Assembly Budget Subcommittee No. 1 on Health

Good afternoon. Thank you so much for your patience. I'm gonna call this hearing to order, and we'll, go ahead and call the roll.

[Roll Call]

Alright. We'll continue as a subcommittee of one while we wait for others to come on down. So welcome to the assembly budget subcommittee on health. We're gonna cover five issues across a variety of state departments today, including various budget change proposals, trailer bills, and spring finance adjustments included in the governor's budget. We have a couple of housekeeping notes before starting.

This agenda is available online on our committee's website, and physical copies are available in the hearing room. We will also ask panelists representing the Department of Finance and LAO's office, to make room by sitting at the edge of the diocese we've done before so witnesses can be at the table. After we conclude each panel, we'll take questions from Members followed by public comment.

And as a reminder, public comment will be taken in person at the end of each issue, and we'll open public comment for items not on the agenda at the very end of the hearing. I know last hearing, lasted well into the evening, and we were very tight with our public comment.

And just as a reminder to folks who are coming, to give their public comment, the reason we do that is out of respect for the many, many people that wanna voice their opinions and to allow as many people as possible to get to the mic in an expedient way. So we're gonna ask you to please keep your comments to thirty seconds or less, and if you can keep them to name, organization, and opinion on the issue that we are talking about.

That's the most respectful way for members of the public that are behind you in line even though we don't have such a long line today as we did last time. If you're unable to attend in person, you may submit written comments via email to [email protected]. And so we're gonna start with issue number one on distressed hospital and health facilities financing.

Our first issue is an update on state programs supporting the financing of health facilities and distressed hospitals. We know that California hospitals and you're welcome to come on up as I'm giving the introduction. We know that California hospitals have faced mounting financial pressure in recent years with closures and near closures occurring across the state.

Many have been forced into difficult trade offs, including shuttering, labor, and delivery wards as we have seen on the Central Coast and Monterey County, reducing emergency and urgent care department hours, and scaling back outpatient and specialty services. And at our last hearing, we heard directly from hospitals about the horrible impacts of HR 1 and shifting federal policy and how that is expected to compound the financial pressures that hospitals face.

To help provide relief and financing options, California has several programs, including bond financing and loan programs under the California Health Facilities Financing Authority or CHFFA, as well as the distressed hospital loan program that's administered by the Department of Health Care Access and Information. So today, this committee is going to receive an update on these programs that are expected to continue playing a critical role in stabilizing hospitals across the state. We also have with us staff from California state treasurer Fiona Ma's office.

Originally, the treasurer was hoping to be here in person, and I think with the schedule being delayed, had to, do a couple of other commitments. But if she comes, of course, we'll welcome her up to the witness table, and, staff will provide an update on the bond financing and loan programs available through the health care facilities financing authority.

So, welcome, and thank you for taking your time again with us to present. And, we'll turn it over to staff of the treasurer to begin. And please start whenever you're ready, and then I may have a couple questions for you before we turn over to the other programs.

Definitely. Thank you, madam chair. I'm Carolyn Aboubechara. I'm the Executive Director of the California Health Facilities Financing Authority. And Treasurer Ma, she wanted to be here, but unfortunately, she had another meeting.

And she gave me her notes, but she is the Chair of the CHFA board and wanted to relay her thoughts and her observations on some of the programs or one of the programs CHFA administers in conjunction with HCAI, which is the distressed hospital loan program. Obviously, CHFA has a number of bonds, loans, and grant programs, but she really wanted to highlight, the fact that she held a roundtable discussion last year to all the 16 distressed hospitals that were part of the program.

She wanted me to mention them by name, but I'll get there, for the record. But, she convened the round table to kind of understand what the success stories were, the struggles, and the future outlooks with HR 1 coming soon into effect. And she was able to convene that meeting and do a summary and sent to all the legislature with kind of the observations and things to look out for.

She wanted to mention the the hospitals by name as these hospitals, have received help from us in HCAI.

And, so that includes Chinese Hospital from San Francisco County, Jammeron Hospital, San Joaquin County, El Centro Regional Medical Center, and Imperial County, Hayward Sisters, and Alameda County, Imperial Valley in Imperial County, John c Fremont Healthcare District in Mariposa County, Cahuilla Delta in Tulare County, Madera Community in Madera County, MLK Junior Hospital in Los Angeles County, Palo Verde Hospital in Riverside County, Ridgecrest in Kern County, San Benito or Hazel Hawkins in San Benito County, San Gorgonia in Riverside County, Sonoma in Sonoma County, Tri City and San Diego County and Watsonville and Santa Cruz County.

Things that also she wanted to bring up is she's been receiving a lot of phone calls and and need for more financing. We all thought when the distressed hospital loan program was put together, it was a band aid or a patch for the situation. And it's been helping hospitals definitely, but there's more need to come.

And then a few observations updating from last year regarding HR 1 impacts. Last year at the assembly subcommittee on health, we mentioned that we had and this is on a different program. We had grantees forfeit their grants from the specialty dental clinic grant program, which is a grant program for infrastructure to help, special needs patients.

And people were forfeiting their grants due to HR 1 impacts, specifically for uncertainty around medical coverage for non emergency dental services, upcoming policy changes affecting reimbursement and coverage for certain populations, and concerns about sustaining operations for the required ten years of the program. And so we're starting to see on other programs under CHFA, HR 1 impacts now now versus in the future.

Also, we administer the children's hospital program of 2018, which was a ballot measure approved in 2018 proposition four, which gives 1,500,000,000 for children's hospitals. And some of the children's hospitals in that program are coming to us with desperate needs for cash on existing grants we have with them that we if we can advance them and give them m1y because of delays in the quality assurance fee program due to HR 1 impacts as well. So those are observations that our office has been, seeing as well.

Another thing to mention on the HR 1, and this one kinda has to do with education and health. I also oversee the, California Educational Facilities Authority that's housed also under the treasurer.

And with the elimination of Grad PLUS loans, because of HR 1, nursing and medical students are gonna be impacted. And so we're also looking into ideas on how to assist the gap financing or gap funding needed to continue to help with our health care workforce. And so those are the observations of our office. And I think one thing was mentioned, we also oversee a bond financing program at CHFA.

And for 2025, we have funded $1.6 billion in bond financing to six hospital systems throughout the state and just a little bit lower than 2024, which there's no indication of any HR impacts on on on that program.

So that's kind of a little bit about everything CHFA oversees and happy to answer any questions.

Thank you. And I don't know if your time is short, so I'll ask questions quickly and then we'll move on to the dirt stressed hospital programs. But are you mentioned issues with HR 1 quality assurance funding is it was an issue as well as the the med school loans and the nurse loans. Is there anything else that we should be aware of that you're seeing distressed hospitals face in light of it HR 1 and that's affecting these bond programs?

Well, I think it kinda deals with something I said, but when we met with the Hospital Association, there's talks about when HR 1 gets implemented, there's gonna be a lot of emergency visits. Those are gonna increase. I think what they mentioned was about 40%, which is gonna cause an impact on emergency departments for hospitals. And that's gonna be all throughout the state, with the elimination of eligible, populations.

But, yeah, with that, with the lessened amount of non dental service, Medi Cal coverage, I mean, there's there's a variety of different, but those are the main ones.

And then is there I guess I'm wondering how CHFA is sort of preparing for the worst yet to come. We knew some of these things were coming. We know it's gonna get even worse. Are there mechanisms in place? Things you're doing.

You mentioned, hospitals asking for cash upfront at the moment.

Yeah. We're trying to assist where we can within our limitations and obviously share the stories. And I think that's key in what, we did with Treasurer Maan, sharing a letter about all the observations, everything that's coming so everyone is aware of what's happening. So anything we can do to assist within our means, we are we are trying to do so.

If we can do advances without, without changing any of the rules or anything, We are trying to accommodate where we can or coming up with creative ideas to work with the, Department of Finance on anything we can do to give assistance where we can.

And then, obviously, sharing the stories for any bigger, broader, policy changes.

Great. Thank you. Any other questions as somebody member for staff of the, treasurer's office before we move on to, hearing about the HCAI and what HCAI is doing for distressed hospitals. Alright. Well, thank you so much.

Really appreciate it. And, please, when you're ready.

Thank you. Good afternoon, Assembly Member, Madam Chair and Assembly Member Schiavo. Elizabeth Landsberg with HCAI, the Department of Health Care Access and Information. I'm joined by Dean O'Brien, our Deputy Director over our health facility finance programs. And we are really pleased to be able to partner with CHFA on the distressed hospital loan program, which the agenda goes in into detail about the individual hospitals, and here from CHFA as well.

But we our observation is really that the the DHLP funding served as a as a lifeline specifically as we were exiting the pandemic, allowing hospitals on the verge of closure or bankruptcy, particularly in rural and underserved areas to continue providing care to thousands of Californians where alternatives are limited.

So we have really analyzed the turnaround plans from those hospitals and have seen that the program has enabled hospitals to implement key turnaround strategies and just wanted to share some of the trends that we've seen about what has been working for some hospitals. So hospitals are doing better when they're reducing costs, including reliance on contract labor.

So during the pandemic in particular, we saw we heard from hospitals that they were having to use a lot of contract nurses, traveling nurses, and that was a very high cost to them. We also know that some of these hospitals had very high interest debt. And so to have debt that where they didn't have to pay anything back for a long time, no interest has has been very helpful.

Hospitals are also succeeding when they have increasing revenue through new new service line and through some of them went back to the table and renegotiated with payers. We've also seen a number of hospitals that have benefited, forming strategic partnerships and collaboration, which have really helped provide more stable leadership and strategies, as they try to improve. And then, of course, and very importantly was the reopening of Madera Hospital, which is providing services, in that county.

So we think that the distressed hospital loan program has really succeeded in the core focus of preventing immediate hospital closures and preserving access to care. As you probably know, each hospital had an initial eighteen months with no payments due, and then all of the 16 qualified for the initial twelve months also with new new payments.

No payments. And now we're reentering we're we're starting the repayment years. The fact is most of the hospitals continue to be at some financial distress, and so they can apply for loan forgiveness. We look at that every twelve months as outlined in your agenda. We have, you know, specific financial criteria that that deputy director O'Brien's team looks at.

So we're in that step two of the loan modification process and are working with each facility on a case by case basis. So we do anticipate that most hospitals will need loan forgiveness, though we do have a couple who have improved their fiscal condition and can start making payments on their loan. Most loan repay most loan recipients continue to experience financial distress evidenced by workforce gaps, cost pressures, and limited revenue. So with that, madam chair, happy to take any questions.

Thank you. Is there anything from DOF or LAO?

Hi, Jason Constantouros, LAO. We didn't we don't have any comments overall about the the performance of the programs, but your your question about any any things to consider about hospital financing as HR 1 becomes implemented did prompt some thoughts. And wanted to share kind of key three key things that we sort of be thinking about.

The first is really, when we're when and it's something that, sort of HCAI mentioned is when we're looking at the sort of effect of the financial assistance programs, it's helpful to to think about both the short term but also long term effects.

And I sort of what we're seeing here from an from initial reporting from HCHI is that they they were helpful in the short run, but hospitals still face some hospitals face some structural financial issues. And so, looking at that over the longer term might might be helpful to be to sort of be thinking about the long term effects. The second key thing to think about is, what do hospitals face with regard to HR 1?

And what what hospitals probably will face is sort of a higher level of uncompensated care. This is because under HR 1, more people will become uninsured and and sort of leave medical.

Whether or not it increases utilization is is somewhat uncertain. And that's because coverage does tend to be associated with with higher utilization. But a lot of the folks who who leave medical will have had experience in medical. So they they might still be heavy health care users. That's uncertain.

But even if, utilization were to fall somewhat, there still would be a a greater share of that that goes uncompensated. That's a likelier sort of outcome. So as we're thinking about, sort of the effects on hospitals, focusing on that care that goes uncompensated and the effects of that could be helpful. And then the final point to to to note here is that hospitals are a fairly diverse industry. They have different financing arrangements.

We talked about this a bit in the last hearing, those public and private hospitals. And even within those broad categories, they can have a lot of specific circumstances. So that that complicates the the legislature's efforts a little bit. The legislature really has a statewide focus and has sort of limited ability to to narrowly target, sort of, interventions. But that that would be something to to be cognizant of as the legislature's thinking about assisting hospitals.

Thank you. Appreciate that. Any questions, Assembly Member?

Hi.

So, I mean, it sounds like this was an important lifeline, especially coming out of the pandemic, for hospitals that were really struggling. And but but the recovery is not really happening. And so this is moving from loan to forgiveness for most of them, it sounds like. And I just wanted to clarify a little bit about how the determination process happens to approve loans. Are reserves incorporated into consideration for this?

No. I've seen no.

Go ahead. Dean O'Brien, Deputy Director of HCAI, Health Financing Programs. So it was really based on need, and kind of who was the most neediest of all the hospitals that applied. Of the 30 hospitals applied, the 16 that had the most need that had the most, impact in the community and bring a sole provider. Those types of considerations were made.

But, no, there was no debt service reserve. This was cash flow loans to keep hospitals open at the time. So that was not one of the considerations when we initially did the application or when the financing was put in place.

Would but you would say I would assume, but I don't know if this is true. I would assume that if you have if you were in dire need of cash to continue to operate, that you're not gonna have very big reserves.

Correct. If you're if you're asking whether the hospitals that applied are sitting on reserves

Yeah. No. They're not. And we have so we we look we had very specific economic indicators that we were looking at days cash on hand in a couple of different ratios that would have got at whether there were reserves. Right?

Absolutely. So all of these hospitals had the days cash on hand that were below kind of a minimum viable threshold for thirty days, which is

Okay.

Really low for any hospital to be operating with a thirty day cushion. So Yeah. There weren't built in reserves when we were analyzing these hospitals. And that was one of the things where those hospitals that did have either, like, restricted reserves for, like, future projects. We absolutely counted that and that lowered their score in in in terms of them being eligible potentially.

And so what is I mean, I think this is it's such an important program and such an important lifeline to make sure that these hospitals are able to stay open and and and serve the community. I'm wondering though if, you know, we need to start thinking of these as just grants and not so much loans. Or and then, like, what does that do for our ability to help hospitals in the future? Right. How does that impact that?

So, again, our assessment is that there are a few hospitals that will be able to repay, but that for most of them, they'll get get the the loan forgiveness. Again, we have we're look we get financial data from the hospitals every quarter. And then when they apply for the loan forgiveness, the loan modification, it effectively you know, over time, if a hospital continues to struggle, they will not have to make payments.

So Okay. And how does that impact future loans?

So it does mean that we're not getting the the loans repaid. So it so all $300,000,000 was expended. And so there will would be limited funds coming back in.

Okay.

And I appreciate the the consideration around contract labor. Obviously, it's much much more expensive than having regular staff. Understandably, that was done. I mean, in some places, understandably, that was done during the pandemic. I also talked to nurses who were at home waiting to be called and didn't get called in to help in other areas.

So is that how is that incorporated into kind of thinking about how when you talked about the contract labor and the high interest debt, are you working with the the hospitals to try to figure out how they get in a more solvent financial situation and they're working through these processes to be able to try to be more stabilized?

So every hospital, when they applied, had to submit their proposed turnaround plan. And Dean's predecessor and he I mean, Dean is on the phone with with hospital CEOs and CFOs talking to them about options, and hearing. And they have to give us updates about their turnaround plan.

Okay. Are you seeing contract labor go down since the pandemic significantly? Yes.

Okay. Wonderful.

And, we always think it's a great idea to to grow your own good, stable folks from the community to serve to serve their community.

Absolutely. Yeah. Okay. Thank you. Thank you.

I have a couple of questions. I think the first is just any thoughts or reaction to what the LAO shared about. Clearly, this is helpful in the short run. What about the long term? If there's any ideas that you have and then your thoughts.

Obviously, we all know uncompensated care is, is gonna go up. I suspect there's gonna be a cost shift, although nobody has said that directly. I just suspect there's gonna be a cost shift because I don't think most hospitals are gonna be able to bear whether they're public or private or, you know, regardless of their payer mix, they're not gonna be able to take on the magnitude of uncompensated care that's coming.

And so any thoughts on just both those areas, the long term and how we navigated uncompensated care from the perspective of this loan program.

Certainly, we're very concerned about people who are gonna likely lose Medi Cal with the redeterminations and the work requirements. And so I do think it's reasonable to expect an increase in in uncompensated care. And in terms of whether that leads to cost shifting, we've looked a lot at hospital financial data, you know, at HCAI generally and also as part of the Office of Healthcare Affordability.

And there are many, reputable, economists who actually dispute, the the notion of cost shifting and that hospitals that have a substantial market share charge more because they can charge more. And so I think reasonable minds can differ about that, but there certainly is ample research showing that cost shifting, that is more about market power than cost shifting per se.

In terms of hospitals, what the impact would be, it is you know, it's heartening to see that some of these hospitals are able to turn turn things around. We mentioned strategic partnerships that some of them have have connected with larger systems that have been providing some technical assistance, helping provide more stable leadership, which has which has been really impactful. El Centro and Pioneers are two hospitals that are that, you know, each, I think, got 27 or $28,000,000. Now there's a new district that they have formed.

So we are seeing some promising signs in addition to the fact that many of these hospitals continue to struggle.

And then you mentioned new lines of service. Can you elaborate on that? You said where you're seeing success, sometimes there's new lines of service. And I ask in the context of knowing that maternity wards have closed down in many areas. And if that's a new line of service where where exactly people should expect to see expanded services in health care.

Well and Ridgecrest is an example that actually do you wanna talk about Ridgecrest or any other examples?

Would absolutely be the example that I would say specifically for labor and delivery where they were able to leverage a grant from the Navy a couple of years ago and or a year ago and have kept that service open. I think they're up to just under 30 bursts a month, and they've reported to us that they need to be about 40 in order to be a breakeven.

So they think with their continued build out of this program that they will be able to continually keep that program online even after only receiving that grant in a one time fashion to get it reopened. It really is kind of on a case by case basis in terms of the other geographies and just the other hospitals in terms of where they are able to enter new service lines.

But where I have seen it the most effective is when they've been able to partner with the larger systems in terms of either management agreements or collaborations to get access to GI docs or any of the specialties that are in demand that just don't have the capacity at their current locations.

So we're we're really digging into kind of the updates to the turnaround plan. As Elizabeth said, when they originally submitted two years ago, the turnaround plans have changed. And so every quarter, they provide us updates. We give them comments on those. But now we're really getting down into the step two for which is the forgiveness.

Step two modification process, which will be conducted on an annual basis going forward until the loans are repaid or until they're fully forgiven or converted to grants. But I I do think we're gonna know more in the next twelve months in terms of what service lines are really adding to that bottom line revenue.

But we are seeing, definitely LND hopefully coming back in more than just Ridgecrest and other specialties like GI or some of the some cancer, some of those other that are high end demand services that are popping up in some of these facilities.

I think, I hear quite a bit about Watsonville Hospital and have a lot of con constituents that are, very, very concerned that Watsonville Hospital could close and, you know, wanna know that it, we're on track going in the right direction, understand how challenging HR 1 is.

And really, there's just a lot of fear in the community that, we could lose our hospital, particularly in light of of what you said around market share and the research that's come out of of OCA around not having enough competition in the market and that creating more expensive hospitals that Watsonville is right in there geographically and how it would be horrible if that hospital were to close just as it would be if any of these other 15 hospitals were to close.

So we're certainly, you know, hopeful and encouraged to hear that you think the program is working, but want to move into sort of, you know, what the LAO had said around how do we push towards longer term success.

Yes. And we're we we share the concern about Watsonville. And among other things, we've heard that because of the community there that's scared of ICE and their immigration status, people just aren't coming to the hospital. So Watsonville is a perfect example of a CFO that, you know, that has Dean on speed dial. So we're certainly working with them.

Great. Well, thank you. We're gonna turn now. You're welcome to stay and listen to public comment, but turn to public comment if there's anyone who would like to state their name, organization, and opinion on this issue. And if you could keep your comments to thirty seconds or less, Patrick's got a timer here that'll give you a gentle reminder.

Good afternoon, Madam Chair, Members. Mark Farouk with the California Hospitalization California Hospital Association. Excuse me. Just wanna start off by first thanking HCAI and CHAFFER for their administration of this really important program and just follow that up with we are in support of the budget request by Assemblymember Soria to refresh the program with an additional $300,000,000 And would also add that a report came out just a few hours ago.

We're still diving into the data that up to 83 hospitals in California are at risk of closure due to impacts from HR 1. Thank you.

Good afternoon, Madam Chair. I keep forgetting for Health Access California. We appreciate the work of the distressed hospital loan program. If the legislature and administration are considering additional funding, we support the existing rules of the program. If there's consideration for expansion of the scope of the scope of the program, we would point the legislature to, committee amends on AB 1923 Soria in the discussion in Assembly Health tomorrow.

Thank you.

Good afternoon, Madam Chair. Connie Delgado on behalf of the Hospital Leadership Forum. These are the 33 district and municipal hospitals. We wanna thank HCAI and CHFA for the work. Of the 16 hospitals, nine of them received loans.

These are definitely, as you as you all mentioned, lifelines, and we hope to, continue to work with them. And we are in support of any efforts legislatively and budget to replenish the program. Thank you.

Good evening. Chloe King on behalf of, the California Dental Association with Political Solutions. On the CHFA funding in 2022, the legislature passed the specialty dental clinic grant program administered by CHFA, to award, 50,000,000 to increase access to oral health, for specialty health care needs, including those of the Medi Cal dental population. As was mentioned, there has been several grant recipients who have declined multimillion dollar grants due to the instability of the Medi Cal dental funding.

As the state continues to look to eliminate prop 56, we just ask for your support.

Thank you.

Good afternoon, Chair. Carmen-Nicole Cox, the Cox firm for law and policy on behalf of the California Children's Hospital Association, wanting to align ourselves with the California Hospital Association and really support, the request to refund the $300,000,000 for the distressed hospital loan program. Thank you.

Well, thank you so much. We're gonna move on to issue two, which is the HCAI budget overview budget change proposal and department updates. So HCAI will, stay with us. Thank you so much, and we'll talk about those three things. And we'll ask HCAI to present first with an update on the implementation of the rural health transformation program, followed by a presentation on the 26-27 budget.

Great. Thank you, Madam Chair. Scott Chrisman with HCAI. Happy to provide that update. The California Rural Health Transformation Program is the state's implementation of the $50 billion national program authorized by HR 1 under CMS's direction.

So the five year program looks to strengthen access, quality, and sustainability of health care delivery for rural communities. California was awarded $233,600,000 for the first budget period, which is January through October of this year, this year, 2026. This is the third largest, award nationally. The California program is built around three integrated initiatives approved by CMS. This is the transformative care model, rural workforce development, and technology of tools.

I'll talk a little bit about each. The transformative care model includes investments in, regional hub and spoke, care networks, expands telehealth services and econsults, and evidence based care models. Ultimately works to strengthen local capacity to reduce avoidable travel for care, addressing the rural bypass issue. Focus for the program is really around primary care and maternal health, more access to maternity care.

Rural workforce development, as you can imagine, supports, pipeline programs, clinical training capacity, and targeted retention and relocation incentives, that'd be tied to service commitments in rural communities.

And then finally, health technology and digital tools. These investments are foundational infrastructure, including electronic health records, data exchange, interoperability, telehealth expansion, of course, and, even cybersecurity, which has been, pronounced issue as of late. The program also includes a rural health technical assistance center, to support implementation directly to participating grantees across all of the program components.

So, together, these investments focus on strengthening regional systems of care, stabilizing access in rural communities over time, and reducing the need for rural residents to travel long distances for their health care. The program is designed to complement, not duplicate existing state and federal programs targeting gaps specific to rural health delivery systems, workforce shortages, and infrastructure limitations that are not otherwise addressed through existing funding streams.

Just a couple of highlights of the milestones to get a a sense of the pace. So, we submitted California's application, to CMS in November 25. CMS notified California of its initial award for 233,600,000 at the '25 December. And they asked for a revised budget with more program details, which we turned around in January. We provided that to CMS at the January.

By the February, CMS had issued a revised notice of award unrestricting 183,600,000 of the dollars and asked to revise a $50,000,000 budget component relating to transformative payments, what we call transformative payments for rural hospitals. So we were asked to explain and then revise the original approach for this $50,000,000 component proposed for rural hospital financial support.

CMS indicated to us that we needed to ensure that funds are directly tied to transformative activities associated with the program rather than serving as general financial relief or backfill to solve cash flow issues for any of the rural hospitals. We made the changes as directed and reviewed the new budget details with CMS. CMS in turn approved these revisions and released the remaining funds, on March 31.

So we're we're we're now at the point where all one all 233,600,000 of the federal funds are are unrestricted from CMS or available for distribution through the three program components, this year as approved by CMS. We also appreciate very much the recent approval from the joint legislative budget committee for current year state sending authority so that we could begin immediately using these federal funds, for the rural health transformation program.

It's worth noting that CMS maintains several oversight and approval responsibilities under the cooperative agreement that shape implementation timelines before us. This includes final approval of all grantee selections, administrative review of grant agreements and contracts, and prior, review of materials that may be publicly posted by the program. And, of course, the federal requirement that these funds must be obligated no later than October 30 to to 2026.

So this year, October 30, we have to have all of the 233 committed. And again, the funding is intended for system transformation activities, including care model redesign, workforce development, regional coordination, and technology modernization. So funds may not be used for routine operating subsidies, direct patient care reimbursement, or to supplant any existing funding streams. All grant awards are subject to CMS review and approval prior to funding. So, HCAI is excited.

We're developing the grant program designs now, internal review processes. We're engaging the CMS program office very closely to meet these requirements on an accelerated time line. It's a breakneck pace to be sure, ensuring that all federal funds can be effectively committed by October 30. So they're much needed to support health care delivery in California's rural communities, of course, as you as you know.

Also of note is our performance with these funds this year, will inform the scoring of our award amount in the next year and the next year.

Committed to getting these out in meaningful ways, in in meaningful grants of awards to to rural hospitals and clinics, that needed and and meeting the mark so that we can, hopefully perform, at a high level and secure, as much or more funds in the next round. So, sort of fully committed there. In terms of next steps, just share with you the grant opportunities under this this program will be offered on a rolling and phased basis. You know, we're ramping that up now.

Multiple request for applications anticipated over the life of the program rather than a single, one time opportunity.

So right now, we're working on the design. So by late spring, summer of this year, we'll have RFAs anticipated for something we're calling accelerated partnerships, the transformative care model, workforce grants, and and technology and tool grants as well. Over the summer and to the fall, applications will be reviewed, award announcements made, subject to CMS approval, and then we'll get those those agreements completed and obligated funds in place by October. And, again, I would just to to be eligible, it's it's it's pretty straightforward.

Applicants need to serve rural communities, rural health services as defined by the health resources and services administration.

So that's the the the basic premise there. Happy to answer any questions on this topic.

Anything from LAO or DOF? No? Okay. I just a couple questions. So just to clarify, distressed hospitals who are getting distressed hospital loans can also apply, if they're if they qualify under the rural transformation grants? Or

The key so two things in the conversation we have with CMS is, they we put in this concept of transformative payments for hospitals, $50,000,000 total, which, again, in relative terms is not a lot, but we thought it was a good piece of the 233.6. And they were very clear that that's not intended for distressed hospitals, that that's intended for transformation per your application that was scored and awarded. So the the second part of that was a cap on provider payments. They interpreted that.

CMS interpreted the that to be a provider payment, which is is acceptable in the context of the program, has to be capped at 15%.

So we brought the 50 down to 35. We we changed sort of the parameters. We we sort of put on a criteria for participating hospitals. And and actually, it's it's because of the the because of the grant requirements, actually, there's, you know, there's there's risk clawback if we fail to meet the the goals and the requirements of things.

So so actually, we'll be looking for fairly viable situations in for in terms of to fund these these these payments, provider payments through the rural health transformation to ensure those funds aren't at risk in the future.

And again, it's a $35,000,000, you know, budget. It's not a lot, but we think it's beneficial in terms of examples like if you needed to put some more infrastructure in place because you wanted to start up a a labor and deliveries, maybe equipment. Those kinds of investments could be made because they're in in in in in in investment in the goal of the program of of transformation, if that if that makes sense.

And where do you where do you see most of the grant applicants coming from statewide? I mean, obviously, rural, but

Yeah. Yeah. Well, we haven't opened up an RFA yet, but I can give you some thoughts in terms of how we see how we structured the the the application? I think the accelerator partnerships were intended to identify existing existing efforts in in in sort of, you know, in in the hub and spoke model and in other sort of new models of care to provide access in in rural communities. Those are things that we would want to grant in near term and accelerate.

So do more of that in line with the goals of this program, approved by CMS. I think for the larger sort of regional collaborative hub and spoke models, we think, broadly what we would see is obviously, there's real need in Central Central California coast, Southeastern, and Far North. I think those broadly are these large catchments. Obviously, there's lots of of of communities within those.

But, you know, given that 233,600,000 in a year for California, we're not gonna cover all of the ground we would like to, and that's just the nature of the program.

They they really offered every every state an equal share as opposed to proportioning it to population. So that's something we're gonna have to deal with, and and we're not gonna be able to cover all the ground we'd like to.

And then lastly, I'm assuming some of these may have trouble with capacity in terms of technical, you know, things that they need, being able to apply for grants in a timely manner. And you mentioned being on such a quick timeline. Yeah. Are there things planned in to help with the technical part or just to make sure that the money is moving.

But the last the thing people hate the most and one of the things I hate the most is that money is there and we cannot access it because agencies don't have the capacity. And from a state side of things, we haven't built in the mechanisms to help them access the funds. And so you've acknowledged how quickly you have to move, and you're on the timeline, and you don't want the money to be clawed back.

But what's in place for those agencies that may not have the technical capacity or the staffing capacity?

Yeah. It's a great it's a great point. A couple of things. You know, number one, we're we're obviously you know, we we were growing our own capacity just based on, additional professional services in in in the space, and we'll use a third party administrator that can ramp up quickly in terms of actually administering grants so that we're not a bottleneck, given that we have a large load of other of other programs. Number two, I mentioned the concept around this rural technical assistance center.

We're very excited about that. You know, that we're gonna look at standing that at the summer. So, I mean, that's gonna be one of the first things we do. And that will provide sort of hands on high touch kinds of support. And I think it even could be part of the way that we support in the in the RFA process.

And then we'll have our own team, you know, we we administer the state office of rural health. We're expanding that through this effort and things like that. We're doing webinars. We have one actually tomorrow. We'll be able to provide our own direct technical assistance, especially in the RFA process so that folks can actually get the supports.

And then we have a lot of great partners, including the district hospital, leadership group and other associations that are out there that are that are been great partners. So we're gonna do everything we can to sort of activate all all the supports as quickly as possible. Those are some kinds of things that we're thinking about to move it along.

That is that's helpful. I think we're gonna go to the budget change per let me just check. We're gonna go to public comment. No. Budget change proposals first, then we will go to public comment.

Alright. Good. Good afternoon. I'll get it started real quickly.

I'm just getting a quick overview. I apologize, So I'll get it started. The 2026-27 governor's budget proposes $841,200,000 and 844 staff positions for HCAI. Of this total, 175,000,000 is from the general fund, while the rest comes from, federal funds, reimbursements, and a range of special funds. So, you know, appreciate the chance to provide, update on real health transformation, and and we'll we'll review each of these budget proposals.

I'll turn it over to my colleague, Mr. Valle, to share with you a number of those.

So I'll start with, item number one. This item is requesting provide annual ongoing funding for the health care payments database. This is California's all payer claims database, a a research database made up of health care claims and encounters submitted by health plans and insurers. Health care claims is regularly used in health services research and policy analysis. The intent of the legislature in creating this program was to increase transparency about health care costs, inform policy decisions, and provide a public benefit to Californians.

I'm happy to say that since the database's development was authorized by the legislature, HCA has met all statutory milestones for implementing the health care payments database, including publishing data reports for public use. HCA has published eight such reports to date and continues to develop new ones. Those reports have been accessed over 25,000 times by the public. 13 external research teams are using the data in their research and analysis, and another 30 research teams are in the process of being granted access.

The health care payments data is being used by other state departments and programs, including the office of health care affordability, and HCAI continues to expand the data available in the database.

In 2018, the legislature authorized $60,000,000 in one time funding for planning, implementation, and operation of the database. Those funds were, expired in June 2025. For fiscal year 2025-2026, the legislature authorized one year of additional funding for the HPD program, which expires June. So this request is for ongoing funding.

In March 2023, HCAI submitted a report to the legislature that provides several options for how to fund the ongoing operation of the database without using general fund, and HCAI's budget request is consistent with the recommendations from that report.

HCAO requests $22,500,000 in fiscal year twenty twenty six, twenty seven, and 23,600,000 in fiscal year twenty twenty seven, twenty twenty eight, and ongoing to continue operation of the database. The increase in fiscal year twenty twenty seven, twenty twenty eight reflects the addition of new pharmacy benefit manager data to the database, which was authorized under assembly Bill one sixteen of 2025 and which is underway. The, funding sources exclude, include no general fund.

As I mentioned, they would rely on a mix from the California health data and planning fund, the health plan improvement trust fund, the pharmacy benefit manager fund, some federal reimbursement, and a small portion from use, from, data user fees. And I'm happy to answer questions on this item.

No questions. Yeah. Thank you. If there's nothing else, we'll go to public comment. Yeah.

We'll go to public comment then. And name or organization and position on this.

Connie Delgado on behalf of the District Hospital Leadership Forum, and we wanna thank HCAI for their presentation on the rural health transformation program. As outlined in the materials, we definitely see this as a significant and timely investment and to strengthen access workforce and innovation in rural communities. Thank you so much.

Kelly Brooks on behalf of the University of California. UCHealth serves patients from 99% of California ZIP codes and is committed to expanding rural access to specialty and inpatient care. We also support building a sustainable rural health workforce to address care gaps in underserved areas. We look forward to continued collaboration with HCAI as they begin to roll out the grant funding application.

Additionally, UC appreciates ongoing engagement with HCAI on the data exchange framework and looks forward to collaborating to support a secure and trusted environment for the exchange of personal information.

Thank you.

Mark Farouk with the California Hospital Association. Just wanted to speak in strong support of the work HCAI has done related to the rural health transformation program and look forward to those ongoing discussions. Thank you.

Good afternoon. I'm Katie Van Deynze for Health Access California. We support the BCPs to fund the health payments database, shifting the data exchange framework to each kind, implement s p six sixty, AB 1312, and AB 1418. Thank you.

Good afternoon. Omar Altamimi with the California Panethnic Health Network. Aligning my comments with the previous speaker on all three. Thank you.

Thank you so much, and thank you to our panelists. We're gonna move to issue three, budget overview and budget change proposals for the emergency medical services authority. We're asking the authority to come on up to briefly present their budget and three budget change proposals included in the governor's budget. And you are welcome to introduce yourselves and start when you're ready.

Good aft can you hear me okay? Okay. Good afternoon, and thank you, Madam Chair. Gabrielle Santoro with the Emergency Medical Services Authority. As noted in the agenda, the governor's budget includes three budget change proposals for EMSA.

The first is a one time general fund augmentation of 2,550,000 in budget year, to make critical replacements in the disaster medical services fleet of EMSA. The second is a request for a one time general fund augmentation of 250,000, to conduct initial activities to meet IT security standards. And, finally, it includes a request for four positions, 1,368,000 general fund in 2627 and 1,319,000 general fund in 2728 and ongoing to support workload at EMSA for human resources enforcement and legal divisions. That concludes my remarks.

I'd happy to answer your questions.

Thank you so much. Probably nothing. Okay. I actually don't have any questions. However, I normally, I wouldn't do this, but she's my seatmate.

So I we received a note from Assembly Member Boerner and her team around a bill that she authored and funding that was with that bill. So AB 716 that was signed into law in 2023 that required MSAA to annually report allowable maximum rates for ground ambulance transportation services statewide. In '24, there were resources to implement the bill, and it's, their understanding that EMSA has not done so.

And if you could just share, for the Assembly Member any steps that EMSA is taking to come into compliance with the AB 716.

Yes. Yeah. Happy to to do that, and thank you for the question. So EMSA does remain committed to the requirements of AB 716 to provide that report as required. As as you noted, Madam Chair, we did receive resources as part of the 2024 budget act to do this.

I'll note that those resources would were included in the efficiency reductions as implemented by the 2025 budget act. However, we we are working towards to figure out how to continue to to to adhere to the requirements of of statute absence of resources. So we're just working administratively to to do that.

And just so just to clarify, you received funding in '24, but you haven't started in '26.

Correct. So the resources that we received were removed as part of the 2025 budget act through the efficiency endeavors.

Okay. Okay. Well, thank you. And Assemblymember Stefani, I know I didn't know if you have any questions. If not, I'm gonna move to public comment.

Alright. If there's any public comment for issue three on the emergency management services budget overview, and budget change proposals, name, organization, and position on this topic.

Thank you, Chair. Olga Shilo on behalf of the California Association of Health Plans. We appreciate the conversation here today and wanted to know that for the legislature, we have concerns regarding those delayed reports from MSSA on the statewide ground ambulance transportation rates. Currently, we believe there are three reports that are overdue, and we urge the state to track health care spending, including these ambulance ground transport reports as we focus on health care affordability. Thank you.

Good afternoon, Ma'am Chair. I could be an answer for Health Access California. Also here, in support of Assemblymember Burners ask around, the, EMSA report for ambulance rates in AB 716. Thank you.

Thank you so much, and thank you to our panelists. We are gonna move to issue four, which is the covered California budget and operations amidst HR 1 and federal uncertainty. And as you're walking up, I'll continue the introduction that, Covered California is an independent public entity with its own separate budget process, which is currently under development.

We wanna say thank you, for the exchanges partnership in appearing before the subcommittee today to share your fiscal forecast and talk about how Covered California may be making shifts given changes in federal policy. I know that, personally, I have a policy to help ease enrollment between Covered California and Medi Cal given what's happening with HR 1 and how we're doing everything we can to keep people covered.

And there's been a lot of conversation around folks that have lost their ability to participate in the exchange due to HR 1 and HR 1 requirements. So it's been very difficult for a lot of people. So I'll turn it over to the two of you to introduce yourself and, start whenever you're ready. And then if there's any additional comments from LAO or DOF, we're happy to take those.

Good afternoon, Chair, and thank you to the members as well. I'm Kathleen Webb. I'm the Deputy Executive Director of Operations for Covered California. I am here on behalf of executive director Jessica Altman, who is unable to be here today as she is in Washington DC along with state based marketplaces from across the country to engage with federal administrators and members of Congress on the significant impacts of federal health policy on marketplaces and the consumers they serve.

I am joined by Jim Watkins, Cover California's Chief Financial Officer and Director of our Financial Management Division.

Before he begins, I want to provide some background information which we think is critical for our review. Cover California appeared before this committee in March to discuss the sweeping impacts that HR 1, new federal marketplace rules, and the expiration of enhanced premium tax credits have imposed on the marketplace and consumers. We have long been planning for the possible expiration of enhanced premium tax credits, which unfortunately came to bear at the 2025.

HR 1 and the new federal marketplace rules enacted in 2025 are expected to lead to substantial declines in marketplace coverage by imposing policies that will limit enrollment opportunities, add new administrative burdens on consumers, limit eligibility, and increase consumer costs. For the 2627 fiscal year, we have undertaken a budget approach that responds to the impacts of federal policy on enrollment and revenue, as well as other market factors and uncertainties in our current environment.

We come to today's hearing with a goal of informing the committee about our budget and answering your questions to the best of our ability. Cover California, again, receives no state or federal funds for operations and is entirely self funded. We also think it is important to note that Cover California's budget process does not align with that of the legislature, which is outlined in the committee's hearing agenda. Today, we are still in the process of developing a proposed budget for fiscal year 2627.

That proposed budget will be taken to our board in May for public discussion.

The board would then act on the budget at a subsequent public meeting in June so that an improved budget can take effect on July 1 of the new fiscal year. Since we do not have a proposed budget yet final, there may be specific budget information or numbers that are not available today. However, we can share where we are headed directionally and discuss important changes we will propose to our board given the ongoing uncertainty and impacts we face due to the challenging federal policies.

We will remain in contact with the committee throughout our budgeting process and are committed to answering questions and sharing information when it becomes available, including the copy of the proposed 26-27 budget that we will present to the board on May 21. With that, I will turn to Jim to discuss our budget and operations, and his testimony will cover the committee's questions outlined in the agenda.

Thank you, Kathleen. Good afternoon, Madam Chair and Members. I'm gonna give you a a two part overview here. We'll start out with a little background on Covered California, the financial statements, and sort of what we do with fiscal sustainability. So each year during the budget cycle, Covered California conducts a participation fee rate study and a long term fiscal sustainability analysis.

We project out not only the budget year, but five additional years. So it's six years. So 2026, '27 through 3132. Covered California also maintains a rolling monthly Enrollment forecast throughout the fiscal year. This is a critical internal control that so that we can identify any variances in Enrollment or revenue throughout the year.

Covered California also prepares quarterly financial statements that are shared and discussed with its finance committee, where we talk about the trends and also any plans or changes to the business plan. And a a key component as an independent public entity, Covered California prepares a comprehensive set of financial statements just like the state of California does in accordance with generally accepted accounting principles and also government accounting standard board pronouncements. These financial statements are audited each year by an independent accounting firm.

I will now touch on the budget. So as Kathleen said, our our the budget process doesn't sync up with the state's process, but we can provide you some some good information here.

So the preliminary 2026 budget plan projects that there will be a decrease in the approved budget. In 2025-26, the budget was 496,000,000. We can tell you now that number is going to go down. This reduction is due to cover California's efforts to lower its baseline by roughly $23,000,000. Additionally, Covered California has limited budget change proposals during this cycle to only those necessary for workload adjustments.

And as a result of these activities, Covered California's preliminary business plan anticipates a budget of somewhere around 481,000,000. This is this amount is 15,000,000 below the approved 2526 budget and about 33,000,000 below the 2627 projected budget presented in the governor's January budget. Covered California continues to refine the enrollment revenue forecast in response to a number of things, not only evolving policy, but the economic landscape. There are three major issues that we're dealing with.

The expiration of the enhanced subsidies in December 25, h r '1, and also the federal final rule changes adopted in 2025.

The end of the federal enhanced subsidies has already resulted in a loss of enrollments. We expect enrollment to drop by at least 11% in fiscal year two thousand twenty six compared to the previous year. Over our projection range, we expect enrollment to decline to roughly 1,500,000 down from the December 2025 total of 1,900,000. We anticipate that enrollment will eventually stabilize slightly above the pandemic levels, and this is because of the support from the state premium assistance, outreach efforts, and continued efforts to reduce enrollment barriers.

Even with enrollment losses, we expect revenues to the organization to grow by an annual rate of roughly 3.3% over the forecast range.

To put this in context, Covered California's revenue is the product of three variables, enrollment, participation fee. The revenue growth results from rising premiums driven by the natural trend. Year over year premiums tend to rise and also changes in the enrollment mix. It is forecasted at enrollment losses will lead to additional increases in premiums above the natural trend, boosting the rates by somewhere up to 810% annually. So that even though we're losing enrollment, revenues will still climb throughout the forecast period.

Operating expenditures are forecasted to grow at roughly 3.2% annually throughout the projection period. At the current participation fee rate of 2.5%, Covered California would recognize operating losses early in the forecast range. However, as enrollment stabilizes and premiums continue to rise, revenues will approach breakeven toward the end of the forecast range. Working capital would not decline materially throughout the forecast range. And you can think of working capital as sort of like the reserves.

Therefore, we're evaluating a temporary reduction in the participation fee fee before gradually raising it back towards breakeven. Looking ahead, future trends will be shaped by macroeconomic conditions such as unemployment, which drives enrollment into our program, inflation, administrative administration changes, and geopolitical developments. Inflation is a tough one for us when we're forecasting these numbers as we think about it. And as any long term projection, there is inherent risk that actual results may differ from the forecast.

The current environment is highly uncertain, making ongoing monitoring and flexibility essential to sound business management.

We are happy to answer any questions and look forward to continuing engagement with the committee as we finalize the fiscal year twenty six, twenty seven operational budget.

Thank you so much. Anything from DOF or LAO on this? Well, I really it's very helpful to have your testimony in front of me to be able to scribble and make, underlines rather than writing notes. I really appreciate that. Assembly member, any questions uncovered California?

I just wanna make sure I heard you correctly. So you are looking at reducing cost by 23,000,000, not necessarily reducing people's ability to get covered California by 23,000,000. Is that correct?

No. Those changes to the budget will not impact the marketplace services that we deliver now. Just as a little background context, generally, we have favorable budget variances each year, somewhere in the neighborhood of 10 to 12%, which could be 30 to $40,000,000. So this is more of an effort

for a budget cleanup, trying to get our budget closer to our actual expenditures so that we don't tend to over, estimate the participation fee too.

Got it. And then you're looking at an eight to 10% increase in revenue that has to do with premium increases, but it's not necessarily created by it, eight to 10% increase in premiums themselves?

Yeah. So a couple of things. The long term trend in the compound annual growth rate for premiums about 5.2%. However, when you start losing enrollment, the enrollment mix changes. So we expect those rates the growth rates to rise to about eight to 10%.

So this year, they're running close to 8%. And so each year, they'll be as so HR 1, the impacts start hitting in '27, '28 down the road. So you'll have continually increases in the the premiums. And if we hold our participation fee constant, that will drive in more revenue. However, at the same time, volume is declining.

So so if you look out over the five years, it's a 24% reduction in Enrollment, over that time period.

Is there a way to know what the consumer, you know, the person buying into the marketplace, what they should expect? Or, I mean, should they expect this eight to 10% increase or in their premium? Like, what if I'm, you know, need to buy insurance on the health exchange? I hear what you've said about your revenues. I hear you're not cutting services.

You're right sizing your budget without cutting people's ability to buy in all those pieces. But then when you talk about this eight to 10% increase, does that mean if I'm a consumer in the marketplace, I'm seeing an eight to 10% increase? Or

I I don't think everyone would receive an eight to 10% just because how the credit the federal credits work, there would be an adjustment. So, as long as your income didn't change, the Federal Government would be paying for that differential. I mean, we don't wanna see the premiums rising by eight to 10%, but

Exactly. That's that's what I'm getting at. We don't wanna see premiums rising by eight to 10%.

Yeah.

Okay.

Yeah. So the credit structure right now, unless you are above 400% of FPL and you didn't get it, that some of that's absorbed by the structure of the federal credits.

Got it. Got it. Well, thank you. We're gonna turn to public comment for this item on Covered California. If there's any public comment.

Thank you. And seeing no other public comment, thank you so much for for being with us today. We're gonna move on to our final issue on the agenda, which which is the Department of Managed Health Care for a budget overview and budget change proposals and trailer bill. And welcome, and you're welcome to introduce yourself and start when you're ready, and then, we'll see if there's any other comments from DOF for LAO. Alright.

Good afternoon. Mary Watanabe, Director of the Department of Managed Health Care. I have Dan Suddeter, our Chief Deputy Director with me. We're gonna start with the menopause proposal. The governor's January budget included a proposal to increase access to treatment for the symptoms of perimenopause, menopause, and postmenopause through increased enrolling and provider awareness.

The proposal specifies that plans licensed by the DMHC, health insurers licensed by the Department of Insurance, and Medi Cal managed care plans must cover FDA approved treatment for menopause when medically necessary.

In addition, for contracts issued or amended or renewed after 01/01/2027, health plans would be required to have a menopause pause program that includes a policy to provide an annual menopause assessment for enrollees age 40 and older, a biannual notice to enrollees over age 40 that includes the definition of menopause and the services available to treat the symptoms of menopause and a biannual notification to primary care and OB GYN providers on best practices for care, including current clinical care guidelines for menopause care from the menopause society or other nationally recognized association.

Beginning 01/01/2027, health plans would be required to use generally accepted standards of menopause care from nonprofit professional associations when making determinations about whether menopause care is medically necessary. Plans would also be required to have a process to reimburse primary care providers and specialists for menopause care, and they're also required to have a policy to contract with primary care and OB GYNs with certification and credentialing by a nationally recognized organization such as the menopause society.

There are other provisions in the business and professions code relate related to increased con continuing medical education credits for providers who complete coursework related to menopause beginning 07/01/2027. And finally, the proposal includes 3,000,000 for the California Health and Human Services Agency to conduct an outreach campaign. To effectively implement and enforce these new requirements, we'll review health plan filings and monitor compliance through our routine medical surveys. We're requesting two positions and 407,000 in 2627 and three 191,000 ongoing to address the requirements of the menopause proposal.

And I'll let Dan talk about our PBM proposals.

Talk about this PBM workload, BCB. Dan Southard from the Department of Managed Health Care. AB 116 from last year replaced the current pharmacy benefit manager registration requirement with a licensure mandate for all PBMs that contract with either a DMEC licensed health plan or California Department of Insurance licensed insurer.

The current PBM registration requirement sunsets on 12/31/2026, and PBMs are required to obtain a license to the DMEC on or before 01/01/2027 or the date at which the department has established a licensure process, whichever is later. AB 116 require the department to license PBMs and, those licensed PBMs to submit quarterly financial statements and other information to the DMEC and gave the DMEC the authority to audit licensed PBMs to ensure compliance with the law.

The six positions received last year for 116 were the minimal positions in the DMEC were needed to set up a licensing structure for BBMs and to provide legal legal guidance. This proposal was requesting the resources needed to review the ongoing PBM licensing documents and financial documents and take enforcement action against noncompliant health plans or PBMs. Due to the timing with s p 41, the DMZ requested the resources in this PCP to review financial documents.

You will note in the DMZ's PCP for SB 41, we did not request additional resources to review those financial documents. To implement ongoing review of licensure and financial documents and take enforcement action against noncompliant health plans and PBMs, the DMHC is requesting eight positions and a little over 5,000,000 in '26, 27, nine positions in 4,300,000 in '27, 28, 10 positions in 4,400,000 in '28, 29, and ten positions in 4,400,000 in '29, 30, and ongoing.

Those are for questions or I can move. No. Please. So move on to the SB 41. ECP, SB 41 builds upon the previously established pharmacy benefit manager licensure requirements enacted in 2025 through e b one one six by expanding legal requirements to relieve the PBM revenue practices and pharmacy network reforms.

This bill enact sweeping reforms for PBMs and requires PBMs to be licensed by the DMC starting 01/01/2027. SB 41 also limits how PBMs generate revenue by prohibiting spread pricing, requiring manufacturer rebates to be passed directly to health plans, and allowing only administrative fees to be charged. Additionally, this bill requires new restrictions on how PBMs operate through contracted pharmacy networks, prohibiting discrimination against nonaffiliated pharmacies, and requiring PBMs to include any pharmacy willing to adopt standard terms.

SP 41 requires the DMHC to issue formal guidance to ensure health plans and PBMs clearly understand and comply with the requirements, conduct legal research of health plan and PBM contracts, policies, and related documents to ensure compliance, and address provider complaints against PBMs, as well compile and analyze new PBM data. And lastly, update medical surveys and tools to assess compliance with the requirements of s p 41.

To address this workload, the DMEC is requesting seven positions and 1,700,000 to 26, increasing to nine positions and 2,200,000 in ongoing 10 limit that requires an SB 41.

Alright. And I'm gonna take over with AB 1041 beginning 01/01/2027. AB 1041 requires a health plan or its delegate to notify a provider within ten business days to verify receipt of the credentialing application, make a determination within ninety days after receiving a completed application, and notify the applicant of activation within ten business days. If a plan feel fails to meet the ninety day deadline, the applicant's credentials must be provisionally approved for a hundred and twenty days with some exceptions.

And then beginning 01/01/2028, health plans and their delegates are required to use the council for affordable quality health care or CAQH credentialing form.

We'll issue guidance and review compliant compliance through our medical surveys, and we're requesting four positions in 1,200,000 in 2627, increasing to five positions in 1,400,000 ongoing. One moment.

Is the last BCP, which is for SB 306, prior authorization reporting. SB 306 increases transparency in the prior authorization process by requiring health plans and health insurers to submit prior authorization data to the DMC and the California Department of Insurance. After reviewing the dating and consulting with stakeholders, the DMHC will develop and issue a list of health care services that will no longer be subject to prior authorization.

The bill establishes a deadline of 07/01/2027 for issuing the list and 01/01/2028 for the health plans and insurers to implement the list of services that will no longer require prior authorization. SB 306 requires the DMHC to promulgate and amend applicable regulations.

To clarify the requirements of SB 306, review health plan contracts, policies, procedures, evidence, and coverage, and disclosure forms, address consumer complaints related to prior authorization, publish a list of Health Care Service exempt from the prior authorization requirements, and issue a public report on the impact of prior authorization exemptions. To address this workload, the DMHC is requesting four positions, 1,400,000. And 2627, increased into 8,000,000 excuse me, increased into eight positions and 1,800,000 ongoing to implement these requirements. We're not happy to answer any questions.

Thank you so much. Anything from LAO, DOF? Nothing. Assembly Member, any questions?

Thank you, Chair. I just have a comment on the PBMs on SB 41, which something I reported. It just seems to me, you know, pharmacy benefit manager managers, they're supposed to be add adding such a great service. They're supposed to be so helpful in reducing costs for those people needing medications. And we are just looking at the amount of money and a whole new layer of state oversight and staffing.

The cost to just even monitor PBMs, which are supposed to be providing this great service, is really disconcerting to me. I just I'm in full support of it because I think it's necessary, but I just wanna at least, say on the record that I think it's ridiculous that we have to do it.

But because it's so opaque and so confusing and meant to be that way, I think, I think, we have no choice but to try to figure out, how they could be working better for your average citizen. So just wanted to get that on the record.

Thank you so much. Assemblymember, I don't disagree at all. And I do wanna say thank you and acknowledge. Thank you for hitting menopause at the top. I know that's been a huge initiative of women's caucus, of Rebecca Bauer-Kahan, Assemblymember Bauer-Kahan, of others out in the community.

And so good to see that I will just make the comment. It's good to see that initiatives we have last year. There's actually work starting this year. Sometimes, we hear it takes years as you maybe heard in the last panel that money is allocated or resources are allocated or we think something's gonna happen and it languishes, which I think is the one piece that makes people hate government more than anything else.

So appreciate you mentioning that at the top and hope to see that work progressing clearly across time.

We're gonna move to public comment. You're welcome to stay up here for this particular item on the Department of Managed Health Care budget overview and budget change proposals. And then as a reminder, we will take after this, we will take public comment for items that are not on the agenda, but if you could state your name, organization, and position on this topic.

Hello. My name is Casey Gibson. I'm with Access Advocates. We advocate for sickle cell disease. And last year, we seriously pushed for BBM reform.

So please continue to regulate PBMs. They have a profound effect on the effect on the care that our patients receive. Thank you.

Good afternoon, Madam Chair. Niko Molina on behalf of Bayer. Bayer supports the governor's budget proposal and the related budget trailer trailer bill on prescription drug coverage, for menopause treatments. While Bayer fully supports the TBL and funding proposal, we urge the legislature to consider revising the language to ensure that women's women experiencing menopause have access to the full range of treatment options, including innovative new treatments that might not otherwise be covered by insurance. Thank you.

Good afternoon. Lizzie Guansona here on behalf of the California Medical Association, commenting on issue number five. CMA applauds efforts to improve access to quality menopausal care and wants to ensure requirements placed on plans or contemplating the implementation impacts on providers. To that end, CMA is working with other impacted providers to provide feedback on the language and look forward to con continuing conversations. Thank you.

Good afternoon. Whitney Francis with Western Center on Law and Poverty. We appreciate the menopause trailer bill language implements coverage requirements, but have concerns that the language treats Medi Cal patients differently by not requiring annual provider assessment or patient notification. Low income Californians would benefit from these services, and we urge they not be treated differently than those with commercial coverage.

Good afternoon, Madam Chair and Members. Omar Altamimi with the CPAN, with CPAN, the California Panathic Health Network, here to speak in support of the two PBM budget chain proposals. Thank you.

Good evening. Katie Van Deynze for Health Access California. We support the, the BCP to implement the PBM TBL as well as SB 41, and SB 306. Thank you.

Thank you very much. Vanessa Kahina on behalf of the California Academy of Family Physicians, we greatly appreciate the inclusion of the discussion on menopause in the administration's proposed budget. We worked very closely with the assembly last year on AB 432. We have some suggestions for the language we've reached out to the administration and to the legislature and very much look forward to continuing those conversations about this incredibly important topic that should affect 50% of us plus minus.

Ryan Spencer with the American College OB GYNs, and I just like to line our comments with exactly what my colleague from the California Academy of Family Physicians said. Look forward to work with the department on our suggestions to the menopause trail bill. But appreciate you introducing that. Thank you.

Well, thank you so much. And that concludes our, issues one through five, but we're here if there's any public comment for items not on the agenda. You're welcome to come on up. Welcome.

Good evening. I'm doctor Carolyn Rowley, Executive Director and Founder of Cayan Wellness Center. We take care of persons with sickle cell disease across the state And, currently, under Senator Perez, who's championing, $15,000,000, for us to continue care coordinated services for people living with sickle cell disease. Thank you.

Ryan Spencer again. This time on behalf of OCHIN, a non profit health IT company who has been working very closely with HCAI on a health information technology workforce plan that was put in place in 2022. That funding is set to expire, at the end of next year, and they're looking to continue that funding because it has been a very successful program, which I know the department has been very, appreciative of, and I would hope and want to continue as well. So thank you for consideration.

Hello. I'm Casey Gibson again. I'm with Access Advocates and Kyan Wellness, and we advocate for sickle cell patients. Kyan Wellness is requesting 15,000,000 for funding for wrap around services for sickle cell patients. These are very important, but more importantly, they significantly decrease the burden of extensive hospitalization stays for sickle cell patients on the state as many of them are part of Covered California as I said before or part of Medicare and Medicaid.

So these services will prevent extensive hospitalizations and allow them to get to work faster. Sorry. Thank you.

Hello. My name is Karen Shea. I'm also, with sickle cell, advocates group today. We did, advocacy day out on the Capital Steps today. My foster son has sickle cell disease.

He had a very really rough transition from pediatrics to adulthood. He was in the hospital for most of a year, in and out for most of a year. And, you know, he had other challenges too that we didn't really know about. But through that time, I was actually took a job in Southern California, and I learned eventually about Kyan Wellness and kinda learned how to help him. And now he's actively, helping himself and has a community, which, so the funding reauthorization is really important.

We can provide you with the letter from, Senator Perez. Let us know if you have any questions. Thank you very much.

Thank you, and, really appreciate the comments. I used to, teach for I talked for a long time, 21 years in the classroom, and worked with children that experienced sickle cell and families of of those children and certainly appreciate you staying and sharing your personal experiences with us and and coming to the capital to advocate to appreciate you. And with that, we are gonna, adjourn our hearing. Thank you so much.