Assembly Budget Subcommittee No. 1 on Health

Good afternoon. I'm going to call this hearing to order and Committee staff, if you'll please call the roll.

[Roll Call]

We have a quorum and so we will continue. And I want to welcome you all to our second Assembly Budget Subcommitee one on health to our hearing today.

We'll be reviewing budget and fiscal issues related to the Department of Healthcare Access and Information, or HCAI Covered California, the Department of Managed Healthcare, or dmhc, the California Health Facilities Financing Authority, chffa and these departments play a significant role in shaping policy that affects millions of Californians and the health care they receive.

That said, I do want to note that much of what we learned today will be considered within the context of potentially devastating cuts coming from the federal level. And I know I mentioned last week that California is a donor state paying more in federal taxes than a return to us.

And recently I had this conversation with a congressional colleague who said California isn't just a donor state, but that other states are moocher states using funds that California provides.

And I will say that no matter how we look at this, our Federal Government is considering dangerous and disturbing cuts to health care that is funded by Californians and our taxes. And these cuts could affect the 15 million Californians, almost half of whom are children, that are on Medi Cal.

They could push our public hospitals towards financial catastrophe and they could threaten health coverage for 2 million people on our state exchange of Covered California.

Knowing how harmful such cuts could be, I do want to urge our federal representatives to act as true partners on behalf of our mutual constituency by keeping Medicaid and the Affordable Care Act whole. And I also want to reaffirm that that this Committee is steadfast in our approach to advance California even in uncertain times.

And so as part of this Committee's oversight responsibilities, we are going to examine important issues, including the physician workforce development and California's investments to support and develop physician training programs and address workforce shortages. We're going to address distressed hospital assistance programs and the state's efforts to provide financial support and prevent hospital closures.

We have the Office of Health Care Affordability who has an update on recent efforts under the Health Care Access and under Healthcare Access and Information to slow patient healthcare spending and improve cost transparency. We'll talk about CALRX and California's initiatives to lower pharmaceutical costs and expand access to affordable medications and more today.

So we have plenty on our docket. But first I'd like to invite any of my colleagues if they want to provide additional opening remarks and seeing none, we're going to go through a few housekeeping notes. We plan to cover eight issues as listed on your agenda.

And we're going to start though with issue number two, Health Facilities Financing and Distressed Hospitals. Because we have a very special presenter today, California State Treasurer Fiona Ma is here and available to testify in person. You can find the agenda online on our Committee website and physical copies are at the entrance of the Committee room.

After we conclude each panel presentation, we will take questions from Members and then comments from the public. All public comments are taken in person after the issue and should pertain to the specific panel presentation. We will have public comment for items not on the agenda at the very end.

And if you are giving public comment and adding onto something that's already been stated, if you could give your name, organization and position and please keep your comments to Just a minute.

If you're unable to attend this hearing in person, you can submit comments via email to asmbudgetm.ca.gov and so we're going to jump into issue two, health facilities financing and Distressed Hospitals. You'll find background on this issue on page nine of the agenda.

We will first be joined by California State Treasurer Fiona Matthew and then later we will have other panelists. But over the past few years there's been a concerning number of California hospitals that have either closed or are at risk of closure to financial distress. Some hospitals have had to make very upsetting decisions such as closing labor and delivery wards in order to stabilize their finances.

And so to help provide relief to distressed hospitals, California has created various loan and grant programs under the Office of Healthcare Affordability and Information, as well as several bond financing and loan programs that are available under the California Health Facilities Financing Authority.

So today we welcome State Treasurer Fiona Ma, who will provide an overview and update on on the CHFFA programs that are under the State Treasurer's office. So Treasurer Ma, welcome to our Subcommitee and thank you so much for taking the time to come and present on such important programs. And please begin whenever you are ready.

Thank you. Thank you. Chair Addis as well as Members Solache and Patterson just want to say that we have a great partner with HCAI and Carolyn Aboubechara, the Chair of CHAFFA will talk a little bit more about the programs, but I will just give an overview. So I am the banker. All the revenues come into my office.

I invest the state's EIDL funds as well as the EIDL funds for 2,200 local governments. I issue all the bonds for the State of California. The UC and the CSU systems. And I also chair 15 committees. One of them is the California Hospital Facilities Finance Authority. We have been really busy, as you can see in your packets.

We have one bond program, four loan programs and four grant programs. We've had also past programs like the Lifeline grant program that provided $20 million many a couple years ago when Title 10 was threatened to be cut. We were able to, you know, backfill some of the facilities that were looking at cuts.

But in the recent weeks we have been extremely busy with tax exempt bond financing that is on the list for the Federal Government as well as our help to loan programs. These are low interest loans that are much cheaper than traditional financing compared to 8%.

We're offering these loans for about 2 to 3% and so many people are trying to get the money out as soon as possible. You talked about chair the distressed hospital loans. It started in my office with Madera and Hazel Hawkins coming in and letting us know that they were facing difficulties.

And we let the Governor know and he and the Legislature allocated $300 million for distressed hospitals. We rolled out 16 different programs, but we are now hearing that many of them still still cannot pay it back even though they were on a plan to, you know, make sure that they were going to make certain changes.

Even though they have done that, they still are facing financial difficulties as well as new hospitals, especially in the rural areas because they just don't have the, the, the numbers to be able to subsidize some of the programs that they have.

In terms of the fires that happened in La, we actually put two new programs into place, the zero interest loan program to health facilities. So any of the health facilities that were burned or partially destroyed in the Palisades or Eaton fires, they are eligible for zero interest loans now and then.

We also have requested of the Federal Government to give us an additional $2 billion in emergency housing tax credits, similar to the Federal Government giving us two tranches in 2020 and 2021 for those areas that were devastated by fires.

We again requested that the Federal Government give us an extra 2 billion so that we can jump start and help people rebuild faster. So that's kind of the overview. We are very busy and we also administer all of the children hospital loans.

Thanks to the generosity of the people of California, we've passed three different children children's bonds over the years. And because of that, our children's hospitals are State of the art amazing facilities with top of the notch equipment, medical professionals and cutting edge technology that is being employed There. So that's kind of the overview.

And Carolyn Aboubechara, my Executive Director is really in the weeds day to but she has been amazing. She's always thinking about how we can address the needs, how we can pivot, how we can find more funding and leverage whatever we have to make sure that we keep our facilities open. So Carolyn.

Yes, thank you Treasurer and thank you Committee. I can go into more detail on the bond financing program and the agenda. You have the data from 2023 of all the bond transactions that were done under CHFFA.

But as of 2024 the latest and greatest that we have is we've issued $2.4 billion in bond transactions to about nine health facilities. And CHFFA finances not only hospitals OR clinics but 21 different health facilities that range from mental health facilities to developmentally disabled to substance use.

And so that shows the level of demand for our financing in the coming years. Kind of like Treasurer mom mentioned, the Federal Government may is looking into elimination of tax exempt financing. And so we have seen a huge demand currently. And then an update on the health care expansion loan program too.

Treasurer Ma mentioned interest rates now are 8 to 9%. We offer competitive interest rates. We were offering 23 and 4%. And so we have been very busy approving loans. And that kind of shows the success of our programs were there. We're a financing tool in the treasurer's office to help those in need of financing.

We try to be a one stop shop where we can provide all the financing needs for healthcare facilities in California whether it be loans, bonds or grants. And then the update Treasure mom mentioned, we developed the FIRE loan program.

It was a sub program that designed after our small help to loan program and it offers 0% loan financings. And so we're hoping those facilities affected will take advantage of this money and we will be of assistance to assist people in putting in their applications.

And then so that's kind of the summary of the three programs that were mentioned on the agenda. But happy to answer any questions on any of the programs CHFFA has. There's a lot more that we didn't go into detail on.

Thank you Noah. I very much appreciate it and I'm actually I'll ask a question and open it up to the Committee. I know you have a hard start so I want to make sure we respect that before we move on to an HCI presentation.

But my main question is if you could share your thoughts on how recent federal changes may impact the CHFFA funding or the CHFFA operations and programs.

Yeah. So all the programs are highly dependent on Medicare and Medicaid. And so any cuts to any of those programs are going to affect all of the programs and the types of services that we're going to provide.

But yes, and just last week we approved $47.2 million in grants to specialty dental clinics in California that go from the rural, encompassing every region in California.

One client in the Superior region, Easter Plumas Healthcare, declined their grants free money because they are worried the federal reductions in funding will affect them and it will jeopardize their ability to meet our grant requirements. And that was just last week. And there's implications across the board. I mentioned our tax exempt bond financing program.

It's where hospitals and clinics of larger sizes can access the capital markets and get Low cost financing. And that financing is tax exempt, federally and state. There's implications or talks and proposals about eliminating that which could severely be detrimental to a lot of the hospital systems and clinics and all those who access that market.

Are there any questions from the Committee? Well, thank you. You're obviously welcome to stay, but there's no other questions from the dais. So we're going to move to to HCAI presentation and welcome the Director of the Department of Healthcare Access and Innovation, Elizabeth Landsberg.

And we're asking the Department to present on an overview of the distressed hospital loan program, the Small and Rural Hospital Relief Program, and provide a funding update from those programs. We're also joined by the Department of Finance and the LAO and Director Landsberg, whenever you are ready, please feel free to start. Welcome.

Thank you so much, Madam Chair and good afternoon Members. Elizabeth Landsberg with HCAI, the Department of Healthcare Access and Information. Pleased to be here to add on to Treasurer Ma's update about the distressed hospital loan program.

As she noted, this was $300 million, 150 from General Fund, $150 million from the MCO tax that created this program to provide hospitals experiencing financial distress, including potential closure, the working capital needed to implement financial turnaround plans.

In terms of an update, two hospitals, Madera Community Hospital and Hazel Hawkins, have exited bankruptcy with the assistance of the DHLP loan. And none of the other hospitals participating in the loan program have filed bankruptcy or closed. We understand that Madera Hospital is working toward reopening.

In the latest available HCAI financial data, we continue to see quite extreme disparities in the financial performance of California hospitals. Hospitals performing at the top of the gap are generating profit margins as high as 15%, whereas hospitals in the bottom quartile are operating on very thin or Negative margins.

Most of the hospitals in the DHLP portfolio which are noted in your agenda continue to experience financial distress reflected in negative or declining financial measures. And some hospitals turnaround plans have been delayed or modified.

Given the continued distress among these hospitals, HCAI along with our colleagues at CHAPPA has developed and released a DHLP loan modification application in January. The loan modification program gives hospitals more time to implement their financial turnaround plans and every opportunity to repay their loans. Three hospitals have applied for loan modification to this date.

The Committee asked us to give some observations about the trends with the hospitals will probably come as no surprise. Global inflation of medical supplies, vendor contracts and professional services was a big consideration for the hospitals foundation.

For hospitals to achieve improved operations and better financial performance are a stable clinical workforce, strong management leadership and an experienced board of directors. We've seen some hospitals that have nursing schools or residency programs that are able to grow their own so they have pipeline programs which significantly improves recruiting and retention.

And one of the DHLP hospitals within the last two years created such a program as part of their turnaround plans and others are looking to do so as well. But really management turnover is the most consistent factor in delays in the implementation of hospital turnaround plans.

We also see there's significant complexity and sometimes delays in the funds that the hospitals get. So DHLPS hospitals consistently depend on non operating income such as quality assurance fee programs, intergovernmental transfers to make up for shortfalls in operating revenue. And some of those programs require upfront cash or matches that can be a burden for the hospitals.

Cost overruns and delays on capital projects negatively impact the liquidity of these hospitals. So that is a trend that we saw. And then lastly I would just note that technology investments are critical to long term stability of these hospitals.

Electronic health records of course bring operational efficiencies and the ability to secure timely revenue collections and financial statement preparation. Also critical of course to protect against cyber attacks. And we actually have seen in the last year three different three of the 16 DHLP hospitals that have been subject to cyber attacks.

So really important for them to be investing there. I was also asked to give an overview of our Small and Rural Hospital Relief Program which provides grants to small, rural and critical access hospitals to assist them with meeting seismic safety compliance requirements.

So this program was created by Senate Bill 395 Caballero which has the tax on E cigarettes and 10% of those revenues come to support the Small and Rural Hospital Relief Program. There was also $50 million appropriation from the MCO tax.

So this program is all the more important with the passage last year of Assembly Bill 869 by Assemblymember Wood, which allows small rural and critical access hospitals to apply for an extension of their seismic safety compliance deadline. In order to do that, they need to come forward and propose a compliance plan with milestones.

And then our office, our structural engineers and architects work with them to give technical assistance, try to bring down their costs and have the most cost effective program possible. And then it's wonderful to have these resources available for the hospitals to actually pay the funds to do the work that they need to.

So in terms of where we are, we have awarded eight grants totaling $4.5 million. We have another nine grant applications in the pipeline totaling 10 million in requests, continuing to provide technical assistance and reach out to the hospitals. We had a webinar a week and a half ago with more than 150 attend.

So I think there is very significant interest in the program which we really welcome the opportunity to engage with them. So there was initially slower ramp up than anticipated. I think hospitals are waiting to see perhaps what would happen with the seismic safety compliance deadlines.

Now we have a framework to move forward and we're pleased to partner with the hospitals. So those were the overviews. Happy to answer any questions you may have.

Thank you. Is there any other. I guess that's it. So I, I just have one quick question which I think that Treasurer Ma and her team answered. But if there's any other color you can give to how Medicaid cuts might affect things from your vantage point, given the detail that you have on this.

Of course, I think any Medicaid cuts will be very harmful to the State of California. So there's been many different proposals put forward, potential work requirements, potential per capita caps.

So what other things potentially stopping some of the provider fees, but really any cuts to Medi Cal will have a negative impact on the state, on hospitals, on Medi Cal providers. So it's all very deeply concerning.

Thank you. And any questions from the dais. Assemblymember Bonta,

Thank you so much. I had some folks come in who were particularly interested in Ridgecrest Regional Hospital on this list. It's a very kind of a peculiar situation where it's the primary hospital serving a military base and without its continued ability to provide services, it's going to, in their words, lead to issues of potential national security.

I believe that there was some discussion around whether or not any of these, the criteria by which some of these hospitals could be considered for loan forgiveness. Can you just share what the framework is around loan forgiveness and whether hospitals like Ridgecrest would potentially fall into that category. And if so, why not?

Absolutely. So we have three different categories. So we know that many of, frankly, most of the hospitals that receive distressed hospital loan program loans are likely going to need to come in for loan modification. And the way that we've structured the program, they would need to come in.

And again, we've gotten three applications already to ask for loan modification. There are three main financial indicators that we're looking at. Days, cash on hand, debt service coverage ratio, and the current ratio. So we have particular economic measures for each of those that we're looking to.

And if the hospital doesn't meet one of them, we will be recommending that they get an extension so that they would have at least 12 additional months before they have to pay. Folks do need to go through that process of requesting a loan modification before we look at loan forgiveness.

Understood. So it's essentially kind of decision around whether it's a loan modification or extension. If loan modification isn't available, extension would be the default opportunity, potentially for them for any of these hospitals to be able to pursue and. Or actually being able to be considered for loan forgiveness. Right.

So the loan modification would be the extension. So the loan modification would be 12 months before they need to start. And if they're still not in a place, they could come back in another year and apply for additional loan modification. I appreciate that. Thank you.

Maybe I'll add on to that. It sounds like there's an expectation that many hospitals won't be able to come back into recovery. And are there any kind of common factors among distressed hospitals that makes it more likely or less likely that they'll be able to get into financial recovery?

Pleased to be joined by my Chief Deputy Director of HCI, Scott Christman.

Thank you, Madam Chair. Yeah, I would say on sort of the plus factors, what we've identified most commonly would be stable clinical workforce, to be sure, effective management leadership teams, and then an experienced board of directors overseeing the operation. Those tend to be most common in sort of improving things and turning them around.

The absence of any of those factors will tend to be to make financial stability more challenging. I think, for example, management turnover, as mentioned, seems to be the most consistent factor contributing to delays of implementing the financial turnaround plans as they've been reported to us.

Do you know what's causing the turnover? Such high turnover?

I can't say for sure. I mean, it's just a difficult environment to work in, as you can imagine. I think many of these, well, probably upwards of half of them are rural. Recruiting and retaining in rural areas is tough for clinical workforce and leadership.

You know, that's just something that's a challenge for us we need to address in our workforce programs and the like. So I think it's just been tough to attract, you know, talent to certain regions and certain situations.

Thank you. If there's no other questions from the dais, then we're going to move to public comment. So if you can make sure your comments are directed specifically towards health facilities financing and distressed hospitals. And keep your comments to a minute.

And if you're speaking on a previous position, if you can state your name, organization and position only.

Welcome. Good morning or good afternoon, Madam Chair and Members. Connie Delgado, on behalf of the District Hospital Leadership Forum. These are the 33 district and municipal hospitals here, and we want to express, express our gratitude and appreciation to the Legislature and the Administration for the creation of the distressed hospital Loan program, and particularly H Chi and Chaffa for all the work that they're doing.

30% of the district hospitals received distressed hospital loans and they qualified for 50% of those funds. And they came at a critical time when we provided much needed relief for California's most vulnerable hospitals. At the time, many district hospitals were operating at the brink of insolvency, and while most are stronger today, they're still working towards recovery.

We're excited to see the release of the loan modification application that was made that was just discussed, and we truly appreciate the partnership with CHAPPA and HCAI for your review. We thank you again.

Mark Farouk on behalf of the California Hospital Association. Just wanted to echo the comments of my colleague from the District Hospital Leadership Forum. Thank you.

Seeing no other public comment, we'll say thank you. And we're going to move back to issue number one, physician workforce development. And you can find background on page two of your agenda. For this panel, we're going to welcome Dr. Deena Shin McRae from the University of California. Director Landsberg will stay with us.

And then we have the Department of Finance and the Legislative Analyst Office. On this issue, we're asking the University of California to provide background on the physician shortage in California as well as a history and background on Proposition 56 funded physician workforce programs. And then HCAI will present an update on its Song-Brown Primary Care Residency Program. So I'll allow you to introduce yourself and please begin your testimony when you're ready to start.

Good afternoon, Chair Addis and Members. Thank you for the invitation to be here today to discuss the status of the state's physician workforce and how Proposition 56 funds are helping address this problem. I'm Deena McRae, the associate vice president for Academic Health Sciences within the University of California Office of the President.

In this role, my responsibilities include guiding strategy and coordinating efforts to advance the mission and goals both for University of California Health and for individual health professional schools. University of California is one of the largest public health science instructional programs in the nation with over 16,000 trainees across seven professions on seven different campuses and 21 schools.

The top priority for my office is to increase the size of the state's health care workforce, particularly in medically underserved areas, and to improve the access to high quality care for under resourced populations. Our goal at UC Health is to protect and improve the health of all Californians in order to achieve health equity.

I also have a role on the national level with the Association of American Medical Colleges, working with graduate medical education leaders across the nation and am a psychiatrist with a faculty appointment at UC Irvine School of Medicine. My entire career has been based on graduate medical education, whether it was as a psychiatry residency program director or associate dean for GME at UC Irvine or as associate chief of staff for education at the Long Beach VA.

In terms of the physician shortage in California, I'm going to go over some data, but I'd first like to thank and acknowledge the California Health Care Foundation, UCSF Healthforce Center, Mathematica, and Association of American Medical Colleges for their research into the healthcare workforce shortage and publicly sharing this information.

According to the California Health Care Foundation report in 2021, the number of licensed independently practicing physicians in California has grown, increasing by 21% from 2006 to 2018. During this time, growth in the state supply of physicians exceeded population growth. And regarding graduate medical education, which includes residency and fellowship programs.

Also per a California Health Care Foundation report that was released just a few months ago, over the past five years, almost two thirds of the new residency programs established and 75% of the new positions added have been in priority specialties. And from 2015 to 2021, 111 newly accredited programs with more than 900 field positions have been established.

And according to the American Association of Medical Colleges' data, since 2010 there's been an increase with 9,852 residents up to 15,828 in California, which is a 60% increase. However, there's still much work that needs to be done. According to the Health Resources and Services Administration, which is part of the U.S. Department of Health and Human Services, the number of Californians who live in primary care health professional shortage areas is approximately 6.5 million, and we need 970 more primary care practitioners to remove that physician shortage area designation. It was calculated that the state has 55% of its need met.

The physician shortages are most severe, as we know in the Inland Empire, San Joaquin Valley, and Northern California rural areas. They fall short of the supply recommended by the Council on Graduate Medical Education, which is part of of the U.S. Department of Health and Human Services, which studies physician workforce and needs.

The recommended primary care physician supply is 60 to 80 per 100,000 people. The Inland Empire and Northern Sierra region have the lowest primary care physicians per capita in the state, both at 42 physicians per 100,000 people, and San Joaquin Valley only has 47 physicians per 100,000.

Although we're making forward strides, the number of physicians completing residencies in California has not kept up with the number of primary care physicians retiring or leaving the profession. The physician shortage is magnified due to two factors. One, our aging physician population.

For physicians in California, 19% of physicians in all specialties are 65 or older and 34% of them are over age 60. Also, attrition rates in early retirement play a factor. There are many different reasons that more and more physicians are planning to cut down on clinical hours, pursue early retirement, or leave the medical profession altogether.

For example heavy administrative load, low reimbursement rates, changes in compensation models, workload pressures, changes in the national landscape for the medical profession, and organization shifts in response to financial stressors. According to recent surveys, approximately 1/3 of physicians report that they have moderate interest or plan to leave their current jobs within the next two years or are considering early retirement. The physician specialty with the highest intent to leave was internal medicine at 39.1%. There are also challenges specific to the medical education environment.

There are not only barriers to the growth of residency positions, but there are threats to the sustainability of already existing residency programs. There are a growing number of rigorous accreditation requirements, which are expensive. There's an increasing cost to train a resident. There's increasing competition to have access to clinical training sites with rotations required for accreditation and graduation.

Particularly, inpatient pediatric units and labor and delivery units are closing across the nation due to low reimbursement rates and hospital financial stressors. And now, as we've talked about already in this room, there's a new federal administration with emerging threats to the financial stability of health care organizations and higher education.

The California Healthcare Research and Prevention Tobacco Tax Act of 2016, known as Proposition 56, allocates a portion of tobacco tax revenue annually to the University of California to sustain, retain, and expand California's residency training programs to achieve the goal of increasing the number of primary care and emergency medicine physicians in the state.

The awards are prioritized for accredited residency programs which serve under resourced communities and are located in physician shortage areas. The goal is to improve access to high quality healthcare and achieve health equity in our state. It's important to note that these funds support residency programs across the state, not just those sponsored by University of California.

The University of California contracts with Physicians for a Healthy California to administer a statewide graduate medical education grant program known as CalMedForce. The seventh annual cycle of awards was just completed. Since the first cycle in academic year 2018-2019, CalMedForce has awarded more than $255 million to support 1,366 resident positions in 180 residency programs for the entire length of training across 32 California counties. The majority of these graduates are from family medicine residency programs. Since 2018, approximately $38 million in awards were issued annually.

However, this current year, 24 to 25, the award funds were substantially reduced to approximately $25 million. This was mostly due to declining tobacco tax revenue and elimination of a General Fund backfill. In this current political environment and the increasing number of financial stressors that our healthcare organizations and our higher education institutions face, our already existing residency programs are at grave risk. The risk existed before, but it's magnified now.

Primary root causes of the financial stress are low Medicare and Medicaid reimbursement for patient care and training, the rising costs of education, and the potential loss of federal funds. The threats are real and immense. If there's not adequate funding of the already existing programs, we risk these programs being forced to downsize or even close. And the programs in rural areas are particularly vulnerable.

These same financial stressors make expanding or starting a program extremely difficult. Proposition 35, the Managed Care Organization Tax, which was passed this November, only supports new residency and fellowship positions. Prop 56 may support already existing and new positions, but those funds have decreased substantially, as mentioned already. This academic year the award amount decreased by 35%.

It is critical that there's adequate financial assistance to both sustain and increase the number of residency and fellowship positions in our state with prioritization for positions and programs in shortage areas and which serve under resourced populations. If there is not adequate support, we may reverse some of the work to expand the state's physicians workforce.

Although we've made forward progress, there's still opportunity to further improve the recruitment and retention of a diverse physician workforce. There's evidence demonstrating that California has effective strategies to shape the physician workforce and improve access to quality health care, but we need to ensure adequate, sustained support. Thank you.

Thank you. And Director Landsberg.

Thank you very much, Madam Chair and Members. So in the workforce realm, HCAI seeks to expand and develop a health workforce that reflects California's diversity while addressing supply shortages and inequities. And all of our healthcare workforce programs have three goals.

We're seeking to develop a workforce that will serve in medically underserved areas, whether those be rural or urban, a healthcare workforce that will serve Medi-Cal members, and that reflects the racial and linguistic diversity of California because we know that leads to better health outcomes.

HCAI's Song-Brown Program aims to increase the number of students and residents receiving quality primary care education and training in areas of unmet need throughout California by funding education and training programs through our graduate medical education program for primary care providers. And we've had this program for over 50 years, since 1973.

Funding for the Song-Brown Program has fluctuated significantly, but since 2017, we've gotten a base $33 million for our Song-Brown Primary Care Residency Program, which funds residency programs in family medicine, internal medicine, obstetrics and gynecology, and pediatrics. And then we fund our other Song-Brown programs through special funds and one time General Fund allocations.

Since 2021, the Song-Brown primary care residency, registered nurse, family nurse practitioner, and physician assistant fellows, and midwives programs received approximately 105 million in augmented one time funding. Most of these funds were prescribed in the budget language for specific program categories. So California knows there's a workforce crisis, and when there have been funds, we've had augmented. With that, I'm pleased to turn it over to the person doing this day to day, our workforce deputy, Libby Abbott.

Good afternoon, Madam Chair. Thank you for having us. I'll share a bit more about our Song-Brown Primary Care Residency Programs. Like Prop 56 funds, Song-Brown primary care residency funding both supports existing slots at existing programs and enables the creation of new primary care residency programs as well as new slots at existing programs.

For the period 2017-24, for example, HCAI Song-Brown funding supported 1,603 existing slots and created 436 new slots in primary care residencies. From the period 2019 to 2024, HCAI funded 29 new family medicine programs, and there are currently 79 family medicine programs in California, meaning HCAI has supported the opening of about a third of our state's programs.

Our funding is awarded competitively, and our scoring criteria are designed to ensure that we are training residents who can both immediately provide services in primary care settings in areas of unmet need and who will go on to practice in primary care in underserved settings.

So to that end, we score applicant programs based on the extent to which their residents train in primary care settings as well as in areas of unmet need, and we also award more points to programs that can demonstrate that their graduates go on to serve in areas of unmet need and in primary care settings as proof of the success of their model.

Because residents practice and provide care for several years during their residency programs, funding residency programs in existing shortage areas helps provide immediate primary care capacity in those regions, and therefore, awarding funds in shortage areas is an important part of our overall workforce strategy.

To illustrate that 100% of the awards that we made in the last two fiscal years, for example, were in health workforce shortage areas. HCAI also includes scoring questions that assess the extent to which residency programs have strategies in place to encourage and enable residents to practice in areas of unmet need.

So, for example, points are awarded if institutions recruit students for from areas of unmet need because we know that those students have a higher chance of practicing in similar communities. Additional points may also be awarded if institutions provide employment assistance to help place their graduates in areas of unmet need.

Finally, at HCAI we're committed to ongoing refinement of our program scoring methodology to make sure that we're incentivizing and supporting the type of training that will prepare our workforce to provide high quality care to underserved communities in California.

One innovation that we're looking forward to is developing a primary care workforce supply and demand model, which will allow us to more comprehensively identify areas of primary care workforce shortage beyond the existing ratios that we use, and then use those findings as part of our scoring methodology to make sure that our funds are going to the regions where they are most needed.

We've already implemented similar models for behavioral health and nursing. We are also in the process of strengthening our program evaluation systems for Song-Brown and other programs. As a result of Assembly Bill 1991 passed last year, physicians and other providers are now required to enter their NPI, which is a unique identifier, on the Department of Consumer Affairs licensure data that HCAI receives.

We are also now requiring NPI reporting from our Song-Brown awardees, which means we'll be able to link these sources together and going forward we can better evaluate the workforce outcomes of the Song-Brown Program over time with our existing in house data. And that's all from us.

Thank you. Anything from Department of Finance or LAO's office?

Albert Pineda, Department of Finance. Nothing further.

Jason Constantouros, Legislative Analyst Office. We thought we'd offer three key oversight issues as you're thinking about reviewing these state funded GME programs. The first oversight issue involves looking at program outcomes in terms of how well are these programs addressing workforce needs.

On page eight, question seven asks our office specifically about metrics that the Legislature could consider when reviewing these programs and we're happy to work with the committee on this over time. We would note that your agenda already provides some initial information on that.

For example, on page three of your agenda there's some information on the UC program in terms of how much money and how many awards have been allocated. And similarly, on page seven of your agenda, on the top of page seven, there's a table that provides similar sort of number of slots funded for the Song-Brown Program.

We think some of these measures could be refined, for example, that could be compared to statewide averages to give a little more context and sort of assess the impact of these numbers. And again, we're happy to work with the committee on this and happy to expand more as is helpful today.

The second oversight area we recommend the Legislature consider is really a comment that is in your staff comments on page 7 towards the bottom. And that's focusing on program allocations, and particularly given limited resources in this year's budget. As you've heard us say, and you'll be hearing us say throughout the year, the state budget has limited capacity this year for new ongoing programs. Makes it all the more important that programs are allocating resources efficiently. And as you've heard, these programs both cover very similar activities. They cover existing slots, but also kind of new and growth in slots.

And the Song-Brown Program also, as was noted, funds provide some funding for new programs. And of these areas, the funding for new programs has the potential to provide the biggest bang on state buck. And that is because, you know, it's providing a limited term grant to create an ongoing program that in concept could be funded through other sources like Medicare on an ongoing basis. That said, creating new programs is challenging, as UC noted, and there are a lot of sort of implementation issues there.

And so we think the Legislature could use the opportunity to really gather what lessons have been learned from these activities and re-explore whether the existing allocations, particularly in the Song-Brown, which are very prescriptive in budget bill language, are sort of the right amounts of allocation.

And then the final implementation area we would emphasize is program coordination. This is a situation where you have two different state entities with two different programs that have a lot of similarity. They're not exactly the same, there are some differences, but they cover very similar issues. And it'd be a good opportunity to learn about how the programs coordinate and determine if there are better ways to ensure coordination so that these resources are being used to their sort of maximum effect.

And then finally we just wanted to also note that, this was mentioned by UC, but there is, you know, potential additional funding coming for graduate medical education through Proposition 35. This is the measure involving the MCO tax. This committee may have an opportunity to dig into that more at a future hearing. But there was there will be additional funding coming that way. And so again, it will be helpful to understand how that funding would be used and how it would interact with the existence existing programs. Thank you.

Great. Thank you. We will be digging into Prop 35, so thank you for mentioning that. I did want to ask Dr. McRae, factors that influence whether physicians remain in California or leave our state. I know you've cited pretty good growth, but it's not quite enough. But how many of those folks are actually staying with us and what are the strategies that might keep people here?

Sure. Thank you for asking that question. Fortunately, California has the highest retention rate in the nation at 78.5%. When you look at the US overall, 58.6% of individuals who complete residency training practice in the state where they did that training. Retention rates range anywhere from 39.4% in Washington D.C. to California where we're 78.5%.

And if you do both medical school and your GME training here in the State of California, then that retention rate jumps up to 82.3%. So in terms of factors that impact where a physician might end up practicing, one is where were they raised. And of note, graduates from rural programs were more likely to practice in rural areas.

And then also influencing the location of their clinical practice is where did they do their residency training. There's a very strong association between resident training location and subsequent practice location, particularly for family medicine physicians.

In terms of what the literature says, there are key predictors of physicians who will provide care to under resourced populations, which are being a public medical school graduate, having clinical experiences with underserved populations during your training, being underrepresented in medicine, and post-residency participation in a loan repayment program.

What deters people from practicing in underserved areas is the amount of school debt. Higher debt was associated with a lower likelihood of choosing primary care specialties, and this was especially strong for physicians from lower income families. And medical school debt plays a critical role in their practice location choice.

For every $50,000 increase in debt, there was a 45% decrease in the odds of practicing in an underserved area. Physicians with no debt were twice as likely to practice in underserved areas compared to those with high debt, which was defined as greater than $150,000. So addressing debt could be an effective strategy for improving physician distribution and access to care in underserved areas.

Thank you. Any other questions from the dais on this issue? All right, we'll move to public comment. If you have public comment, please make sure your comments are directed toward the physician workforce development and keep your comments to a minute if you could. And if you're speaking on a previously stated position, please provide your name, organization, and position only. Welcome.

Madam Chair and Members, Stuart Thompson, behalf of the California Medical Association in strong support of these two critical programs. I'd like to thank the UC and Director Landsberg and her staff for implementing these programs. Have you heard the data? These programs are extremely successful in increasing access to all Californians, and we're in strong support. Thank you.

Hello. Matt Lege on behalf of SEIU California in strong support of graduate medical education. I think, as it was pointed out on the panel, California has the highest rate of retention, and really the best way to address our provider crisis is make sure that we're growing our own. So thank you very much.

Good Afternoon, Chairs and Members. My name is Tiyesha Watts representing the California Academy of Family Physicians, commenting on the workforce development agenda item. Family medicine residency programs offer an immediate return on investment, allowing residents to provide patient care while completing their training.

These programs not only build a strong workforce but serve communities in need, particularly in medically served areas. While with declining Proposition 56 funds, no stable revenue source, uncertainty around General Fund allocations, existing programs are struggling to sustain residents and risk downsizing or closure.

This threatens California's ability to meet its healthcare goals and exacerbates the primary care workforce shortage. Unlike other programs, Song-Brown prioritizes primary care, supporting residency programs that train and retain physicians who serve vulnerable populations. It is the only state GME program focused exclusively on primary care and building an equity focused, diverse workforce.

CAFP strongly urges the administration and Legislature to move away from a rigid bucket funding approach where funds are separated into strict categories such as existing teaching health centers, expanding our new programs, and rather focuses on it undermines policy goals of the program, risk destabilizing program residency programs, and limits flexibility needed to meet the actual need of Californians. Instead, it should be needs based funding model that prioritizes serving medically underserved areas, vulnerable populations, and programs with a proven track record of success, ensuring resources are directed where they are needed most.

Investing in family medicine residency programs through a more flexible strategic funding approach is critical to achieving California's health care goals, reducing health care disparities, and ensuring all Californians have access to high quality primary care. Thank you for your time and consideration, and we look forward to working with you all on building our primary care workforce.

Good afternoon, Madam Chair and Members. Dennis Cuevas-Romero, here with the California Primary Care Association Advocates, the statewide association of community health centers. Really appreciate the much needed conversation on GME. I really just want to emphasize the need to invest in primary care, particularly communities underrepresented in medicine and communities that are intending to provide care in culturally and linguistically competent manners. So really appreciate the conversation. Thank you.

Thank you. Well, thank you to our panelists. We're going to move on to issue three, Office of Healthcare Affordability. The background is on page 17 of your agenda. And for this panel we have Dr. Landsberg from HCAI, as well as the Department of Finance and the Legislative Analyst Office. On this issue. We're asking HCAI to provide an overview of the Office of Healthcare Affordability, an update on its enacted healthcare spending target, and an update on its recently proposed hospital specific target. And feel free to start when you are ready.

Absolutely. Thank you so much. So OHCA, the Office of Health Care Affordability, was created in 2022 to address rising health care costs, which are a barrier to consumers not getting needed care. Every year, the California Health Care Foundation has done a survey and found that half or more of Californians don't access health care services specifically because of the cost. And those numbers are higher for black, Latinx, and low income consumers. In response to this affordability crisis, in 2018, Assembly Bill 3087 was introduced. It would have set rates on providers.

It would have set the rates that providers and hospitals could charge. So it was a rate setting bill. The industry opposed the bill, and it was defeated. With rate setting rejected, an alternative approach was needed to address high health care prices. A group came together to develop an alternative.

The group included representatives from labor, from health plans, providers, purchasers, and consumer advocates. They came up with a compromise approach of the Office of Health Care Affordability, and then the details were developed with these stakeholders, the administration, and the Legislature and then adopted in the budget three years ago. OHCA has three main responsibilities.

We're here to slow health care spending growth, promote a high value health care system, and then because market consolidation is such a large driver of high health care costs, we have the ability, there's new transparency requirements, and we're assessing proposed mergers and acquisitions of healthcare entities.

So we're collecting and analyzing data about total healthcare costs and we'll come out with our first baseline report in June of this year. We're also working to enforce the spending targets set by this new Health Care Affordability Board. Last April, the California's Affordability Board adopted the state's first spending target, and it was a five year target.

So the target for this year is 3.5%, and then it goes down progressively to 3% by 2029. The statewide spending target is based on the average annual rate of change in the median household income growth, signaling that health care spending should not grow faster than the income of California families.

So the spending target applies to the rate of spending by health care entities, including health plans, providers, and hospitals. The target won't bring costs down from where they are today. Right. We, we know that consumers can't afford care today. It won't bring down costs, but it's at least trying to moderate the rate of growth of health care costs. In addition to the statewide target, the board has the authority to set different targets by sector. So those could be sector by geography or different types of entities.

In response to many months of public testimony about high hospital costs and many additional months of analysis of hospital cost data, in January, just a month and a half ago, the board voted unanimously to create hospitals as a health care sector. And then this lets the board have lower, set lower growth target rates for high cost hospitals. This action was taken in recognition that hospital costs comprise roughly 40% of healthcare spending and that there is wide variation in cost among hospitals.

Last month, in response to the board's feedback and direction, actually less than a week ago, the office, OHCA put forth a methodology to identify disproportionately high cost hospitals and to adjust the spending target for these facilities. We did get some questions from the committee about how the targets impact premiums, and so I wanted to address that.

While OHCA was absolutely established to address the rising cost of health care, we at the office don't regulate healthcare premiums that each of us pay per se. Rather, the Health Care Affordability Board sets spending targets that limit the growth or increase in annual per capita total healthcare spending.

So, right, that's made up of all payments made to hospitals and providers and medication, all of that together. So the spending target isn't a price cap that limits the prices a healthcare insurer or or provider can charge for insurance premiums or services. Again, that approach was rejected by the Legislature.

But instead, the targets limit how much healthcare spending by a health insurer or provider can increase per person per year. And there's really a fair amount of discretion among hospitals and providers and health plans about how to reach that target.

So providers and insurers decide whether to meet the target by lowering prices or reducing costs through efforts such as helping individuals manage their health by seeking regular or appropriate health care services, providing increased care coordination, or implementing best practices to use resources more efficiently. By slowing growth in total health care expenditures. We do hope that premium increases and out of pocket costs will decrease over time so that health care is more affordable for Californians. With that, happy to take any questions.

Anything else from Department of Finance or LAO?

Albert Pineda, Department of Finance. Nothing further to add.

And also LAO, also available for questions.

Great, thank you. I think I've certainly heard a lot of concern about this issue in my office, and probably the biggest concern is that spending targets may disrupt access to care, particularly for people on Medi-Cal. And so I'm wondering what kind of guardrails OHCA is putting in place to ensure that spending targets don't disrupt care for those most in need.

Yeah, I think the first thing that we would note is that we have access problems today. So we have heard providers raise the issue that the targets could negatively impact access. And we would just note that, that the whole idea is that if we don't have greater affordability, then consumers can't access services.

So I think having the transparency of the data is really important. We're working closely with facilities to understand what the cost drivers are. With the data that we're getting, we will be analyzing the majority cost drivers. This is the most comprehensive data that we will have.

We also have been having presentations about cost reducing strategies at our board meetings and really are putting trust. I think the whole format of the office puts trust in the industry to have solutions, and it will look different for different types of health care entities.

And I would say, similar question, but more in terms of quality of care. So, so what guardrails are there that reducing, creating these targets isn't going to create worse care for everybody?

Yeah, thank you very much for that question, Madam Chair, because that is critically important to us. What we don't want is a race to the bottom. We're trying to achieve a more affordable system that's really a high value system. So we have a number of work streams that are really focused on a high value health care system.

One of them is that we have equity and quality measures. So it isn't enough to measure costs. We don't want equity and quality to go down. So we are in the process of adopting, with a lot of stakeholder input, equity and quality measures to monitor alongside of costs.

We also know that investment in primary care is the secret sauce of improving health equity, improving health outcomes, and actually bringing costs down. Right. So if people are getting the preventive and primary care that they need, we avoid unnecessary hospitalization and some specialty care.

So the office has developed a definition of primary care that we will start measuring. And then the board has adopted a benchmark. We aim to have 15% of all healthcare dollars spent on primary and preventive care by 2034. And then we're in the process of developing a similar benchmark and measurement with behavioral health.

And then would also note, on the alternative payment model side, it's really important that we have structured ways of paying for care that incentivize quality. And so we' also adopted a model for those APMs, those alternative payment models. So those are all very important components of the office that isn't just focused on cost, but also on quality.

Thank you. Any questions from Members? I see Assembly Member Bonta and then Assembly Member Patterson.

Thank you so much. And I just want to fully appreciate that the OHCA coming into existence was very hard fought. And I appreciate the fact that we, through the work of OHCA will be able to get to the bottom of why health care costs keep on increasing and the quality of care or access to care keeps on being diminished. So want to first appreciate that and say that I fully support the endeavor that OHCA has taken on. Can you give us a sense of how you are going to ensure that some of the factors that are out of the control of individual entities will be considered in the calculations for OHCA? Things like price inflation, cost of insurance, supply stocks.

Absolutely. So a couple of things we've had, I think, some important discussions about the fact that policy changes that are made by the Medi-Cal program or the Medicare program or by the Legislature, those are things we should take into account on the front end. Right. So if the state has decided to invest in CalAIM and that's going to cause an increase in costs for the Medi-Cal plans, that's something that we very much need to take into account. There's also a back end look that we're able to do.

So any entity that exceeds the spending growth target, the first thing we want to do is really have a conversation with them about their data. First of all, did we get it right? And then secondarily to your point, Assemblywoman Bonta, what were the driving forces behind that? Were some of them unavoidable?

Were they investments in electronic health records and the like? And does there need to be special considerations? So we'll be having a process, lots of robust stakeholder engagement with the board and the advisory committee and work groups and the like. We will be having a discussion specifically about what factors should be looked at during that backend evaluation.

And I'm certain looking at the protection of healthcare worker wages will be a part of that backend calculation, I'm assuming.

I didn't hear... The back end?

Part of the back end analysis will be ensuring that healthcare worker wages are not compromised?

Yes. And we actually the office has a specific measure around workforce stability. So we've gotten a lot of engagement and have some workforce stability standards, which is really critical that the cost savings not be achieved on the backs of workers.

And so the other just last question is for those hospital entities that are deciding to take on newer technologies, expensive treatments, those are things that go speak to quality and innovation and wanting to make sure that that's a part of our healthcare system as well. How will you account for those kinds of investments that some hospital entities will be making?

Yeah, very important point. And that's where again we'll be looking at the backends for them to say we know we exceeded the spending growth, for entities that did exceed the spending growth target, and here's why we made this investment in electronic health record.

And we think and that was first of all key for us in terms of implementing the APM, the alternative payment model, and was an initial investment that exceeded spending but over time is going to lead to costs. And so that's the important conversation that we'll be having with them.

And then just for the sake of our complete understanding in terms of timing and when there will be essentially a time when there could be penalties to be collected, can you give us a sense of when OHCA feels like it will have the kind of have gone through the process enough to be able to understand whether any penalties need to be issued, and then also whether there's been any discussion around how those penalties will be treated in terms of where they will go?

Absolutely. So first 2025, the year we're currently in, is the first target, but it's not an enforceable target. This is a baseline target year. So 2026 is the first year that there is an enforceable target. We won't have the data to know which entities exceeded the target until September of 2027. We'll be getting the 2026 data.

We'll need time to analyze it. So we're really not looking at until 2028 that we even start having these conversations to look at backend. We have a four step progressive enforcement authority under the statute. So first is to look at the data. We can have a conversation and actually bring entities in for public conversation.

If we do have concerns with the entities that exceed the target, we can engage with them on performance improvement plans. And it's only for entities that violate their performance improvement plan that we would look to the penalties. The statute does note that the penalties would be commensurate with the extent to which they exceeded the target. But we're looking at several years out from now.

So 2028 would be really the first year that you would be able to establish any performance improvement plans. Then an entity would have to essentially be given an opportunity to go through mitigating any of the, of the, of the factors that were addressed in the performance improvement plan. And then at that point, should they not kind of get their act together, then that would be the time where there would be penalties?

That's what we anticipate.

And is there any timeline associated with the amount of time we are offering for the performance improvement plan?

No.

So it's an indefinite time frame?

And I'm looking to the deputy director...

Each performance improvement plan will be developed for, the entity will propose some solutions on how they're going to come into compliance with the target. And depending on the type of organization, they'll need to propose a timeframe, and OHCA will need to review that and also make a determination if that's an appropriate amount of time. And then we would monitor the performance improvement plan to make sure that they're meeting certain milestones. And then if, if during the duration they don't, they're still not compliant, then penalties would be on the table.

Would an entity be able to offer a 10 year plan?

No. It's something that we would develop in conjunction with them. So they would certainly come to the table with proposals. But I don't think that would be reasonable to have a 10 year plan.

Would a five year plan be reasonable to you?

That's a conversation that we'll be having with the board because I think it's reasonable to... We do want to lay out those parameters.

Thank you.

Assembly Member Patterson.

Yes, thank you. Could you help me understand again what a high cost hospital is?

Absolutely. So we've done a lot of analysis and we've focused on a couple of measures. One is a per unit measure that looks at the net patient revenue with a case mix adjustment. We've also done a comparison between the commercial prices that a hospital charges and the payments that, the rates that Medicare pays. So we've looked at a lot of different measures and settled on those as being the most reliable.

Does, did that analysis incorporate visits to the actual facilities?

No.

Two of the hospitals on the recommended list, Barton Memorial, which is number one, is in a county I represent, although I don't represent that hospital. And number eight, Marshall Medical Center, is in my hospital or in my district.

And I would encourage somebody to actually go to these hospitals before making a decision. Because your agency has defined they set a 3.5 spending target statewide, but they're looking at potentially considering a 1.8% for these targets. Is there anything, can anybody say that their own budget, their own personal budgets are only going to increase 1.8%? I mean inflation's probably going to be higher than 1.8%. So I don't really understand how you came up with that 1.8% number.

Sure. So first I just want to note that we have not gone to visit the hospitals physically, but we have been meeting with individual hospitals. Barton Memorial did come, for example, to our last OHCA board meeting in February and we look forward to following up and having a meeting with them.

I would go too because I'd be scared if I was set with a 1.8% target. So I would certainly go to the meeting as well.

Yes. So the way that we reached the 1.8 proposed target value was by looking at the average, again, of that unit price and the Medicare commercial ratio and those 11 high cost hospitals that you have information about, and we're happy to follow up, those they're charging twice as much as the average of other hospitals in the state. And so we, we did that cost relativity to have the, this is our proposed methodology to have the spending growth targets.

What's a per unit? What's per unit?

Hospitals file annual financial reports with HCAI every year with both inpatient and outpatient data. And there's a measure that we use, NPR per CMAD, net patient revenue per case mix adjusted. And so that's the per unit measure that we have been using to try to have an apples to apples comparison between hospitals. And this is a measure, we've been talking to the hospitals about how to measure their costs, and they've had an opportunity to give input on the use of that measure.

You mentioned something about some of these items in terms of investments and things like that. I have been to Marshall on many occasions and it's a wonderful hospital, the only one really servicing that side of the slope of El Dorado County. I think it's experiencing serious issues for a number of reasons, including policies that have passed out of this Legislature, and it's moving forward on complying with those laws. But I would never walk in there and say, gosh, you know, they're charging double. Look at all these terrific things they have here.

And so I think, you know, the concern I have is a lot of things that go into there. I mean, we just had a conversation right before this about investing, about doctors going to live in places where those hospitals are. So they might have to pay maybe more than living in a place like Sacramento or something like that to go up and live in that portion of El Dorado County. I also wonder, if you look at it at the back end, should they come to you first for approval before making investments in any kind of technology that they have?

No, that's certainly not our anticipated... That's not what we expect.

Well, having worked for a regulated entity or regulated industry prior to coming here, I can assure you that organizations that are regulated are not going to make investments if they're concerned about potential regulatory oversight and penalties assessed on them.

So they will most certainly, any hospital, not just the high cost ones that somehow are supposed to live within 1.8%, will be coming to you to ask for approval prior to making investments into their facilities because they will be concerned about a penalty that that could put them out of business.

And then subsequently maybe they end up on the loan program because they're just trying to stay open and stay afloat. So I have a lot of concerns about, I mean, the 3.5% target's bad enough, it's supposed to decrease to 3%. But 1.8% is a remarkable target and consideration, especially if the agency hasn't been there. And I highly recommend you go to all those hospitals before setting that number.

Thank you. Seeing no one else from the dais, we'll move to public comment. And so if you could please keep your comments focused on the Office of Health Care Affordability. Keep your comments to a minute, and if you would provide your name, organization, and position only if you are adding on as a me too. Welcome.

Thank you. Good afternoon, Madam Chair and Members. I'm Katie Van Deynze with Health Access California, the statewide healthcare consumer advocacy coalition. Health Access was pleased to support the multi-year effort by former Assembly Health Chair Dr. Wood for the Office of Health Care Affordability, which is part of a larger effort to improve affordability for all Californians.

Healthcare unaffordability is a crisis today, and more than half of California consumers reports skipping or delaying care because of the costs and and half of them got worse because they did. Hospital costs are the single largest reason for medical debt and the family share premium and deductibles is more than $10,000 a year, when the average California family lives on about $85,000 a year.

This is unaffordable. Health Access supports basing the cost growth targets on healthcare entities on growth and family income over the last 20 years because otherwise more and more of healthcare, more and more of California's incomes will be eaten up by healthcare costs.

The average hospital in California is paid twice as much by private insurance than Medicare pays for the same care, and some hospitals are paid four or five times as much or even 10 times as much as Medicare. That's too much. Health Access is happy to provide more context on the consumer perspective on OHCA, and I appreciate your time. Thank you.

Good afternoon. Mark Farouk on behalf of the California Hospital Association, representing over 400 hospitals and health systems in California. First, I want to thank the committee and thank the office as well for this discussion this afternoon. California's hospitals share the goals of making health care more affordable while preserving and improving access to high quality equitable care.

We have engaged on a regular basis with the office and will continue to do so. We have also offered detailed alternatives to the current spending target. However, we do have significant concerns with the office moving forward with what we consider an unrealistic statewide spending target that ignores the drivers of spending and lacks analysis on impacts of the targets on access to care. The sub-inflationary spending target will decimate hospitals' abilities to sustain services and their workforces.

OHCA established a 3.5% statewide target and is proposing an even more narrow hospital sector target before any analysis of the impacts of the targets on access, quality, equity, or workforce stability have been completed. At this point, we have no analysis of the unintended or intended consequences for requiring providers to meet a spending target over a percent lower than well established projections on the cost of California's health care needs.

In order to meet the 3.5% cap, hospitals will have to pull back on investments that require increased upfront cost but may bear savings over time. For example, better management of chronic conditions requires higher upfront expenditures while savings from such efforts are realized years into the future.

Furthermore, the spending target does not incorporate the growing needs of California's aging population, increased labor cost, and workforce impacts, nor the need to invest in patient centered technologies. Furthermore, the target includes no adjustments on the impact of state mandates or changing economic conditions.

Finally, both payers and providers are responsible under the target for any growth in unregulated sectors such as pharmaceutical manufacturers, intermediaries, or retailers. It is unclear how a lower spending target imposed on hospitals would be passed to consumers in the form of lower premiums and cost sharing rather than simply being retained by payers. Finally, we believe that drivers of health care costs should be incorporated into the spending target, not left to a subjective enforcement process. Healthcare organizations and the patients they serve need certainty and clarity. Thank you.

And if I could ask you to keep your testimony to a minute, we do have a timer here that'll give you a gentle reminder when you're close.

Thank you. Jonathan Clay here on behalf of Scripps Health. Echo a lot of the comments that CHA just made. I'll try and get into some more specifics related to us. I will say that nothing in the OHCA policies address the costs that fall to healthcare providers who are delivering the care to the people.

In the last year, costs outside of our control include nearly 9% increase in costs for our entire hospital system. Medi-Cal and malpractice insurance has increased by 39%. Supply costs have increased on average of 5% since COVID 19 officially ended, and pharmaceutical costs have increased by 12% for our system.

Labor costs have also increased by another 5% this year following last year's increases in minimum wage. This represents nearly $20 million increased costs as it relates to labor in the last 12 months. Again, as CHA highlighted, there's a lot of these costs that we use providers that are being charged with that are outside of our control from the unregulated entities. So we wanted to flag these for you today as consideration because from our perspective, this is difficult to manage.

Madam Chair and Members, Matt Broad here on behalf of the Teamsters and UNITE HERE. just wanted to say that we are strongly supportive of the direction that OHCA is taking. And the reason we are is because every time we go into contract negotiations, efforts and energy that could be spent securing wage increases are directed towards treading water with existing health care costs.

You know, with respect to your own Chair, or your own district, Madam Chair, in Monterey County, you know, we've heard that our health plan is subsidizing the costs of workers there based on earnings of workers in Boston, in Manhattan, and Chicago, very high priced cities because the cost of healthcare is so high. And so we think this is a really important direction and are strongly supportive of of seeing it continue. Thank you.

Hi, good afternoon. Whitney Francis with the Western Center on Law and Poverty. We echo the points made by Health Access California. But to add on, the Western Center supported the establishment of the Office of Health Care Affordability to rein and costs. And more than one in three Californians have medical debt.

And Californians are having to choose between foregoing care and putting food on the table and paying rent. Hospital costs are the single largest reason for that debt, which is why we support basing the cost growth targets on family income growth and what Californians can afford. Low wage workers are still expected to contribute more of their wages to health coverage. And without these efforts, Californians' paychecks will be taken up by health associated costs. Thank you.

Good afternoon Madam Chair and Members. I'm Angus Cochran with Washington Health. We are a 415 bed non-designated public hospital located in Fremont and we serve southern Alameda County, and we've been there since 1958. As an independent district hospital with an elected board, we operate the only level 2 trauma service in South County.

I'm here today to express grave concerns about being placed in this list of 11 high cost hospitals by OHCA. Being targeted with a growth rate target lower than other hospitals and lower than the inflation rate will seriously jeopardize the financial stability of our healthcare system. We are what Director Landsberg characterizes being in the bottom quartile financially.

75% of our payer mix is government sponsored through Medicare and Medi-Cal and reimbursement for these patients does not cover our costs. OHCA's own staff analysis in January showed that our hospital operating margin during the period was 0%, and that analysis did not take into account health system costs that further impacted our bottom line.

We're very grateful to the OHCA staff for being willing to meet, and we're looking forward to that meeting to meeting to understand their data. But I believe as a healthcare district with an elected board, as I said, we have unique circumstances that have not been adequately addressed in the methodology used to create this list. Thank you.

Chloe King with Political Solutions on behalf of Memorial Care, a nonprofit health system in Southern California with four hospitals and over 200 sites of care. For more than 10 years, Memorial Care has been revolutionizing value based care to improve access to quality care for patients and at the same time drive down the total cost of care.

This means driving affordability in healthcare. As they have learned, it takes time to shift business business strategies and build a network to support these efforts and time is needed for other health systems to follow suit. Time is what we are asking this Committee to consider Today.

We are seeing the Office of Healthcare Affordability move ahead on initiatives without robust data sources as well as fundamental lack of understanding of how health systems and hospitals are all paid differently by public and commercial payers. Since July 2023, Barry Arbuckle, President and CEO for Memorial Care, has volunteered his time to serve the OHCA Advisory Committee.

During meetings, he has publicly shared that time is needed for OHCA Board to look at data and plan for changes in health care. OHCA is moving ahead of required statutory timelines without taking into consideration the chaotic environment in which health care systems and providers are currently operating. Thank you.

Kelly Brooks on behalf of the California Association of Public Hospitals and Health Systems, which represent 17 public health systems that are county owned and affiliated, as well as the UC systems. Together, these systems form the core of the state's healthcare safety net.

Despite representing only 6% of hospitals, they provide 35% of Medi-Cal and uninsured hospital care. Public hospitals strongly support OHCA's goals to improve affordability for patients.

However, we have some concerns with OHCA's approach to the healthcare spending targets, hospital spending measurement and data, and the performance metrics under consideration and potential impacts on access to care in the Medi-Cal program.

Public health care systems play a unique role in supporting the financing of the care they deliver in the medical program, contributing over 4 billion on an annual basis in place of the state's share.

Public health systems also operate as integrated systems of care where existing hospital revenue reporting structures may not align with or accurately take into account their delivery system structures.

Public health care systems provide many of the highly specialized, high cost, tertiary and quaternary services in their communities in the state, like trauma, burn care, major organ transplants and other specialized services, and we're particularly concerned about this coming at a time when there are significant federal threats looming to the sustainability of public health care systems. Thank you.

Good Afternoon Madam Chair and Members. Dominic Tamari from Marc Strategies here on behalf of University of California Health who endorse the comments made by the Association of Public Hospitals and CHA. We support OHCA's work and improve, to improve affordability while maintaining access and ensuring equality.

We also implement and we also support OHCA's implementation and enforcement of cost targets, but feel they must consider UC's health's unique role as the state's public academic health system.

UC Health and its six academic health centers and 21 health professional schools provide care to patients from 91% of California zip codes, particularly care for complex health conditions that is not available at community hospitals. We also train the state's future health care workforce and conduct clinical research to discover life changing treatments and cures.

UC Health is the second largest provider of Medi-Cal inpatient services. We are designated public hospitals for the purpose of Medi-Cal programs and as a public entity most UC medical revenues are reimbursed through self financed payments. We are this is my last point, I promise.

We are also making significant investments to meet the state's health care needs by expanding capacity and services. We appreciate OHCA's engagement and the engagement of this Committee on the issues as we work towards this in the future. Thank you.

Hi. Thank you everyone. Kelly Ash with Dignity Health. We take our part in achieving healthcare affordability in California very seriously and look forward to continuing to work with OHCA on these measures. As the largest Medi-Cal provider in the state with 29 hospitals statewide, we have concerns with what's being incorporated and also what's not being incorporated in looking at things like the spending targets.

Dynamics between commercial and government payer, government reimbursement, like many of my colleagues said, falls very far short and we're uncertain with federal actions going to be taking place soon.

By focusing solely on commercial year over year revenue capsules, the office misses the complete picture and doesn't solve the underlying problem of the cause of commercial rates necessarily gapping that bridge. In many regions our hospitals are underwriting significant costs and loss attributed to physician networks. Santa Cruz County, for example, exemplifies the situation.

The HCAI hospital reporting will not provide insight into these physician costs and misses the target on that. There are several other things like inflation and supplies cost of supplies that are continually going up at much, even double that 3.5%. We look forward to working with you all more on this. Thank you.

Hello, I'll be brief so my name is Bryant Miramontes. I'm with the American Federation of State, County, and Municipal Employees. We first want to express our gratitude to the Administration and Legislature for your work to contain health care costs for the Office of Health Care Affordability.

Escalating health care expenses have surpassed wage growth, which presents real challenges for our members overall ability to afford basic essentials. Therefore, we wholeheartedly support OHCA's cost targets and strong enforcement measures to ensure entities comply.

Also, while we understand that OHCA has the ability to review market consolidation, we believe that the state can and should do more to address and mitigate this issue, which is a key driver of the outrageously high cost of California's health care system. Thank you.

Hi. Nicette Short representing PEACH, California Community Hospital Safety Net, St. Agnes Medical Center, Rady Children's Health and Adventist Health. We are wanting to control healthcare and spending is a joint shared effort, but we would encourage the Legislature and OHCA to do a deeper dive into the impacts on access to healthcare.

We appreciate the Chair's questions earlier, but think it's warranted to kind of do a little bit of a deeper dive into that area as we're expecting policy changes in Medi-Cal at the federal level. There are many hospitals that are still financially struggling, as was discussed in your previous panels.

We think that these changes are moving very quickly and would appreciate kind of working with the Legislature to make sure that the access to healthcare isn't exacerbated by the efforts here. Thank you.

Good afternoon Madam Chair and Members. Connie Delgado, on behalf of the District Hospital Leadership Forum. As I mentioned, these are the 33 district and municipal hospitals. They're independent, standalone facilities. Two thirds of them are rural and 18 of them have critical access designation with publicly elected boards.

They are proud to be local governments responsible for providing healthcare needs for their community. Due to financial difficulties district hospitals have faced over the years, California has seen more district hospitals closed, close their doors, file bankruptcy, or get acquired by larger health systems as their only option for survival.

20 years ago we had 56 independent district hospitals and today we're down to 33 and we're likely to see that number go to 32 or 31 at the year end.

District hospitals share concerns as many hospitals in the community have have spoken about the accelerated time frame with establishing sector sector targets and the definition of high cost targets. We also share the concerns flagged by our county and UC public hospital colleagues, the high cost methodology.

We want to just mention that one of the hospitals that's on the high cost list this year is operating on a negative 2% margin and currently sits with 17 days cash on hand. We respectfully ask that you consider a lot of these variables as you move forward with this. Thank you.

Thank you, Madam Chair and Members. Sarah Bridge on behalf of the Association of California Healthcare Districts. Want to echo the comments made by my colleague from the District Hospital Leadership Forum as well as the comments made by the California Hospital Association and California Association of Public Hospitals.

Just want to underscore that healthcare districts and district hospitals in particular are incredibly unique. Two of them sit on the high cost list and that is largely due to other geographic features and constraints.

As many of my colleagues mentioned, the way that our district hospitals are financed are unique and the types of care that they subsidize for vulnerable populations is extensive. We look forward to ongoing conversations with the Department and the Legislature. Thank you.

Good afternoon Madam Chair Members. Alfredo Medina, here on behalf of Cedar Sinai Medical center and would like to align our comments with those of the California Hospital Association, also here on behalf of Cottage Health impacted by the high cost target, a not for profit health system in Santa Barbara county serving the residents of Ventura, Santa Barbara and San Luis Obispo counties.

72% of its payer mix are government payers with over 20% of those being from the Medi-Cal population. Santa Barbara Cottage Health is the only Level 1 trauma center in Santa Barbara County.

The impacts of the spending targets should be further evaluated by the Legislature in order to ensure that OHCA's mission of maintaining quality and equitable care are preserved. And we appreciate working with you on that. Thank you.

Good afternoon Madam Chair and Members Stephanie Tapia Jimenez from Brownstein on behalf of Providence St. Joseph Health, we align our comments with the California Hospital Association. Additionally, drivers of health care costs must be incorporated now into the spending caps, not left to a subjective enforcement process. Healthcare organizations need certainty and clarity in order to make long term decisions.

Lastly, lowering the target even further, without a clear understanding of how spending will be measured means that we would be forced to further reduce the care we provide. This could impact access to care, especially for the most vulnerable Californians. Thank you.

Thank you Madam Chair and Members. Mitch Steiger with CFT, a union of educators and classified professionals. Just here to echo the comments of Health Access, Teamsters, AFSCME and a few others. We think it's really important to just the supporting the work of OHCA and specifically the new regulations related to the hospital sector.

We think it's really important to focus on the effect that this is having on workers and the worsening dynamic that it's having in the collective bargaining process where particularly in areas of the state where housing is also extremely expensive.

We come into the collective bargaining process needing a lot more money to cover the cost of housing and to stay in our homes. But then we also need more to cover the cost of health care, while the employers need more to cover the cost of their contributions to health care.

And it's creating this kind of perfect storm where we just can't get all of those. And so it's becoming that much harder for our Members to stay where they need to be. And it's leading to what would at best be described as a contraction in these areas.

But left unchecked over the time, it could lead to kind of a slow motion collapse in these areas where we're already having a really hard time keeping our members there and keeping them happy and able to stay in their homes.

But people are going to have to start to leave if we do, if we don't do something real about this problem. We think the work of OHCA does that and we strongly urge that it continue as intended. Thank you.

Good afternoon. Matt Lage on behalf of SEIU California, I really want to thank the Committee and particularly thank HCAI and the staff at OHCA and the board and the Advisory Committee. Everyone's doing incredible work on this complicated issue to try to address cost of care. This is something SEIU has been working on for more than a decade.

It was really fantastic to see OHCA come together and now we're starting to get into the hard part of the conversation.

One of the things I wanted to highlight from that debate was really the need for flexibility was one of the main proponents or the main talking points from the groups as it was coming together and just highlight, well, this is now the time for flexibility to figure out how you can meet that target.

Of course we don't want to do it off the backs of quality or access of workers. But also at the same time we have to get the focus on the cost of care because too many people are delaying the cost of care or workers are at the strike line because of the cost of care is just taking up too much of the bargaining table. So just want to stress those.

Also just notice some of the mention of two hospitals on the dais today. And so just want to highlight that those two hospitals are charging 9 and 3 times the rate of Medicare for their commercial insurance. So yes, absolutely, we should be looking at the costs across the board.

But also these continued we're just going to throw money at the problem is putting it on the backs of working people in California who just can't afford it anymore. So encourage the work of OHCA and just want to make sure that we're not delaying and implementing as soon as possible. Thank you.

Good afternoon. Megan Loper on behalf of the United Hospital Association, I would like to align my comments with those of our colleagues at the California Hospital Association. UHA represents the community tax paying hospitals in the state. Our membership's very diverse. Some are rural, some are urban. Many serve a high volume of Medi-Cal and Medicare patients.

And so would echo some of the comments about cost drivers that may be out of control of the providers.

And wish that we could have additional conversation and appreciate the conversation to date, but think that more time is necessary to dig into the data to really understand solutions that can help all of us address the affordability issues faced by Californians but also preserve high quality access to care.

Thank you Madam Chair and Members. My name is Fred Noteware and I'm here representing Stanford Healthcare. Stanford is concerned that the target means it will be forced to reduce the care it provides. As a predominantly tertiary and quaternary care facility, Stanford has one of the highest case mix indexes in the country.

Because of the specialization in complex diseases and resulting complications adherence to an even lower spending target would effectively prevent Stanford from providing life saving care our practitioners are trained and licensed to provide. Including but not limited to tough oncology cases, critical transplantation procedures, advanced cardiothoracic surgeries and even level one trauma care.

Stanford is an academic medical center, it's a teaching hospital. There are naturally higher costs given the need for ongoing medical research and physician education. Thank you.

Good afternoon Madam Chair, Members. Awet Kidane have the pleasure of representing the California Children's Hospital Association. First I want to align my comments with the comments made by our colleague from the Hospital Association.

Madam Chair, if I may want to really uplift a question that was made by Assemblymember Bonta which is part of the concerns that we have. A lot of costs are born with children's hospitals from very difficult cases, high acuity. Beta thalassemia which working on a cure for that which is extremely high cost.

Also sickle cell which has ravaged communities is also extremely high cost. Up until this point we do not see any acknowledgement of those costs with respect to the 3.5 and then graduating down over five years. Second, the medium household income growth may reflect what is affordable for families does not reflect the growth rate for hospitals own costs.

And this means valuable spending will have to be reduced to meet the 3.5 target. Hence the research, the cutting edge edge treatment. With that I want to thank you for your time. Thank OHCA for their participation. We look forward to participate.

Good afternoon Madam Chair and Members. Allison Barnett with Platinum Advisors here on behalf of Sutter Health and recognizing I am second to last in line, I will just align my comments with CHA and the others today. Thank you.

Cher Gonzalez, on behalf of my client, the Hemophilia Council of California and their Rare Disease Access Coalition, which includes organizations like the Cystic Fibrosis Research Institute and the Sickle Cell Disease Foundation. We appreciate all the work that OHCA has done to make health care more affordable.

We are of course concerned, however, about how the cost containment caps at the hospital level are going to impact inpatient treatments, especially for those of us who are simply born as the most expensive patients, those of us with rare disease.

So what we'd like to see as this process moves forward is that the patient voice is uplifted and really all actions by OHCA are in fact patient centered and patient guided. And we'd like to see a more robust outreach from OHCA as well as an implementation of a more formalized process for patient input. Thank you so much.

Thank you to our panelists and thank you to all for giving their input. We are going to move on to issue four now, which is on CalRx. The background for this issue is on page 21 of your agenda and for this panel we welcome HCAI, the Department of Finance and the Legislative Analyst Office.

On this issue we're asking HCAI to provide an update on its CalRx program related to the manufacturing and distribution of insulin and naloxone. And please feel free to start when you're ready.

Good afternoon Members of the Committee. I'm Vishaal Pegany, Deputy Director for Office of Healthcare Affordability at HCAI. So I'll be providing some history on CalRx, its fundings and key updates. CalRx is a state powered pharmaceutical market disruptor that aims to make medication more affordable and accessible in California.

CalRx's enabling legislation, the California Affordable Drug Manufacturing Act, was passed in fall 2020. The program was assigned to HCAI the following year. The 50 million Cal Rx Civica deal to manufacture insulin was announced in March 2023.

Civica has achieved several milestones in developing an affordable biosimilar insulin glargine product, including passing initial facility inspections by regulatory authorities, manufacturing vials and pens at a new U.S. facility for upcoming clinical trials, and conducting product quality and stability tests. Civica is also coordinating with the pharmaceutical supply chain to plan for CalRx insulin distribution upon FDA approval.

HCAI's CalRx Insulin Patient Advisory Council will launch this year and will continue to gather critical patient feedback to refine our strategies for distribution and access. Additionally, as part of ongoing efforts to reduce opioid overdoses, the 2023-2024 Budget Act provided HCAI with 25 million in opioid settlement funds for the CalRx Naloxone Access Initiative.

HCAI has used a small portion of the funds to support personnel costs, contracted technical support services and costs associated with establishing and maintaining a direct to consumer solution. The CalRx Naloxone Access Initiative to date has already made significant strides in improving access to affordable Naloxone and we partnered with Amneal Pharmaceuticals through an open Request for Information process.

So in February we awarded a contract to Amneal Pharmaceuticals to manufacture a CalRx branded generic over the counter Naloxone product at a reduced price of $24 per twin pack. This represents a 40% savings compared to the state's previously contracted rate. CalRx started supplying the NDP the Naloxone Distribution Project which is administered by DHCS.

So we started supplying that program in May 2024 and we've been able to lower prices for the prices that DHCS pays as well as the broader market.

In spring 2024, CalRx announced on our website and through a press release that all California businesses and governmental entities can purchase CalRx generic Naloxone at the same $24 price that's available to the Naloxone Distribution Project directly from Amneal. So this further expands access to this life saving medication.

HCAI is now focused on expanding access to CalRx Naloxone by developing a direct to consumer solution which will allow individuals to also buy Naloxone through a mail order solution at the same $24 price point per twin pack. We anticipate launching this direct to consumer option this spring. And now I'll pause to take any questions from the Committee.

Is there anything from the Department of Finance or the LAO?

Albert Pineda, Department of Finance, nothing further to add.

Jason Constantouros, LAO. I just wanted to note that in our analysis of the HCAI budget we did provide an initial implementation update and our key comments on the CalRx initiative are summarized on page 23 of your agenda.

The bottom line is that, you know, we did find some initial implementation successes from the program, particularly on the Naloxone initiative which appears to be further along in terms of rolling out to consumers. There are some key oversight questions that we continue to raise for the Legislature that we recommended consider as it as more information becomes available on CalRx.

Particularly around when the products will be available to consumers, particularly on the insulin product, which the timeline of that still remains uncertain. We also recommend considering, you know, how these products will reduce prices to consumers. Again, HCAI has some information about how the naloxone product may be reducing costs.

That would be something to further keep apprised of. And then also how the products compare to other competitors. Since the rollout of CalRx, other generic products have entered into the market both for insulin and naloxone.

According to HCAI, a lot of these other competing generics take more traditional pricing methodologies and that the products are, the new products, from CalRx are intended to be at a lower cost. But again it's be helpful to keep apprised of these developments as more information becomes available.

And finally turning to page 24, we'd also note that this year's budget does include one time funding for CalRx to construct a new manufacturing facility to help manufacture insulin. This was something that was originally appropriated a few years ago and then was deferred over time.

A manufacturing for the insulin product, as HCAI noted, is occurring at a US Facility currently in Virginia. And according to HCAI, more further report that will sort of assess the state's role and feasibility in manufacturing will be sort of forthcoming and help sort of guide information on how to use these funds.

So we recommend keeping apprised of that and as more information becomes available, reassessing the need for these funds as sort of recommended by the Department in the port as well as any other information that comes available. Thank you.

I do have a question to begin, if you have any kind of timeline you can share on the insulin or definitive timeline you can share on insulin being available?

Yeah, at this time I don't have a definitive timeline. Civica does share detailed timelines with the state on its product development and we're tracking that very closely. We do expect them to start clinical trials soon and as soon as we have a public update to make, we'll be doing so.

And then if you could just provide a little more clarity on the confidentiality agreement, I think we have a duty to keep the project on track and to make sure that we as a Legislature have the right information to do so.

And so if you could kind of talk about what you're able to discuss, what you're not able to discuss, why that agreement exists.

Yes. So transparency is a key objective of our program. The pharmaceutical sector, as you know, is well known for being secretive and litigious. So that was very important for us to make our public, a public posting of our contract with Civica. It's on our website.

So that version of the contract, with the exception of a few redacted phone numbers and email addresses, the only portion that we withheld was the insulin project milestone payment schedule. So it's referenced in the contract, but it's not in the public version.

And the reason for that is it's withheld because the public interest served by not disclosing the schedule outweighs the public interest served in disclosing the schedule. It contains proprietary and sensitive information that if disclosed, would put the state in Civica at a competitive disadvantage.

The very reason we entered into a contract with Civica is to disrupt the big three insulin manufacturer oligopoly. And if that information about kind of where they are in the development was released, that would provide a competitive advantage to the big three.

Got it. Thank you. Any questions from the dais? From the Members? Assemblymember Patterson?

Yeah, a couple questions on the insulin product. So the set target price is $30 or $55 for a pack of five prefilled insulin pens, is that correct? That's right. And that would be significantly more expensive than commercial options?

More affordable, less.

Less expensive, yes. So just from a policy question, we're investing in this company to help them get up to speed so they can produce this, their product, and simultaneously investing in our own manufacturing capacity, potentially to build our own infrastructure to make this product.

Potentially.

Okay. That's the only question. So I had on that, but I on the Naloxone product, I have some questions regarding that. Mentioned the company was Amneal Pharmaceutical. How exactly were they chosen? You mentioned open records process. Can we describe that a little bit more, please?

Yes, Assemblymember Patterson. So we use something called a request for Information process, where we send it out to companies and they could give us proposals. So that was released in July of 2023 and we had eight companies respond to the RFI.

We evaluated them on several criteria, including their manufacturing capability, speed or time to market, pricing, distribution strategies, and then the level of funding they may need, whether that's development, they may need money for drug development or some of them didn't require that.

So during the vetting process we evaluated these companies and then we made the decision to select Amneal for this program, where again we prioritized factors such as price, time to market and the ability to meet the state's volume needs. And Amneal met all those criteria and they were selected.

Okay. Eventually I'll request from your office, whatever I'm able to access the information provided by the other companies. Because my understanding is, as I'm sure you're aware, is just days after this agreement was signed.

Which by the way, on the contract which I have here, the contract uses a health and safety code, section 127690-97, which is basically a Covid era law to help CalRx ramp up fast enough for the state to procure its own pharmaceuticals. So it's an exemption from the existing bidding process that would normally apply.

It's a new statute that allowed that so the state can help respond to epidemics in a more, more quickly if needed. But that was the exemption cited on the contract which I have right here and is actually publicly available on the internet.

But just a few days after that, after this agreement was signed, Amneal settled with a collection of dozens of states for $272.5 million. The Attorney General said at the time, today I'm thinking of the countless families and communities impacted by the opioid epidemic. I can't begin to imagine the immense pain they have been through.

Today's announcement builds on our efforts to heal our communities and respond to this epidemic from all angles, from recovery services to resources on prevention and treatment. So Amneal, without admitting any guilt, settled with the collection of these states to pay this settlement out over 10 years for allegedly fueling the opioid epidemic.

And during the time 2006 to 2019 it sold nearly 9 billion opioid pills and I assume many to California and tragically, people been in this state and throughout the nation have been negatively impacted by that.

So just a few days and in the press, HCAI had mentioned that it was aware of this settlement moving forward prior to the agreement being signed. So was, did that go into your calculations in choosing a company to make this contract with?

We were aware about the lawsuit against Amneal. Yes.

Okay. Did it go into your considerations at all that just days later, this settlement?

We absolutely had conversations about that piece. Unfortunately, most pharmaceutical members of the pharmaceutical industry have lawsuits against them. But it was a very important consideration. Obviously we're very concerned. I mean, the fact that the opioid epidemic was contributed to by many parties in the pharmaceutical industry is very concerning.

So out of the other, you said most pharmaceutical companies have lawsuits against them. That's probably true. Probably most people have lawsuits against them. The question I think would be out of the other people, the other companies that submitted bids, did

they also were in the middle of settlement talks with the state for quote, unquote this is language by a government official that settled the lawsuit, quote, unquote, allegedly fueling the opioid epidemic. Were the other companies that put in requests for information, were they also involved? All of them or many of them?

Most of them, in your words, fueling the opioid epidemic?

I don't know whether all of them had litigation pending against them, Assembly Member. We're happy to follow up with your office about that.

All right. Amneal described this contract with the State of California as a, quote, unquote, great win for us and according to the Chronicle, described the drug as a big potential moneymaker for the company. That's not how I would describe that was in an earnings call, by the way.

And also in the same, same breath, the other different breath, different CEO, because there's two, quote, unquote, opioid overdose remains a U.S. public health care emergency. We are so proud that this essential lifestyle saving medicine is made in America and manufactured here in New Jersey by Amneal.

So it is kind of awkward for the state, which is investing tens of millions of dollars a year into this program where my neighbors and family members have died from the opioid epidemic to just days after this settlement was signed or this contract was signed, that this and you knew about it, the state settled this lawsuit.

You knew this settlement was coming. And that company that's going to be that settled for $272.5 million is paying off the money that it owes the state with profits that it said is going to be great for the company, is paying its debt to the state with profits it's making from California. It's totally offensive.

And I'd also like to say that I've heard just operational issues with this in terms of police departments in my district unable to procure this and so they're going through other means.

And I haven't even gotten into that because just the overarching issue that we would dare sign this contract just days within this multimillion dollar settlement, quarter billion dollars is offensive to me and the many victims I talk to on a daily basis.

Seeing nothing else from the dais. We'll open up to public comment. If you could keep your comments directed at this issue and keep to the one minute mark. And if you have a me too, if you could state your name, organization and position.

Cher Gonzalez, on behalf of the American Diabetes Association and the more than 3 million Californians who are living with diabetes, we are of course so excited about the idea of CalRx insulin.

However, we are a year behind schedule and clinical trials can take several years than we've just entered the clinical trial and then after clinical trials the FDA process can take a minimum of a year. In the meantime, Californians are struggling to afford their insulin. Twenty-six other states have already passed insulin co-pay caps.

Senator Wiener has a Bill yet again to cap insulin co-pays at $35. Twenty-six states have already done this. We love the idea of a California Rx insulin, but we cannot wait all the years and just wait for that solution alone. We need multiple, multiple approaches to this problem.

So we would love to see this Bill be signed by the Governor and the full support of CalRx when it reaches the Governor's desk and of course all of your support as well. Thank you so much.

Seeing no other public comment, we'll move on to issue five, the Healthcare Payments Data Program. For background on this issue can turn to page 25.

For this panel we do welcome HCAI, the Department of Finance and the Legislative Analyst Office and we're asking HCAI to provide a short presentation on the Healthcare Payments Data Program and the related budget change proposal and trailer Bill. Please go ahead and start when you're ready.

Great. Thank you Madam Chair and Members. Scott Christman with HCAI. I'll provide an overview and then talk about the budget change proposal. In 2018 Assembly Bill 1810 allocated $60 million in one time General Fund to HCAI to establish the Healthcare Payments Data Program.

The HPD is California's All Payer Claims Database, a research database made up of healthcare claims and encounters submitted by health plans. Health care claims data is regularly used in health services research and policy analysis. 20 other states have similar All Payer state run data systems.

The intent in creating this program was to first increase transparency about health care costs broadly to inform policy decisions to encourage the development of innovative approaches with the potential to deliver health care that is both cost effective and responsive to the needs of enrollees and to provide a public benefit to Californians.

HCAI submitted the Initial Planning Report as required by AB 1810 in March of 2020. That same year, Assembly Bill 80 subsequently authorized HCAI to build the database and begin collecting data from health care payers, including commercial health plans as well as insurers and Department of Healthcare Services for Medi-Cal Claims and then CMS for Medicare claims.

Since that time, HCAI has met all of the statutory milestones including substantially completing the database with four years of historical data to start from calendar years 2018 to 2021. And since, HCAI has been collecting over 100 million health care claims and encounters every month from payers. Publishing public data reports on topics of policy interest.

To date, HCAI has published four such reports available online. We'll continue to update these with new data going forward.

Launching the Data Access and Release Program enabling researchers and other qualified applicants to request access to non public HPD data to use in their own research and analysis that launched in January this year. And submitting a report to the Legislature in March of 2024 on the status of the program with a focus on data quality and completion.

AB80 also required HCAI to consider long term funding sources for sustaining the HPD program operations after the expiration of the one time General Fund appropriation. This to include maximizing federal Medicaid funds and data user fees.

In March of 2023, HCAI submitted a report to the Legislature that provides several options on how to fund the ongoing operations of the database, concluding that federal financial contributions and data user fees alone could not fund the majority of the HPD operational costs.

So HCAI identified several state special funds non General Fund sources that could be considered, including funds associated with overseeing the health insurance market, such as the Managed Care Fines and Penalties Fund administered by the Department of Managed Health Care.

It's made up of administrative fines and penalties levied on health plans in addition to the HCAI administered California Health Data and Planning Fund or the Data Fund, which is made up of administrative assessments on hospitals and currently funds other HCAI healthcare data programs.

The Budget Change proposal HCAI requests $22 million ongoing annual funding and authority for 47 positions to support the operation of the Healthcare Payments Data program. The proposal asks that any remaining General Fund from the originally appropriated, originally appropriated for the HPD to be reappropriated for fiscal year 2025-2026.

The Governor's Budget assumes about 9 million and the Administration continues to evaluate the remaining funds for the reappropriation. We'll make any updates as part of this budget process. We also request authority to transfer monies from the DMHC Fines and Penalties Fund to the Health Care Payments Data Fund.

So in partnership with the DMHC, HCAI has submitted proposed trailer Bill language that would enable the transfer of those funds. The California Health Data and Planning Fund will cover the balance of funding needed to support the program in addition to federal reimbursement.

That's for the essentially the share of Medi-Cal covered lives in the database and then user fees and the out years as we ramp up the request Data Request program.

If approved, HCAI will continue to implement and operate the HPD program and fulfill mandates and requirements of AB80, which includes providing policymakers and state agencies such as the Department of Healthcare Services and HCAI's own Office of Healthcare Affordability with critical data and analysis necessary to achieve evidence based health policy and practice and to advance transparency broadly in healthcare.

Thank you. Happy to address any questions or questions included in the agenda.

Anything else from the Department of Finance or the LAO?

Albert Pineda at the Department of Finance, nothing further to add.

And we're available for questions.

I actually don't have questions myself. Anything? Assemblymember Bonta?

Thank you. I think this is the potential of this is very important for the conversations that we've actually had throughout this hearing around transparency and healthcare costs and what it means to be able to make sure that we're serving the vast majority of covered lives. So I want to appreciate that.

I do want to just ask whether you have any insights into the kind of technical safeguards that would be in place to ensure privacy and security of the information collected by HPD?

Absolutely Assemblymember. I'm going to ask my colleague Mike Valle, who actually is our CIO as well, to speak to that.

Good afternoon and thank you for the question Assemblymember Bonta. The HPD does include various types of information required to pay health care claims, including information about an enrollee, their diagnosis and treatment, which when analyzed systematically across the population across the state, is useful in large scale healthcare services research and policy analysis.

The HPD has numerous controls in place to protect individual privacy and safeguard the data it collects, and I'd also like to mention that HCAI has a long track record of successfully collecting, managing and protecting sensitive information.

HPD privacy, security and confidentiality procedures conform with HIPAA, the National Institute of Standards and Technology Cybersecurity Framework, Federal Information Processing standards and other state and federal rules. All sensitive health care information is centrally managed where strict security, access, encryption and other controls are in place to ensure the protection of the data.

Such controls include least privilege role based access where any individual is physically prevented from accessing any more data than they are formally allowed, segregation of confidential data from other less sensitive repositories of information, data element scrambling of sensitive variables, rigorous logging and auditing of all system actions performed at the administrative, database and application levels encryption applied throughout all data processing procedures while data is in transit and while at rest and independent third party audits that include both technical penetration testing and overall risk assessments of HCAI systems.

HCAI performed in the top group of all state departments in its last independent security assessment conducted by the California Military Department. These procedures are overseen by a dedicated Chief Information Security Officer and Chief Privacy Officer.

Additionally, all HPD data uses are evaluated on a case by case basis against established criteria, such as limiting access to the minimum amount of data necessary for any proposed use or project.

HCAI diligently scrutinizes all such requests, and certain requests are required to be reviewed by the independent HPD Data Release Committee, made up of stakeholders and data privacy experts, and the California Committee for the Protection of Human Subjects, which oversees all research using state data.

Requests for data must include the scope of the project, the data years needed, specific variables to be used, the responsible official overseeing the project, and methods for addressing privacy and security issues.

No data is granted without a signed data use agreement that stipulates permitted uses, and a violation of that agreement is a violation of criminal code or criminal violation for California Civil Code. The HPD statute prohibits use of the data to identify any individual or for treatment purposes or benefits determination.

Individually identifiable information is used for research purposes only, such as linking records for population and longitudinal studies and ultimately the HCAI Director has broad discretion to evaluate the use and release of HPD data should it violate such provisions or risk individual privacy in any way.

I'm assuming that the data used for research purposes is de-identified data. Is that fair to say so?

Researchers may have access to identifiable information in limited circumstances where it's needed for the purposes of their projects, such as linking individuals across payers or over time. But then the results of those studies must be de-identified before they're published.

And are there protocols in place in terms of any requests that we might get from other governmental entities?

So I can say is that state law is clear on the protections of the data. The database is exempt from public records laws. As mentioned, all of the uses have to be evaluated on a case by case basis.

Also, any use of the data per state law has to have a benefit for Californians and again cannot be used to identify any individual.

Thank you.

I will now open for public comment. If you can direct your comments towards HPD and keep your comments to under a minute. And if you're a me too, please state your name, organization, and position.

Good evening, Madam Chair and Members. Katie Van Deynze with Health Access California in support of this funding for the HPD and the important work of the HPD to inform future policymaking efforts in the work that we were just talking about OHCA and other efforts to improve the healthcare system. Thank you.

Matt Lege with SEIU in support. Similar to her comments. Thank you.

Well, thank you so much to our panelists. We're gonna move to issue number six, HCAI budget overview and general budget change proposal and trailer bill. That's on page 28 of your agenda. Oh, I'm so sorry. I am so sorry. Back to public comment.

I wasn't sure if you'd wrapped all five. Good afternoon, and I apologize for my voice. I have lost it. My name is Shannon Olivieri Hovis. I'm the vice president of public affairs at Essential Access Health. Thank you for the opportunity to comment on issues and an issue currently funded out of HCAI.

Essential Access is proud to partner with HCAI to serve as the program administrator for two of the abortion access programs established in California in 2022, the Uncompensated Care and Practical Support Abortion. I'm sorry, Practical Support Grant Programs.

Additional investments in the Uncompensated Care Program are critical to continue this vital program, and we are grateful to Assembly Member Bonta for championing a budget request for $40 million to be leveraged over three years to sustain the program.

The Uncompensated Care Program was established with an initial budget allocation of $40 million to ensure abortion and contraception services are affordable and accessible and to stabilize our safety net providers offering these services at low or no cost to patients.

Providers can apply for the grant to provide abortion and contraception services for individuals below 400% of the federal poverty level, who are uninsured or underinsured, and who are not eligible to receive abortion and contraception at no cost through Medi-Cal and Family PACT.

The program meets an essential need to protect access for Californians and those forced to travel due to inhumane bans on abortion in their home state. Since January 2023, Essential Access has awarded $27.2 million to 14 grantees to reimburse healthcare providers for providing low or no cost abortion and contraception to eligible patients. Grantees have served over 130,000 patients with grant funds to date, including patients served retroactively during fiscal year 2022. Already demand for this program is approximately double the amount we are able to award each grant cycle.

Essential Access will launch the final RFP cycle for the remaining funds this spring, at which point the program will be discontinued if additional state funding is not secured. We look forward to partnering with Assembly Member Bonta, Members of this Committee, and HCAI to preserve this important program and continue making California's promise to be a true reproductive freedom state a reality. Thank you for your consideration and apologies again.

Just a gentle reminder that we will take public comment for items not on the agenda after we have finished finished all eight issues. And we are moving on to issue number six, which is on page 28 of your agenda. We've got HCAI, the Department of Finance, and the Legislative Analyst Office. And we're asking HCAI to provide a brief overview of your 25-26 budget and a summary of your six remaining budget change proposals and one trailer bill related to certified wellness coaches.

Thank you very much, Madam Chair and Members. HCAI's proposed budget for the budget year is $581 million, of which 207 million is General Fund, with the remainder being special funds. We are requesting position authority for 62 positions in the budget year, which would bring us to 825 positions, though I should note that does not reflect the efficiency and position reductions, which have not yet been finalized by the Department of Finance. So I'll give a very brief description of the six budget change proposals.

We have the Diaper Access Initiative, which would provide three months of free diapers for every baby born in California regardless of income, and that is proposed for 7.4 million General Fund in the budget year and no positions. We have a BCP related to Assembly Bill 112.

The same bill that created the Distressed Hospital Loan Program in 2023 also requires hospitals to report balance sheet data, expanding the quarterly hospital financial and utilization reporting that we get. So this would cover give us position authority for three positions to analyze that quarterly data.

We have a legislative BCP for AB 1577, which seeks to address the problem of insufficient numbers of clinical training slots for nurses and would have us, does have us post written justifications from health facilities and clinics regarding nursing clinical placement opportunities. So we have one position for this work.

Then we have a BCP related to enterprise risk management, seeking one position to meet increased workload demands resulting from federal cybersecurity patient privacy data laws and policies affecting HCAI. So this is one position which is a pretty modest request.

You know, there isn't a lot that really stresses me out as a director, but I can say the possibility of cyber attack certainly does. So again, we think this is a modest request. We next have a BCP related to chaptered legislation regarding building standards. Two relate to hospital building standards and one to clinic.

So I talked previously about AB 869, which applies to small, rural, and critical access hospitals, allowing them an extension to meet the seismic safety compliance standards if they come forward with an agreed upon compliance plan with milestones. And then Senate Bill 1447 uses the same framework for Children's Hospital of Los Angeles.

And then there are some changes being made to clinic standards for clinics not affiliated with hospitals. So this has some positions to implement those building standard changes. Last but not least on the BCP side is a BCP to move our Sacramento headquarters from a private leased space to a state owned building and funding for that.

And then in addition to the BCPs, we do have proposed trailer bill language related to certified wellness coaches. So as part of the Children and Youth Behavioral Health Initiative and the Governor's Mental Health, the Master Plan for Children's Mental Health, we've created this new profession, certified wellness coaches. The original statute refers to them as behavioral health coaches.

When we met, we've done a lot of stakeholder engagement about this profession, and youth told us behavioral health coach wasn't quite the right term. So they liked the word wellness coach. So it would change the statute to conform with that, specify that credentialed school staff may supervise wellness coaches and make some technical changes in terms of what the scope of services being provided by the wellness coaches is.

And this language was developed with extensive stakeholder engagement with stakeholders, including many education stakeholders with whom we've had many conversations since the start of the Children and Youth Behavioral Health Initiative. Thank you.

Thank you. Anything else from Department of Finance or the LAO?

Albert Pineda, Department of Finance. Nothing further to add.

And we do have comments on one of the proposals, which is the Diaper Access Initiative. That's the first proposal on page 28 of your agenda. And our comments are summarized beginning on page 30 of your agenda. I'll go through them really quickly. You can boil our comments down to really three key recommendations.

The first is a general recommendation. This again starting on the bottom of page 30. The first recommendation is a general recommendation we make across all of the kind of new discretionary proposals this year. And that is to weigh these proposals carefully against your budget priorities given that you're facing limitations in the General Fund this year, particularly for ongoing initiatives. That said, if diaper access is a high priority this year...

Turning to page 31, we do recommend the Legislature explore alternatives to the governor's proposal and specifically focus on expanding existing programs rather than creating a new initiative as is proposed in the Governor's Budget. And the main reason we recommend this is because we find some weaknesses in the administration's proposal, particularly that the proposal is not well targeted.

It provides a benefit to all California families regardless of financial need instead of providing really focusing limited resources on on households that have the greatest financial need. In addition, the initiative proposes a new distribution model to hospitals. And because this is new, this would face certain challenges and uncertainties. And then in addition, the administration...

It's our understanding at least that the initiative is intended to be ongoing, but the proposal before the Legislature just includes two years of funding. That leaves the sort of long term plan somewhat uncertain under the Governor's Budget. If the Legislature does wish to explore expanding some existing programs, we offer two alternatives that could be done either in lieu of each other or in tandem, depending on what the Legislature would like to explore. One would be to increase an existing subsidy for diaper affordability in the CalWORKs program.

This again provides a $30 a month benefit to low income families to help purchase diapers. And this could be expanded relatively easily without some of the implementation uncertainty and is also targeted towards the lowest income families. Another option would be to provide more funding to diaper banks or food banks that offer free diapers to low income families.

This is something the Legislature has done in previous budgets, and so it's something that could also be done relatively easily. And this also would utilize an existing distribution model that already exists. Our final recommendation is to also consider long term options, to the extent that's of interest to the Legislature.

So for example, the Legislature could direct HCAI to come back and report next year after doing some more exploratory work that is in the proposal to consider a new, you know, market intervention to improve diaper affordability. That would give the Legislature more information to make sort of better decisions next coming budget cycle. Thank you.

Thank you. I do have a number of questions around the wellness coaches. First and foremost, how outcomes are measured from a wellness coach. I mean, so I get wellness coaching. What do we show from that?

Yeah, it's a great question. I'll ask Libby Abbott if she wants to come up and add anything. I will just say to note, we have thus far certified 1400 wellness coaches in California. The schools have told us overwhelmingly, I think even there was sort of a parallel process. Right. The COVID was happening.

I think we're realizing what a mental health crisis there is for youth. And so at the same time that we've been developing the wellness coach models, many school districts have developed a similar type of profession and so have really embraced it. Really the reason for developing the profession is we have peer support specialists, we have a lot of licensed and all the way up to psychiatrists. But there weren't very many professionals at the associate and bachelor's level.

And we know that school counselors, school psychologists are stretched so thin that we thought it was really important to have this group of certified folks who are providing really primary prevention services, helping youth develop mindfulness, developing a lot of skill sets. So I don't know what we can say about formal evaluation planned.

Yeah, absolutely. I mean, I will say it's early days. So we're focused on kind of creating demand for this profession and rolling out the early sets of interventions designed to support both supply and demand of the new provider type and looking ahead. So this is just one of many sort of interventions or pieces of the CYBHI initiative. And CYBHI has a pretty robust evaluation plan in place.

They will be looking at metrics like suicidal ideation, suicidal incidents, and so of course, we can't bring that back to wellness coaches specifically, but it's part of a package of making sure that youth have access to the care that they need, both digitally through some of the other interventions in CYBHI, and in the spaces and settings where they learn and practice.

And then how are students chosen for needing wellness coaching, and then how do you ensure cultural competency? Making sure that the coach really understands the wellness need of that particular student, not their own perception of what wellness is, if that makes sense.

It does, yeah. So coaches offer kind of promotive and preventive care. So they will be able to offer some individual and one on one sessions. And a lot of what they do is in group settings. The idea is to destigmatize behavioral health issues, so that students feel comfortable then approaching as needed on a need basis.

Coaches are also trained to refer specific issues for higher levels of need or higher levels of acuity to school counselors and other qualified professionals. So the sort of approach is that having coaches on campus will create a space where the students who need it are then referred and able to seek out the care that they need.

So it's not as targeted as, say, a clinical approach. On the second question, so we are working hard, and Director Landsberg said this about all of our programs. We do work hard to make sure that all of the workforces that we support are representative ethnically, racially, and linguistically of the California they serve.

We are doing that and applying that to our wellness coach program as well. And then I think there's a real sort of, it's incumbent upon the employer, I think, to hire specific coaches who are reflective of the populations they serve. So in a given school that might look down different, and then what HCAI does is support sort of diversity across the workforce.

Thank you. Any other questions from the dais? Assembly Member? No. All right, we'll open to public comment. If you could keep your comments directed towards HCAI's budget related proposals and keep your comments to a minute. And if you're me too, please state your name, organization, and position only.

Kelly Brooks, I'm here on behalf of the California Association of Diaper Banks. We appreciate the LAO's analysis of the governor's diaper proposal, which includes leveraging our existing diaper network and expanding it statewide. We have started conversations with the diaper banks to get a sense of what kind of resources it would take if we were to expand the network, and we've had initial conversations with the administration to get a better sense of their proposal as well.

The number one thing people ask for when they come to food banks is actually diapers. In recognition of this, the Legislature has provided funding in each of the last six years and in the state budget for diaper banks. Over time, our network has expanded to 11 sites serving over 80% of the state's population, and we've distributed over 160 million diapers over the last six years. We would note for you that current the current funding in this year's budget expires on June 30, and there is not continued funding proposed in the Governor's January budget.

Without continued funding, we anticipate that many of the diaper banks will cease operations starting on July 1st. We look forward to working with the administration and with your committee on finding ways to continue to distribute diapers across the state. Thank you.

Good evening. Whitney Francis with the Western Center on Law and Poverty. We echo the Diaper Bank Network support for support for the request for diaper bank funding to continue operations and provide free diapers and wipes to low income families struggling with affording diapers. Thank you.

Mark Farouk on behalf of the California Hospital Association. CHA is currently working with HCAI as they continue to develop the Diaper Access Initiative. We're eager to receive more information about the logistics and participation expectations, as details are currently limited. Additionally, we're uncertain whether hospitals are the best distributors for this initiative and would echo the the issues raised by LAO. Thank you.

Chair and Members, Kathy Mossburg on behalf of the California Association of Food Banks. we would just echo the comments of our colleagues as it relates to the provision of diapers through HCAI. We really appreciate the administration looking at this issue and taking it on, but maybe we can work together to maybe modify the proposal to bolster sort of where we're able to get diapers in the best way to low income communities through the food banks. Thank you.

Seeing no other public comment, we'll move to issue seven, under Covered California. And thank you to our panelists. So moving on to Covered California budget overview, Health Care Access and Reform Fund, or HCARF, and the 25-26 subsidies update. This is page 33 of your agenda.

For this panel, we welcome Covered California, the Department of Finance, and the Legislative Analyst Office. And we're asking Covered California to provide a brief overview of the 25-26 budget, HCARF, and an update on the consumer enrollment and subsidies plan year 25 and 26. Subsidies for the plan year 25 and 26.

Thank you, Madam Chair and Members. My name is Katie Ravel. I'm the director of policy eligibility and research at Covered California, and I'm happy to be with you this afternoon to address the agenda items and answer any questions you have. I'll start with item one, the overview of the exchange budget and positions.

The Affordable Care Act of 2010 established health benefit exchanges to offer comprehensive health plans with income based financial health to help to lower premium and out of pocket costs for individuals who don't have affordable coverage through an employer, Medicaid, or Medicare. Covered California, as you know, is our state's Health Benefit Exchange.

We contract with 12 health plan issuers and five dental plan issuers throughout the state to provide coverage to our members. We were established as an independent state entity that receives no state General Fund to support our operations. Our revenue is generated from charging exchange issuers a participation fee that's based on a percentage of gross premiums collected.

So for fiscal year 25-26 our preliminary operating budget is for proposed at $442 million with 1,494 full time positions. This budget is provisional until it's approved by or our board in May. Your agenda also indicates two local assistance funding sources. The first is $20 million in General Fund for the California Premium Credit Program, which provides all Covered California enrollees with a $1 per member per month credit to cover the cost of certain abortion services that can't be funded with our federal premium subsidy dollars.

And $167 million is appropriated to Covered California to provide financial assistance to Covered California enrollees. For 2025, this funding is being used to eliminate deductibles and lower cost sharing for our members. And I'll turn it over briefly to my colleague at the Department of Finance to talk a little bit about the establishment of the Health Care Affordability Reserve or HCARF.

Albert Pineda with the Department of Finance. Just to give a brief overview of the Health Care Affordability Reserve Fund. As part of the 2020 the, which created the HCARF, it also included a one time General Fund transfer of 333.4 million. Covered California submitted a report to the Legislature in 2022 detailing cost sharing options for use of the fund to support low and middle income enrollees. The 2023 Budget Act shifted the individual shared responsibility penalty revenue from being deposited into the General Fund into the HCARF.

The 2023 Budget Act included 82.5 million for the first year of the state's cost sharing program and 2 million for the health care coverage for striking workers pursuant to provisional language included in the 2023 Budget Act. The 2024 Budget Act included 165 million for the state's cost sharing program and 2 million for health care coverage for striking workers along with provisional language to allow an increase of the appropriation by 3 million, should it be necessary, for a total of 5 million.

Thanks and I'm happy to go on to an update on our open enrollment that just closed if you'd like, or I could take questions now.

Oh no, feel free.

Okay, so for an update on open enrollment, a description of our subsidies that are currently in effect, and anticipated subsidy levels going forward. For 2025 coverage year, Covered California is offering the highest level of financial assistance in our history, and this is thanks to two things.

The first is the federal Enhanced Premium Tax Credit that was implemented with the American Rescue Plan and extended through 2025 under the Inflation Reduction Act. For coverage year 2025, we're estimating that the Enhanced Premium Tax Credit will provide about $2.1 billion in premium support for California Covered California enrollees.

The second is the California Enhanced Cost Sharing Reduction Program, which you just heard about. This is made possible by the appropriation from HCARF, and we're using this fund to eliminate deductibles and lower costs for key services like primary care, outpatient mental health visits, and prescription drugs and our most popular level of coverage, our silver plans.

So this record affordability pushed our 2025 enrollment signups to an all time high. As of January 31st, we had 1.98 million Californians enrolled in Covered California plans. This is about 200,000 more enrollees than we've ever had. And nearly 1.3 million of those enrollees are receiving state support through the California Enhanced Cost Sharing Reduction Program, again with no deductibles and lower costs when they use care. Looking out to 2026, if the federal Enhanced Premium Tax Credit is extended by Congress this year, 2025 subsidy levels will be able to continue into 2026.

If the enhanced premium tax credit is not extended by Congress, federal premium subsidy levels will drop to their pre-2021 levels, which are laid out in the Affordable Care Act. Under this scenario, our enrollees with income under 400% of the federal poverty level, it's about 60,000 for an individual and $125,000 for a family of four, will receive less premium support. And our enrollees with income over 400% of the federal poverty level will lose federal premium support entirely.

On average, and averages paint a very broad picture, but on average this would be a loss of $101 per month in additional premium savings for our enrollees. Covered California is providing technical assistance to federal policymakers to underscore the consumer impacts of failure to extend the Enhanced Premium Tax Credit this year. And as always, we will provide technical assistance to state policymakers as California continues to consider the use of HCARF dollars for 2026. With that, I'm happy to answer any questions you have.

Thank you so much. I was going to ask questions about the temporary subsidies, so thank you for covering that up front. But I did have a question around the HCARF loans and if the administration is on track for paying those off on time or if delays are being considered.

Yeah, so as a reminder, the HCARF has provided three loans to the General Fund, a $600 million loan that has repayments scheduled for 26-27, 2027-28, and 2028-29. There's also a $62 million loan that's projected to be repaid in 2027-28 and a $109 million loan that's the Governor's Budget assumes will be repaid in 2028-29.

So the Governor's Budget does not propose any delays to the loan repayments as projected. The administration continues to evaluate the program, and should a need arise, can repay the $62 million loan for program needs pursuant to Control Section 13.4 of the 2024 Budget Act. And the $600 million loan repayments are set in statute, and the administration is not proposing any statutory to amend these repayments.

Thank you. Any other questions? No. We'll move to public comment. And if you could please make sure your comments are directed towards Covered California's budget and HCARF and keep your comments to a minute and add on name, organization, and position only for me too's.

Good afternoon. Christine Smith with Health Access California. Health Access supports safeguarding the full amount of California's Health Care Affordability Reserve Fund, HCARF, to restore California's Premium Assistance Program and partially backfill federal premium subsidies at risk under the Trump Administration. Since 2021, enhanced federal Affordable Care Act Marketplace premium subsidies have made Covered California affordable.

These enhanced federal subsidies will expire at the end of 2025 unless the Trump Administration and Congress choose to extend them. Prior to these federal subsidies, California ran its own premium subsidy program. According to the UC Berkeley Labor Center, about 1.5 million Californians who currently receive subsidies would see premiums rise nearly $90 per month and another 69,000 would drop coverage entirely. According to Covered California, nearly 400,000 fewer Californians will be eligible for subsidized plans if the credits expire.

We propose using funds deposited annually into HCARF, about $300 million, to partially backfill the expiring subsidies, including the small amount going to the health care for striking workers and zero premium programs, but the remainder should go towards backfill. While these funds won't replace the full $1.7 billion federal investment, they can still go far to prevent a catastrophic drop off in affordability in 2026. Thank you.

Hello. Whitney Francis with the Western Center on Law and Poverty. Covered California has reached a record number of enrollees this past January, as mentioned, due in large part to enhance subsidies that made plans more affordable. On the question of prioritization, if that become necessary, we recommend focusing on those most impacted by costs. These are low income Californians with income slightly above the Medi-Cal eligibility limit. Thank you.

Well, thank you so much to our panelists. We're going to move on to our last issue for this hearing, under the Department of Managed Healthcare with budget overview and budget change proposals. And we'd like to welcome DMHC Director Mary Watanabe, the Department of Finance, and the LAO. And we are asking DMHC to provide a brief overview of its budget and 12 budget change proposals. And feel free to start when you're ready.

All right. Good afternoon. I think it's evening. Mary Watanabe, director of the Department of Managed Health Care. I have Dan Southard, our chief deputy director, with me. The department's mission is to protect consumers health care rights and ensure a stable health care delivery system.

We license and regulate 140 health plans that provide health coverage to approximately 30 million Californians. Our total proposed 25-26 budget is 186 million and 800 authorized positions. We are specially funded by annual assessments on health plans and receive no General Fund money.

For fiscal year 25-26, the DMHC has 12 BCPs which include eight BCPs related to legislation signed by the governor last year and four to address increased workload. We're requesting approximately 14.2 million 35 total positions across all BCPs. We were going to quickly highlight two of the ones that I know were of interest, but I'm happy to go through a high level overview of each one. Just the two? All right, we'll do that quickly.

AB 3275 changed the time frames for reimbursing, contesting, and denying claims for healthcare services from 30 and 45 working days to 30 calendar days for all complete claims and increase the penalty for not paying claims timely. We're requesting 24 positions and 5.5 million ongoing to review health plan compliance with these new timeframes and to modernize our system that we use for financial examinations. The IT consultant costs we're requesting in 25-26 are to assist with the development of the IT PAL documents to be submitted to CDT. And I'll turn it over to Dan to talk about one more.

Good afternoon or evening. My name is Dan Southard. I'm the chief deputy director of the DMHC, and I'm a highlight our CRM, or Customer Relations Management System BCP. The DMHC currently operates two separate complaint case management systems to manage and process provider and consumer complaints.

Implementing functionality with the current CRM software requires time consuming custom dot net coding, which makes it difficult for the DMHC's IT staff to keep up with ever changing program needs. The underlying technology is outdated and requires modernization to both the infrastructure as well as the software's capacity to streamline and automate workflows.

This proposal outlines the initial planning phase for implementing the CRM system and designed to provide timely consumer and provider assistance addressing the increase in complaint volume and expedited complaints, enhancing processing times, and ensuring compliance with data reporting and auditing requirements.

The new CRM system will enable the DMHC to remediate information security and operational risks, provide more robust workflow automation that will allow existing caseworkers to process more complaints, reduce the amount of time and resources required to maintain and operate existing systems, foster a more efficient complaint resolution process, enhance communication and transparency in the resolution process, and create a centralized system for tracking, managing, and resolving, complaints and maintain comprehensive data analytics to identify trends and reoccurring issues and detailed reports for internal DMHC review, audits, and compliance documentation. And we are requesting approximately $1.2 million in 25-26 for the planning phase for this project. More than happy to address any questions or go over any other further workload BCPs.

Anything from the LAO or Department of Finance?

Jason Constantouros, LAO. We haven't raised concerns with these proposals, but are available for questions.

Joseph Donaldson, Department of Finance. No additional comments, but happy to answer any questions you have.

Thank you. Well, I do, I wanted to appreciate staff's work in describing these budget change proposals and appreciate your brevity, knowing that we have a good summary here from our staff on what these proposals are. And also say thank you for leaning into consumer and provider complaint system and a way for people to be protected, given what we're seeing in rollbacks at the federal government in terms of of protecting consumers. And so I don't have any questions. Any questions from the dais? Assembly Member? No.

So we'll turn this to public comment specific to this item, if there's any public comment directed towards DMHC's budget. If you could please keep your comment to under a minute, and if you're me too to state your name, position, or organization only.

Good evening. Jared Maas on behalf of the University of California. The University of California is pleased to support the DMHC's BCP to implement AB 3059, which was sponsored by UC and requires commercial health plans to cover medically necessary pasteurized donor human milk, establishing coverage parity with Medi-Cal. The UC Health Milk Bank, operated by UC San Diego Health, provides safe pasteurized human milk donated by breastfeeding parents to support NICUs and families statewide.

The implementation of AB 3059 will help address disparities in health care, enabling vulnerable babies and their families to access donor milk. We appreciate the DMHC's work to implement this bill and urge the committee's support on the, on support of the BCP. Thank you.

Good evening, Madam Chair and Members. Carli Stelzer on behalf of the California Behavioral Health Association. We appreciate the ongoing discussion throughout this hearing on workforce development, but we want to acknowledge that addressing workforce means nothing if providers cannot get reimbursed for the services they delivered.

Behavioral health professionals are already in short supply, and when they face repeated denials and administrative hurdles from health plans, issues clearly highlighted by the Department of Managed Health Care, it further disincentivizes them from staying in the field. As we invest in the growing workforce, we must also ensure that they can do their jobs effectively.

This means strengthening enforcement on parity laws, reducing prior authorization burdens, and improving transparency around health plan denials. Otherwise, we risk investing in a system and building a pipeline for workers who will enter the broken system and leave it just as quickly. Thank you.

Good evening. Lauren Finke, senior policy director at the Kennedy Forum. Here in support of the BCP implementing SB 1120, requiring health plans comply with the new utilization review requirements. We recommend that any revisions to survey methodology and plan reporting requirements align with the detailed plan parity compliance analyses currently required under federal law and that any findings of non-compliance and anything proposed in the CRM system that finds parity compliance be made publicly available as part of this BCP. Thank you so much.

John Drebinger with the Steinberg Institute. For the sake of brevity, I'll align my comments with those of my colleague at the Kennedy Forum. Thank the department for its attention to the guidelines in SB 1120 and also flag that we think they are in keeping with California's landmark parity legislation, SB 855. And just grateful to the committee for considering their requests. Thank you.

Well, thank you so much to our panelists. We are going to open to comments, public comment for items that are not on the agenda. You're welcome to stay, but you don't have to. Seeing no public comment for item that is not for items not on the agenda. Going once, twice. We are going to adjourn the hearing. Thank you.