bringing those data sources together to do this adjustment on rates.

Thank you and finally, how would your proposed transition to supplemental payment pool and managed care affect the program, and would the program have the same recipients?

The scope of the program in terms of provider eligibility, we are proposing to keep the same. So we're not proposing to change who would be eligible for the program, really just to change the payment mechanism from the existing fee for service delivery system supplemental payment program that is essentially calculated and paid on a retrospective basis to a managed care directed payment arrangement where we would be able to essentially develop and require medi Cal managed care plans to pay on an ongoing basis as services are provided and claims are received, to make add on payments to eligible FQHCs and RHCs and ensure that that revenue is flowing.

And that would be the utilization based component of the payments. And then the performance based component of the payments would be intended to function as a balancer, essentially at the end of a year or at the end of a program period to look back and say if the total payments that went out were, for example, less than the total available pool amount that was anticipated, we would look to leverage that performance based component to provide additional required managed care plans to provide additional performance.

Based payments to community clinics that met designated metrics to be developed between now and the implementation of the program.

Thank you. Once again, thank you to our first panel. If any of you are able to remain in the hearing room in case we have follow up questions with the second panel, really appreciate that, but we at this point are going to move to our second panel.

Our second panel includes Stuart Thompson, Senior Vice President of government relations for the California Medical Association. Erica Murray, President and CEO of the California Association of Public Hospitals and Health Systems Dennis Cuevas Romero, Vice President of government affairs for the California Primary Care Association Mark Farouk, Vice President of State Advocacy with the California Hospital Association. Lisa Matsubara, chief legal and advocacy officer for Planned Parenthood of California. We don't have enough seats for everybody.

We'll let you all go ahead and start, and then we will move to our other two. Since we are limited on seats, we'll start with Yep.

Members. Stuart Thompson with the California Medical Association. I want to thank you for having this meeting and giving us an opportunity to talk about our perspectives as it pertains to the MCO tax deal. Last year, this Legislature, along with the administration, passed AB 1119, which reflects the largest investment in the medical program in existence. For us on the physician side, we have not seen base rate increases. We looked this up since 1998.

Since that period, the medical program has grown exponentially in terms of the patients, the Californians that it covers and has expanded benefits to result in one of the most beneficial MediCal programs in the nation. For us, one leg of that three legged school reimbursement rate to the providers has not kept up. And the important part of the MCO deal from last year is it's the Legislature was the first time that we really addressed this.

And I think for us, access within the system, throughout the state is a huge problem. And the overall goal that we want to address with this tax deal, when we look at this, our overall goal is to increase providers participating in the system. That means getting physicians who haven't participated in the MediCal program into the system and allowing physician practices that may take only a certain amount of MediCal based on their financial conditions, to accept.

More MediCal that what they need in order to expand those roles is clarity from the state as to where exactly those funds are going to go. Have it be transparent as we flow from the state to the managed care plans to the providers. Sometimes that system can get a little bit gummed up, and it takes a long time for the providers to actually see those rate increases.

Just for example, last year, 2024, the state and the administration did pass new rate increases as it pertains to primary care. The vast majority of the providers who are eligible for that money will first see that increase in December of this year. And so there's about a year and a half, a two year lag time. By the time the state might pass an increased reimbursement rate to the time we actually see that hit the ground, the providers actually see that and can expand their practices.

So overall, we do want to thank the administration for their proposal. This is in line with the deal that we were all agreed upon last year, and we would urge the Legislature to keep the framework of the MCO deal that we reached last year intact, largely because the providers in the state do need some stability and they need confidence that they do expand their roles and they do accept more medical patients, that their practice will be able to accept that increased population.

So for that, we're here to answer any questions. Obviously, there's a lot of details that we still need to figure out as far as the tri proposal, how exactly that money is going to flow out. But we want to thank Director Boss and her team for the ongoing dialogue.

We've had a great dialogue with the administration, her department, so we look forward to working with them as we finalize some of these details with the overall goal of ensuring that these funds flow in a manner which expands access the most within the system. Here to answer any questions, thank you.

Good afternoon, Madam Chair and members of the committee. My name is Erica Murray. I'm the President and CEO of the California Association of Public Hospitals and Health Systems. We represent the 21 public healthcare systems across California that are mostly county owned and operated. We also represent the five University of California health systems, three of which used to be the county hospital. Together in statute and for purposes of the MCO tax, these are referred to as designated public hospitals.

We refer to ourselves as public healthcare systems primarily because we are more than hospitals. We provide a comprehensive array of primary, preventive, specialty, emergency, trauma, and training services across the state because of very low medical rates. The MCO tax represents a huge opportunity to help support public health care systems to maintain access for low income and marginalized communities. And we are very appreciative with the governor's proposed budget that it protected those MCO tax dollars even in these difficult budget times.

As has been mentioned, we especially appreciate that the MCO tax targets $150,000,000 specifically for designated public hospitals and wanted to explain to you how that came into being. There's two real reasons. The first is that many of our, if not almost all, of the primary care services that public health care systems provide are in public, federally qualified health centers. FQHCs, which has been explained because of the way FQHCs are paid.

We cannot benefit from the $291,000,000 bucket that began in 2024, nor the $975,000,000 bucket that begins in 2025. And yet, those primary care services are so essential to support to make sure that low income communities have resources to prevent them from needing to go to the hospital in the first place. The second reason that the designated public hospitals have their own called out bucket is it's a reflection of conversations that we have been having with the administration and the legislature and many stakeholders for several years.

The public healthcare systems are staring at a three to $4 billion deficit, primarily due to the fact that we put up billions and billions of state share. And it is why this $150,000,000 is included, and it is why it is proposed to replace this local share of 150,000,000 with state general fund through the MCO tax.

Anytime we can swap out local supplemental sources for state general fund that helps stabilize financing for public healthcare systems, and we are comfortable and supportive of the concept of converting our payments for MediCal fee for service inpatient to a diagnostic related group or DRG based structure to move towards a value based payment. As has been mentioned, what we have concerns about is the proposal to potentially eliminate or phase out the cost based supplemental that would accompany such a payment, a DRG payment.

The 150,000,000 would come nowhere close to covering our costs. And so if we eliminated or phased out that other supplemental, we could find ourselves in a situation where some public healthcare systems could actually lose money. We have been encouraged by the conversations that we're having with the department that that was certainly not their intention, nor anyone's intention. So we're hopeful that these concerns will be addressed in the coming weeks and months.

We also, specific to the services that public healthcare systems provide expect to benefit from other buckets in the MCO tax as to reflect that broad array of services that we provide. Training, emergency room services, trauma burn, you name it, public healthcare systems pretty much provide it. So we look forward to having conversations with you and the department and others about how that participation will look. Thank you for the opportunity, and thank you for your lead ship.

Good afternoon, Madam Chair and Members. Dennis Cuevas Romero, Vice President for government affairs at the California Primary Care Association. Thank you so much for having us. Really just want to appreciate the administration's work on elevating primary care and the investment in primary care. We all know that investment in primary care really does save the system dollars and really focuses on health equity. So really appreciate that and we hope to continue working with the Administration and the Legislature to keep that focus in primary care.

I do want to mention, really appreciate the conversation that we've been having with the Department on our supplemental payment pool and the issues that health centers are trying to resolve with the Department. We really appreciate the engagement with the Department in trying to resolve those issues. There are some outstanding issues, as the Department mentioned, and we hope to continue those conversations to try to address those issues as the chair mentioned. Right.

We want to make sure that those issues are resolved before we transition to the directed payment and really do want to appreciate our continued work with the Department. We have been having conversations with the Department for the past year to transition that to a directed payment because we do see the value in ensuring that it's based on quality incentives and that there's a more efficient way of getting the funding out. So we really appreciate the opportunity to be here and happy to answer any questions.

Thank you.

Thank you. Madam Chair, Mark Farouk on behalf of the California Hospital Association, California's hospitals provide a critical source of care for the nearly 15 million vulnerable Californians that are covered under medical we already know, as we've had a discussion here today about low reimbursement rates in medical that do not cover the cost of providing care, while at the same time hospitals have experienced huge pandemic related losses, unprecedented inflationary pressure, and severe workforce shortages, all factors contributing to over half of hospitals operating financially in the red and one in five hospitals at risk of closure.

Given these acute challenges, we appreciate and commend the Governor and the Legislature for coming together to reauthorize the managed care organization tax to provide this crucial funding for the medical program. And we also appreciate the Governor maintaining his commitment to using the $2.7 billion annually in MCO tax revenues to improve access to medical despite a significant state budget deficit. This funding is vital and necessary to support the medical program and the work of hospitals and other providers to provide patient care and access.

As we all know, hospitals face an ongoing emergency room overcrowding crisis that has persisted since the Covid-19 pandemic. Improving funding for emergency room access is foundational to relieving the burden currently on hospital emergency rooms, a burden shared by staff and patients alike. Medical outpatient services reimbursements base rates have been neglected far too long, resulting in enormous payment disparities with other types of coverage, harming access to critically needed complex care.

Based on DHCS's own reporting in managed care, base level reimbursement for outpatient services, including emergency departments, is less than 33% of Medicare. The growing behavioral health crisis contributes significantly to emergency room overcrowding. Today, one in five ER visits involve a patient with a behavioral health disorder. Given the lack of alternatives to emergency departments and post hospital care options, we see every day the challenge of ensuring that patients get access to the behavioral health treatment they need.

The behavioral health allocation in the MCO tax is a key piece of the significant changes California is making to improve access to mental health care for Medical patients. We have a critical shortage of mental health beds at all treatment levels. We would encourage swift engagement and discussion with hospitals to ensure that we meet this need without further delay. DHCS's proposed methodologies are complex and critical details do remain outstanding.

We are hoping for focus and substantive engagement with the Department to address these complexities, fill in the missing details, and partner with them to ensure smooth and swift implementation. The first step to getting hospitals on a stronger financial path and protecting patient access can start with successful MCO tax implementation. Addressing these existing problems with hospital reimbursement and Medical is extremely complex and important work, and we look forward to working with the Department, working with the Administration, and working with you to finalize this plan. Thank you.

Thank you. I will now have Matt Lege relations, advocate for SEIU California Council, and then we'll also make room for Linnea Koopman, Chief Executive Officer of the Local Health Plant of California, and we will go with Lisa.

Junior and chair Members of the Committee. I'm Lisa Montevara. I'm the Chief Legal and Advocacy Officer at Planned Parenthood affiliates of California, representing the seven Planned Parenthood affiliates that operate over 100 health centers throughout the state. With over 1.3 million patient visits annually, Planned Parenthood is committed to providing equitable and affordable access to the full range of sexual and reproductive health care and is a trusted community provider for medical and family packed patients.

In fact, those patients represent 80% to 90% of the patient volume of our affiliates. While abortion, family planning, STI care and other preventative services are the core services of Planned Parenthood, the affiliates do provide an expanding range of additional services that better encompass their patients'needs, including non specialty behavioral health, gender affirming care and primary care.

Planned Parenthood is part of this coalition to advocate for the new MCO tax that provides a sustainable funding solution to ensure that patients that rely on Medical can receive high quality, affordable, appropriate and timely care.

We're grateful for the commitment and the collective work of the Legislature, the Administration, and the Department to implement this multi year spending plan that offers sustainable, predictable and long term funding for Medi Cal providers in a way that truly transforms the quality of care patients receive and reflects our state's commitment to health equity.

With regards to the department's 2024, 25 proposal for the targeted rate increases, specifically as it relates to family planning and abortion, we support the proposed increases to the base rates for abortion services. We know that improving medical reimbursement for abortion will serve to strengthen and expand California's network of abortion providers. A recent study by Gutmacher underscores the critical role that Medicaid has in improving and addressing inequities in access to abortion.

We also applaud the department's proposal to rely on base rate increases rather than supplemental payments to improve overall reimbursement rates and reduce administrative burden. While supplemental payments have been crucial for abortion and family planning services, our affiliates have faced considerable challenges in obtaining payment in a timely manner and as a freedom of choice provider. Planned Parenthood continues to primarily be dependent on Medical service rates, which leads to considerable administrative burdens not just for our affiliates, but also for the health plans.

Planned parenthood is eager to be part of the Medical transformation and is actively exploring new clinical and funding models that will move them towards a value based reimbursement model that integrates with the department's vision for Medical's future. There is a critical opportunity for sexual and reproductive healthcare providers and Medical to help the state meet key quality metrics for maternal health, STI, cancer screenings, and other gaps in health equity.

Accordingly, we urge that the Department also allocate funds to family planning investments that maximize the impact of the MCO tax through federal matching for family planning services. And we appreciate the department's willingness to continue conversations about how to operationalize proposed investments for abortion and family planning in a way that best supports California's medical beneficiary beneficiaries and furthers the inclusion of sexual reproductive health care providers in the medical transformation. I appreciate having this opportunity to speak today, and I will be available for any questions.

Thank you very much, Matt Lege on behalf of SEIU California and our 700,000 Members here to speak in support of the administration's proposals here, or many of them really, on the MCO tax.

I would echo a lot of the comments of the panel and that we think that this is an incredible investment in the state's Medical system, which has expanded to more than 15 million people covering the State of California, about 40% of our population, which is just a fantastic number, to make sure that we're doing all we can on access. But we also want to make sure that we're delivering on that promise of access and delivering on care.

Specifically, we want to make sure that as we're looking at this, we're including standards for quality access workforce, those things that we want to make sure that when the money gets out the door, it's actually lifting up and serving these patients well.

So additionally, I did want to echo the comments around my colleague here on the Public Hospital Fund to make sure that we're addressing that and do want to also commend the Administration for early engagement on that and their thoughtfulness to try to move through to make sure that we're supporting our public hospital system, healthcare system, in addition to that, to make sure that we're delivering on access to care. Of course, we need to make sure that we have enough providers.

And so we see that with the $75 million in graduate medical education, which we think is a fantastic investment, California has the distinction of having the highest rate of retention of people who do their residency program in California. 71% of them stay in California. That is the highest rate of the country. And so we do a great job. Once we train them, we have to keep them here.

And so this investment is going to expand that opportunity to actually keep people in California so that we can have our physicians to meet our growing care demand. In addition to that, we also see $75 million with the medical workforce pool. And so that would go to labor management cooperation committees to do some of those local industry driven training solutions that would actually meet the needs, whether that be Spanish speaking allied health professionals or training up LVN to RN.

There's a number of programs that could happen that really, once workers and management come together, they could design the programs that are going to be attractive, that are going to make sure that workers are advancing their career or bringing new workers into the healthcare industry, because we do, as we mentioned from the California Hospital Association, have an incredible shortage, that we need to attract more people into the workforce. And so we do think that the 75 million is a really important investment for that.

So I did want to highlight just a couple of those also did want to particularly throw our support around the administration's proposal to maximize federal funding by getting another 1.5 billion, or at least attempting to, because we think to the maximum extent you can try to bring down federal funds to support our program, we think that's absolutely vital. So with that, I'll just really summarize by saying we think overall, for the first time, we're really investing in the MediCal program, which we think is fantastic.

We think that these investments should result in quality care. And we want to make sure that those standards, to make sure our clinic partners, our hospital partners, all of them, are meeting those standards of increasing access, or physician partners increasing access and delivery of care, and think that the workforce investments are critical to realizing that promise. So thank you very much.

Great good afternoon. Chair and Committee Members Linnea Koopmans I'm the CEO for the Local Health Plans of California. LHPC represents the 17 local community based medical managed care plans that collectively serve over 70% of all MediCal managed care beneficiaries in 51 of California's 58 counties.

Since last year, LHPC has been a Member of the coalition of plans, providers and workers that have joined together to advocate for reinvesting MCO tax revenue back into the MediCal program to improve quality and access to care for the one in three Californians that rely on MediCal. We commend the Administration for its proposal to continue to include investments that we're committed to during last year's budget process, including significant new funding for primary care, specialty care, hospital care, community clinics, and workforce.

Because the local plan serve nearly 10 million MediCal enrollees across the state in their local communities, we have unique insight into the needs and challenges faced by our system. The MCO tax funding is critical in the short term to support increasing provider participation in MediCal, and it's critical in the long term to support the ongoing viability of the MediCal safety net and the pipeline of future MediCal workforce.

MediCal managed care plans are the linchpin in the success of the targeted rate increase proposal in the Governor's Budget. The plans are responsible for contracting and paying providers for a broad range of services delivered to MediCal beneficiaries, including nearly all of the providers included in the MCO proposal. Given the complexity of the MediCal delivery system, including capitation and delegated arrangements, even seemingly simple rate increases have significant implications for implementation.

Since the initial rate increases were approved as a part of last year's budget, local plans have worked closely with DHCS to discuss how to best operationalize the rate increases in managed care. As the Legislature continues, to considers the proposal to increase funding for many different medical services and providers in 2025 and onward, we urge the consideration of the following principles. First, access and quality.

The funding should lead to visible improvements in access and quality in MediCal meaningful impact that the funding should be targeted in such a way that it changes provider behavior and third, simplicity and expediency. The funding should be administered through known financing mechanisms so that it can efficiently flow to providers. We are aligned with the administration and wanting to ensure that the financing mechanisms for the provider rate increases will improve access and quality in MediCal.

However, the details of the mechanics of how to achieve these goals are very important and we recommend there be consideration of opportunities to reduce the complexity of the proposed rate increase methodologies. As mentioned previously, local plans have been working closely with DHCS on the important implementation details, and we look forward to continuing to work with the Department to simplify its approach while allowing plans a degree of flexibility to respond to local provider needs, shortages and specific disparities in care.

I'll close by saying that we really do appreciate the commitment by both the Administration and the Legislature to using the MCO tax as an opportunity to make an impact for MediCal beneficiaries. Thank you.

Thank you, Assembly Member Bonta. Do you have any? Well, I do actually. I'm going to go ahead and ask you my first question. You just talked about reduce the complexity of provider rate increases. Can you elaborate on that a little bit?

So I think, and we're learning, I think, from the experience of the rate increases that were approved in last year's budget. And I think on its face, it's a simple and elegant policy solution to increase the medical fee schedule. As has been discussed, the last time it was significantly updated was almost 20 years ago. However, 99% of medical beneficiaries are in managed care and the constructs for financing are of course different. The state pays plans, capitation plans pay providers either fee for service or capitation.

And then there's delegation. And so I think we are hoping and are working closely with the Department and our provider partners to think through. Are there opportunities to kind of streamline or simplify where possible so that dollars can get out the door and make an impact in access, which is what our shared goal right. So that's hopefully that helps illuminate a little bit of what I was saying about the complexity.

Thank you. And if we can have Stuart Thompson come back up, I just wanted you to elaborate for me, a little bit more on the issue with the funds actually getting to providers.

It's kind of part and parcel of the same topic we're just discussing part of. And Linnea might be able to answer this more eloquently on the plan side, but as part of the capitation rate, they have to basically build in the supplemental payments. There's usually accounting that happens towards the end of the year. Oftentimes different plans have different ways of doing this. So oftentimes there might be an interim payment.

They wait till the end of the year to kind of reconcile that when they do the books. But generally speaking, on the supplemental payments as it flows through managed care, there's multiple different managed care plans and they each have a slightly different system. So some of the plans, some of that money will be flowing earlier, but there's an old plan letter that just went out that basically said these payments have to happen generally by December.

And our experience is with this and both with the Prop 56 payments, which were supplemental payments, there is often about a year and a half lag. So the providers wouldn't see that money until often a year and a half, two years after the service was provided. And our concern with that is kind of to the point it didn't effectuate change in the way I think we would have liked to see. So it's nice that supplemental payments can be targeted.

You can go in and make sure that they flow exactly to where you want to. There's often a lag, though, so there's a trade off between going at a base rates and focusing on supplementals. And I think looking at the amount of funds we have available and kind of our experience making sure that if it is a supplemental payment, we have to do it in a manner that's quick. The provider knows what is eventually going to get to them, which I think is really important, too.

Sometimes there's confusion as to what services might kind of get the rate or how much they might get at the end. So it's very technical. And I will commend the DHCS for working with us and trying to think through balancing, making sure we have targeted payments that go to increasing the most impact, but doing it in a way where the providers actually maybe change their behavior.

Thank you, and you know, one of the things that was discussed in the last panel with the LAO is just the uncertainty of what will come once these funds are no longer available. With this current MCO tax and with the new budget, we're actually cutting it down by one year. So just wanted to kind of hear from this particular panel on your thoughts. Concerns anyone?

I'll take the first crack at it. I'd say that's a real concern. Obviously, we don't want to create a scenario in which we have a program that goes for four years and then we reach a cliff. I think the Administration has had that concern. I think the coalition, too has had that know there will be an opportunity to renew the MCO tax in a number of different manners.

And so I think as a coalition, as a state, we have to determine where the feds are going to be at in three or four years when potentially the MCO tax could be renewed. But I think there's definitely a pathway to renew the tax at a later point when it does expire. And I think at that point we'll have to grapple with what are the actual financial scenarios that are present at the time.

At this point, we would say we're dealing with a little bit of a hypothetical situation. So it's a real concern. It's one down the road, that one we're taking very seriously, and we'll look forward to working with the Administration Legislature to make sure that we don't create a cliff for the providers based on this.

And if I could just add to that, I think absolutely agree. It is a real and legitimate concern. Also, I think to the points made by Director Boss earlier, in order to make such significant changes that we would see a huge reduction in the tax revenue that we were able to benefit from from having an MCO tax, CMS would have to go through the formal rulemaking process. There are many other states who have similar taxes in place.

And so I think even if those changes are proposed, I guess the point is there's a long runway in a process to see if and how they ultimately are implemented.

Thank you. And my final question, a few of you can probably answer it. This is a huge investment in our MediCal system that is long overdue, and I'm very grateful for the Legislature and the Governor working and all of the stakeholders coming together. However, one of the things that came out last, when we were discussing this before is the fact that we're not really making the entire healthcare system whole. And I'll just give an example.

When I came back and I started practicing in San Diego, there was an issue with being able to find Gynecology Oncologists. Those are gynecologists that specialize in treating cancer. Very difficult to find those kind of specialists that would take MediCal so you can have a primary care provider who can diagnose your heart condition and say you need to go to a cardiologist.

But if it's hard to access a cardiologist because we haven't figured out how to touch that specialty, how are we really improving on our overall health care system? So we would have patients and I'd be like, I don't know where to send you. There's only so much that I can do, or anyone can do if you don't have access to specialty physicians as well that are not covered in this.

And so just wondering from your different perspectives, if you've heard anything, if you're concerned about anything, because this is an access issue as well.

I think it's an incredibly important point and one that we should constantly keep in mind that the MCO tax is a huge opportunity and one that we have not been able to consider for decades, as been mentioned, and is only one piece of what will have to be a much larger solution. That you're exactly right. If we just congratulate ourselves on this piece and then think that the healthcare safety net system in California is going to be fine, we will dilute ourselves. So it requires an ongoing conversation and ongoing problem solving with all stakeholders in the Department and the Legislature for years to come.

Thank you. I just want to put that out there for everyone who's watching, listening in the room. We're on the path to progress, but we are not there yet. And if we do not make our entire health care system whole, we will continue having the same health disparities that we are seeing and potentially even worse. So Assembly Member Bonta.

Along those same lines. And maybe this might be for Mr. Lege from SEIU as well. We recently held a hearing on ensuring that we had the kind of necessary diversification of our workforce, healthcare workforce. Know that we essentially, across the different kinds, types of healthcare providers, we need to produce about 90,000 diverse providers a year in the State of California. So we have a very long way to the chair's point in making sure that we're moving towards progress on overall workforce.

This 75 million for the medical workforce to increase the medical workforce pool or the 75 million for our universities is a step in the right direction, but not complete enough. Is there an opportunity to speak either from CMA or from SEIU around the ways in which we need to make sure that we're diversifying that work pool in a way that we have concordantly and culturally competent providers available?

So I really appreciate that question and I appreciate your Committee holding that as well. It's of course, an incredibly important issue to make sure that you're not only providing care, but culturally competent care. I mean, that's the thing we have to do. HGUY just released some of the best data I've seen. I've been following this issue for a long time on the shortages by provider type of language.

And I was looking in LA and it was 15% difference from the number of providers who speak Spanish versus what our need is of the general population. So something of incredible importance there now $75 million for both or 150 for both is a good investment in terms of graduate medical education and also for the labor management cooperation committees through the pool. We think particularly the LMC piece will give that opportunity to target.

So, for example, in LA, if you're looking for more Spanish speakers, you could target programs looking at incumbent Spanish speakers and try to train them up to become nurses, to become mental health professionals or other types there. It's not specific, or at least the conversations haven't been specific around the types of money that the LMC pool could focus on. But we also do think in Sacramento, potentially, you have a little bit of a different demographic.

So one of the things that, at least from an SEIU perspective, we like about the proposal around the LMC is it does allow you to regionalize a little bit what you would do. So it's not a one size fits all where you could say, hey, maybe in Sacramento we had a huge need for Mong providers or Mong speakers, we could focus the investment that way depending on sort of the industry needs. So that's why we're really in favor of that.

I wish I could tell you how much money we would need for that, but it's a growing problem that didn't happen overnight, and it's going to take a long commitment to make sure that we get there. We think that this is a good down payment, but we need to do more, and we'll continue to do that.

The last thing I'll just say on that, particularly on the LMC side, we think that this is an opportunity to set up these programs where in California we have up and down budgets. And so what we saw on the other side of the workforce side is a lot of cuts on a lot of our workforce investment.

And so one of the things we want to do is make sure that the industry is really at the table, buying into it, because, you know, one of the first conversations we had was really around the need for the workforce. And if we have this shortage, we really have to bring folks to the table and say, how are we going to address this in the long term, particularly coming out of the pandemic when we have so many workers that are just saying, enough?

And so we think this is a good opportunity, but this is the start, and it's going to take continued commitment.

Quickly. I just add on the physician side to your point, this is going to be a long issue. It's a big issue that we're facing right now. CMA sponsored a bill last year that basically allows language courses to be used for CME. So you can just take straight language courses as part of your continuing education requirement. Our continuing medical education, there's a cultural competency element that is contained in each CME course, but that's often post pipeline.

Actually, we're kind of addressing things kind of down the line. I'd say the graduate medical education funding within the MCO tax proposal is crucial. What we have used this money for is typically residency programs. It's been large teaching hospitals where most physicians go to do their residency. This funding has allowed us to maybe do a rotation out in a clinic in a rural area and try to find nontraditional settings for residency programs.

One, the resident is a practicing physician, so that gets them out in the workforce already. And two, strong correlation between where you do your residency and where you end up practicing. And so we would like to build on that. If we could kind of figure out a pipeline where we're training people from their own region, maybe there's a local UC that they can go to to work on it, then we have a graduate medical education program that kind of returns them to that community.

So we've been trying on it. But to your point, there's a lot more work to be done. So we'd love to come with your office and figure out ideas of how to make it better. Thanks.

Thank you.

Can I add a little bit to that, just to point out that, Madam Chair, to your point, too, on making sure that it's not just coverage, that we do need to have true access to the actual care, helping patients be able to get to their appointments, be able to have appointments available. In terms of the pipeline, I would like to make sure that we include community health workers as well as other workers, such as doulas.

Those healthcare workers are crucial to our patient population in accessing care, helping them navigate the healthcare system, which we all know is incredibly complicated, even hard for folks who work in health policy to be able to navigate. And so as we start thinking through pipeline with an eye towards health equity, I just want to make sure that we're including sort of non clinicians like doulas and community health workers as well.

Well, thank you so much for your responses, and I want to thank Assembly Member Bonta for that question and bringing it up. I did kind of shudder a little bit when you mentioned the fact that the vast majority of the people that we train stay here, which is great. But when we look at our med schools, they're not necessarily as diverse as the communities that they end up serving.

And so when we talk about different equity programs and how are we going to diversify our overall healthcare workfield, we may need to be a little bit more creative and think outside the box and develop partnerships with schools or outside of California to encourage more people to come in and live and practice here and serve the residents here. So just thank you so much for that question. Well, if there are no other comments or questions from Members, we will go to public comment.

If you want to have a statement, you can come up to the mic. You will have 1 minute to make your comment. Thank you.

Dr. Weber, thank you for a wonderful hearing. Terry McHale with Aaron Reed. We take care of 81% of medical, provide this discussion part of future discussions, and appreciate the governors involved in this. Thank you very much.

Priority button is on and that's why the microphone is not working. Priority button. Oh, there goes.

I think so. Almost. Okay. Thank you for having us here today. So good afternoon. I'm Richardson Davis with the California Council of Community Behavioral Health agencies and all of our members were hit really hard by the pandemic as well, kind of aligning some of my comments with what Mr. Leggy was saying earlier from SEIU. So we definitely support an integrated workforce best to support the diverse needs of Medi-Cal patients and phasing out the cost-based services to a directed payment. Then, you know, whatever flexibility is available and existing for funding services and MCO funds is supported by CBHA. Thank you.

Hi, good afternoon. Janice O'Malley with the American Federation of State County Municipal Employees. Just wanted to also echo the comments made by my colleague and counterpart at grateful to the administration and the Legislature for bringing together industry and labor and all the stakeholders to support the investment in the workforce and in Medi-Cal reimbursements. Just wanted to specifically highlight one area that wasn't spoken about is towards ground emergency transportation. AFSCME represents the EMTs and paramedics that provide service through AMR. The industry has received below-cost reimbursement from Medicare and Medicaid payers. About 50% of transports receive below-cost reimbursement and this under-compensation of care really inhibits the ability of these firms to meet costs like wages to pay for gas, to stock the rigs. So just wanted to again thank the Legislature and the administration for maintaining those investments. Thank you.

Good afternoon, Madam Chair. Connie Delgado, on behalf of the District Hospital Leadership Forum, these are the 33 district and municipal hospitals in the state, standalone facilities, and we appreciate the administration's continued commitment to using a portion of the MCO proceeds for the medical rate increase. We believe these investments are critical to the state and the healthcare delivery system, especially for counties like Tulare, where 60% of the population are enrolled in medical. We see this as a really important step forward. We urge the continued commitment to these target Medi-Cal investments and we also would like to ensure that district hospitals continue to be eligible for these funds. Thank you very much.

Good afternoon. Katie Layton on behalf of the Children's Specialty Care Coalition, we represent over 3000 pediatric specialty physicians throughout the state who are critical safety net providers for children and youth with medical complexity. On proposal one, we support the state's proposed effort to increase the MCO tax by $1.5 billion. On proposal two, we are concerned about the fund shift from provider rate increases into the general fund as predictable and sustainable rate increases are critical to the Medi-Cal provider network.

On proposal three, we're very pleased to see the focus on specialty care in the 2025 targeted rate increases. The pediatric specialty care workforce is ailing from chronic underfunding over the last 20 years for a number of pediatric subspecialties. 50% of fellowship slots are now going unfilled, and families across California are feeling the results of the effects of the resulting access challenges.

So we thank DHCs for proposing to raise ENM codes for specialty care office visits to 100% of Medicare, and the inclusion of the equity and geographic adjustments. Without further detail, though on the other procedure codes included in the spend plan, we do remain concerned that greater investment is needed to stabilize this network, improve the pipeline, and move the needle on access. So we have submitted some more specific recommendations to DHCs and look forward to working with the administration and the Legislature over the coming months. Thank you.

Good afternoon. Abby Alvarez with the California Association for Adult Day Services, which serves 35,000 vulnerable Californians living at the intersection of being low-income, elderly, and disabled. First, CAADS supports the policy described within proposal three, bullet three in the agenda that creates the medical fee for service rate as the floor below which managed care cannot pay. This is something we've been working to codify within our provider network, as we have found several MCPs are paying below the floor at the current moment. Secondly, the CAADS provider network is not part of the MCO tax deal and desperately needs rate relief. CBAA, or community-based adult services, has not had a Medi-Cal rate adjustment in 15 years, and the impact of that is showing today with closures and centers on the brink. Thank you.

Good afternoon, Madam Chair. Jedd Hampton, California Association of Health Plans, representing 43 Knox-Keene licensed plans delivering high quality and coordinated care to 27 million plus Californians, including 14.1 million Medi-Cal managed care members. Thank you for the opportunity to speak today and for holding this hearing. California's health plan supported an MCO tax in last year's budget because it was affordable and the revenue will be used to supplement and not supplant resources for the Medi-Cal program.

We are pleased that the governor's proposed budget is honoring its commitment to increase funding for Medi-Cal providers, which will significantly improve access to coverage for Medi-Cal enrollees. Health plans are also supportive of the administration's budget proposal to increase the Medi-Cal component of the MCO tax to generate additional revenue during our budget.

Caps members in the commercial market, as well as in the public programs are funding the managed care organization tax and will play a critical role in distributing the associated targeted rate increases. Our members are currently working with Department of Healthcare Services on making these improvements and primary and specialty care a reality through these targeted rate increases. So again, we thank you very much for the time. We do have a few other elements that we'd like to talk with you at a later date, so appreciate it. Thank you.

Sorry, much shorter than Jedd. All right, Ryan Spencer, on behalf of several clients, first, the American College of OBGYN's District Nine, appreciates the latest and long overdue proposal to increase the swap of obstetric rates from 87% to 100% in 2025. With regard to specialty care, the California Podiatric Medical Association supports a targeted strategy, as stated in the agenda, that provides uniform rate increases for professional service procedural codes, regardless of the provider specialty, such as podiatry, who are billing the service.

On behalf of the California Society of Pathologists and the California Radiological Society, we appreciate the recent comments and communications with the department regarding the TRI's application to radiologists and pathologists. However, the extent of the increase is still unclear. While the MCO proposal includes all physician services for radiology and pathology, it specifically exempts clinical, lab, and radiology services, which are broadly defined in regulation. In radiology and pathology, there are professional and technical components. Further clarification be appreciated on what happens when a radiology or pathology group who own a freestanding imaging center or lab respectfully built a global charge which includes both components. Thank you for your time.

Thank you, Madam Chair. Sarah Bridge on behalf of the Association of California Healthcare Districts. We represent the 77 healthcare districts throughout the State of California that are also public providers. I just want to take a moment to thank the administration and the work of this committee as well as the panel. Echo the comments of the district hospital Leadership Forum as well as the California Hospital Association. However, do want to mention that we share the same concern as you, that the money actually goes to addressing access to care and barrier issues that are felt in our rural communities. Thank you so much for your time.

Good afternoon, Chair and members. Andrea Rivera on behalf of the California Pan-Ethnic Health Network. CPEN is supportive of the administration's proposal to raise the MCO tax federal drawdown by 1.5 billion in order to avoid further cuts to the program. We also appreciate the inclusion of equity adjustments proposed for the MCO tax to incentivize quality and equity in care. However, we do express concerns pertaining to the lack of benchmarks that require a specific reduction in racial disparities.

No requirement for providers to participate in the data exchange framework and the lack of a rigorous public stakeholder engagement process with DHCs to develop the equity index. Without these specific parameters, the enhancements will fail to target communities based on race, ethnicity, and other sociodemographic indicators which are not accounted for in place-based index models, and we do miss the opportunity to intentionally improve racial equity in clinical care. We urge the Legislature to consider additional quality measures to support the distribution of resources and look forward to engaging with you in the process.

Good afternoon, Madam Chair. Diana Douglas with Health Access California. Health Access supports the proposed requested increase in the MCO tax along with targeted rate increases, moving us closer to 100% of Medicare with a goal to improve access for the 14 million Californians in Medi-Cal. We also support the equity adjustments and encourage thoughtful consideration of how the adjustments will be targeted to ensure the best reach into communities that are most in need. Finally, Health Access also supports investments in community health workers for the critical role they play in our safety net in ensuring they have reimbursements available to do what they need. Thank you so much.

Thank you, Madam Chair. Marissa Montano with the California Academy of Family Physicians, representing over 10,000 family medicine providers in California, CAFP appreciates the Legislature and administration's commitment to improving access to primary care and supports the state proposals to increase the MCO tax and generated additional revenue for providers in the Medi-Cal program. We do look forward to seeing more detail, especially around the targeted rate increases for primary care providers.

This is an important investment in health because investing in primary care lowers cost, improves health outcomes, and advances health equity. Right now, primary care is grossly underfunded, where national data shows that we only spend about five to 7% of healthcare dollars on primary care and California doesn't do much better. The more we invest in primary care, including bridging gaps in pay, the more we can grow and expand the primary care workforce. Thank you for your time and consideration, and we look forward to working with the administration and Legislature to ensure that California continues to build the primary care physician workforce.

Good afternoon, Madam Chair. My name is Trent Murphy and I'm speaking on behalf of the California Association of Alcohol and Drug Program Executives, also known as CAADP. Most of our members are Medi-Cal providers who provide mental health and substance use disorder services statewide. CAADP supports the MCO tax proposal as it will help boost rate increases for Medi-Cal providers and the state can use MCO tax revenue to augment Medi-Cal provider rates.

We believe these rate increases will promote greater provider participation in the Medi-Cal program, which will in turn expand the healthcare workforce. The second phase of rate increases and investments will focus on additional increases for primary care, maternity care, and non-specialty mental health services, including behavioral health care for Members in hospital emergency departments and institutional long-care settings. Thank you for your time.

Good evening. My name is Kei Yamamoto. I'm with the California Pan-Ethnic Health Network. First, I'd like to express appreciation for the inclusion of equity enhancements in the MCO tax. We'd like to urge the Legislature to use the MCO tax and already allocated but unused funds to support team-based care models like community health workers, promotors, and representatives. Groups like that are a culturally and linguistically diverse workforce.

They increase access, they play a critical role in providing equitable, quality care for all Californians, and they're severely underpaid. Their current rates only cover 38% of their total costs. So at the same time that they're providing extremely important care, they themselves are fighting against the ceiling of poverty. So we'd like to urge the Legislature to use those funds to support physicians as well as non physicians in this incredibly important work. And thank you for your work.

Good afternoon, Madam Chair, I'm Bryce Docherty. On behalf of the California Orthotic and Prosthetic Association, we're requesting MCO tax investment in orthotic outpatient services for our most vulnerable medical patients that are suffering from an amputee to limb loss to limb indifference. According to the Journal of Neuroengineering and Rehabilitation, patients who received timely orthotic and prosthetic care had comparable or lower total health care cost than a comparison group of untreated patients.

Specifically, patients who received lower extremity orthotics or patients who received spinal orthotic treatment had episodes of care that were thousands of dollars lower than comparable non-treated patients. Among other identified benefits to prosthetic use, prosthesis users had a significantly lower hospitalization rate than a comparison group of patients, further resulting in lower Medicare payments for acute care hospitalizations. Across their analyses, the results cumulatively suggest that orthotic and prosthetic services provide value to the Medicare program and potentially to other payers as well as the patients. Bottom line here is the Medi-Cal MCO tax. Investment in orthotics and prosthetics services will provide value and cost savings to the Medi-Cal program and to the patients. Thank you.

Good afternoon, Madam Chair. Whitney Francis with the Western Center on Law and Poverty. I just wanted to start by saying that we are aligned with the California Pan-Ethnic Health Network on the inclusion of equity enhancements we also support increasing the MCO tax to bring to the maximum federally allowed amount to bring in additional state revenue and general fund shift to avoid cuts in safety net programs that low-income Californians rely on. We also request the Legislature increase the community health workers' Medi-Cal reimbursement rate to increase access to community health workers, recognizing that they play a key role as trusted partners in supporting Medi-Cal members in advancing health equity. Thank you.

Good afternoon Madam Chair and Members. Nicole Wordelman on behalf of the Children's Partnership, echoing CPEN and Western Center on Law and Poverty in support of increasing rates for community health workers and very appreciative of the equity measures in the MCO tax.

Well, once again, I would like to thank the Administration, the LAO, all of the stakeholders and the public for coming and participating, not only today, but this has been over a years long process and so I really want to thank everyone for their participation. My hope is at what we have done, despite what our budget outlook looks, is really just the beginning of finally making our healthcare system whole, and we can only do that if we all work together. So once again, I want to thank everyone and this hearing is adjourned.