The 2019-20 Budget: Using Proposition 56 Funding in Medi-Cal to Improve Access to Quality Care

The 2019-20 Budget: Using Proposition 56 Funding in Medi-Cal To Improve Access to Quality Care GABRIEL PETEK LEGISLATIVE ANALYST FEBRUARY 22, 2019 analysis full gutter 2019-20 BUDGET LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Executive Summary Medi-Cal Delegates Much of the Delivery of Health Care Services to Managed Care Plans. Medi-Cal provides health care coverage to 13 million low-income Californians. Over 80 percent of Medi-Cal beneficiaries are enrolled in Medi-Cal managed care plans, which are responsible for arranging and paying for most Medi-Cal services on behalf of their members. Medi-Cal managed care plans have flexibility in how they arrange for services, including how and how much they pay providers who furnish health care services under their networks. State Imposes a Number of Access and Quality Standards on Medi-Cal Managed Care Plans. The state oversees Medi-Cal managed care plans’ performance on a variety of state standards, including many related to access and quality. The state’s access standards require Medi-Cal managed care plans to maintain adequate networks of providers. The state also enforces and reports on a number of measures of the quality of care that Medi-Cal managed care plans provide to their enrollees. Concerns About Access to Quality Care in Medi-Cal Led to Proposition 56 (2016) Ballot Initiative. Stakeholders have long been concerned that access to quality care is limited in Medi-Cal due to low provider reimbursement. These concerns led to Proposition 56—which raises state taxes on tobacco products and dedicates the majority of associated revenues to Medi-Cal on an ongoing basis—being put on the statewide ballot in November 2016. Pursuant to Proposition 56, which was approved by voters, these revenues are to be used to improve payments to ensure timely access and ensure quality care. Currently, over $700 million in Proposition 56 funding supports provider payment increases in Medi-Cal, with over half supporting payment increases for participating physicians and the balance supporting payment increases for other providers, such as dentists and family planning service providers. Pursuant to a two-year budget agreement covering 2017-18 and 2018-19, Proposition 56 funding for provider payment increases in Medi-Cal has been limited term. Governor’s 2019-20 Budget Proposes to Extend and Expand Proposition 56 Provider Payment Increases. The Governor’s 2019-20 budget proposes to make a number of changes to Proposition 56 funding in Medi-Cal. First, the Governor proposes to use all Proposition 56 funding on provider payment increases, which has the effect of raising General Fund costs in Medi-Cal (since no amount of funding is proposed to offset General Fund cost growth in Medi-Cal, as is currently done). Second, the Governor states an intent to make most of the Proposition 56-funded provider payment increases permanent. Third, the Governor proposes new provider payment increases aimed at improving care in such areas as the identification of children with developmental delays and chronic disease management, the latter through a new “value-based” payment program. Following Our Preliminary Review, No Evidence of Widespread Noncompliance With the State’s Access and Quality Standards . . . We conducted a preliminary analysis of Medi-Cal managed care plans’ performance relative to certain major components of the state’s access and quality standards. Based on our preliminary review, we have not identified widespread noncompliance with the state’s standards. www.lao.ca.gov 1 analysis full gutter 2019-20 BUDGET . . . But There Is Room for Improvement. However, we identify some potential areas for improvement. While Medi-Cal managed care plans appear to be largely meeting state standards on primary care physician network adequacy, they appear to have more difficulty recruiting adequate numbers of specialists, particularly pediatric specialists. In terms of quality, Medi-Cal managed care plans’ performance varies from fairly strong to warranting improvement. Proposition 56 Physician Payment Increases Apply a Uniform Solution to Potential Deficiencies in Access to Quality Care That Vary Across Plans and Regions of the State. Where Medi-Cal managed care plans have room for improvement very likely varies from plan to plan and from county to county. However, Proposition 56’s physician supplemental payments are uniform statewide and target largely non-specialty services, where we find less evidence of access challenges. Accordingly, the existing approach may be not be adequately flexible to meet variable local health care conditions and needs. Moreover, no evaluation has been released on the impact of the existing Proposition 56 provider payment increases. As a result, their efficacy in improving access and quality in Medi-Cal is unknown. Proposition 56 Provider Payment Increases May Not Be Sustainable. As projected at the level proposed in the Governor’s 2019-20 budget, annual spending on Proposition 56 provider payment increases exceeds annual Proposition 56 revenues for Medi-Cal. Balances in the Proposition 56 fund account could cover these annual shortfalls in the short term, but General Fund could eventually be needed unless current projections are understated, the projected cost of provider payment increases is overstated, or changes are made to the Governor’s proposed use of this funding. LAO Assessment and Recommendations. Following our review of access and quality in Medi-Cal and the use of Proposition 56 funding to improve access and quality in Medi-Cal, we find or recommend the following: • Existing Provider Payment Increases Should Be Further Assessed Before Being Made Permanent. Given our concerns about the existing approach of Proposition 56 provider payment increases (particularly related to physician services provider payment increases), as well as the lack of evaluation showing their effectiveness, we recommend that the Legislature keep the Proposition 56 provider payment increases limited term. We recommend that the Legislature direct DHCS to produce a report on the efficacy of Proposition 56 funding in improving access to quality care in Medi-Cal. • Seriously Consider Proposed Value-Based Payment Program, but Obtain More Information on All Proposed New Provider Payment Increases. Limited information is currently available on the new proposed provider payment increases, particularly the value-based payment program. Accordingly, more information is needed before we can provide a recommendation on the value-based payment program and certain of the other new proposed Proposition 56 provider payment increases. That said, we believe the value-based payment proposal has the potential to improve areas with known deficiencies in Medi-Cal, and therefore should be seriously considered. • Reject Proposed Supplemental Payments for Developmental Screenings. The Governor’s developmental screenings proposal would increase payment for an activity managed care plans are already required to arrange and for which they are already compensated. The administration has not provided a compelling rationale for why increasing payments is the most cost-effective approach to improving the identification of children with developmental delays. We recommend more cost-effective strategies to improve the rate of developmental screenings and reporting be pursued before supplemental payments are provided. 2 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET INTRODUCTION This report analyzes the use of Proposition 56 has been used to date, and the changes proposed (2016) funding in Medi-Cal to improve access to under the Governor’s 2019-20 budget. Next, we quality care. First, we provide background on how assess Medi-Cal managed care plans’ performance Medi-Cal services are financed within Medi-Cal’s on selected state access and quality standards. multiple delivery systems. Then, we review how Finally, we provide issues for consideration and access and quality are monitored, primarily within recommendations on how to use Proposition 56 Medi-Cal’s managed care delivery system. We funding in Medi-Cal going forward to improve summarize how Proposition 56 funding in Medi-Cal access to quality care. BACKGROUND Medi-Cal Is the State’s Medicaid Program. that arrange and pay for broader Medi-Cal services. Medi-Cal, the state’s Medicaid program, is We describe key features of these delivery systems administered by the Department of Health Care below. Services (DHCS) and provides health care coverage Managed Care Has Grown to Become to over 13 million of the state’s low-income Medi-Cal’s Predominant Delivery System. residents. Coverage is cost-free for most Medi-Cal Managed care enrollment is mandatory for most enrollees. Instead, Medi-Cal costs are generally Medi-Cal beneficiaries, meaning these beneficiaries shared between the federal and state governments. must access most of their Medi-Cal benefits through the managed care delivery system. FFS OVERVIEW OF MAJOR enrollment largely consists of newly enrolled MEDI-CAL DELIVERY SYSTEMS beneficiaries who will soon enroll in a managed care plan and certain select populations exempt Medi-Cal delivers health care services through from mandatory managed care, such as foster several different delivery systems, each of which children. As shown in Figure 1 (see next page), is funded, operated, and overseen in distinct most Medi-Cal beneficiaries (82 percent) are now ways. There are two main Medi-Cal systems for enrolled in managed care. Over time, Medi-Cal the delivery of medical services: fee-for-service spending has similarly shifted from FFS to managed (FFS) and managed care. In the FFS system, a care. While physical health care services are health care provider receives an individual payment primarily delivered through managed care, the vast from DHCS for each medical service delivered to majority of Denti-Cal services are delivered through a beneficiary. Beneficiaries in Medi-Cal FFS may FFS Denti-Cal. generally obtain services from any provider who State Directly Oversees and has agreed to accept Medi-Cal FFS payments. In managed care, DHCS contracts with managed care Administers Services Under FFS plans to provide health care coverage for Medi-Cal Under FFS, DHCS is directly responsible for beneficiaries. Managed care plans are public overseeing the care of FFS enrollees. Accordingly, or private health insurance plans that arrange DHCS carries out the following major activities and pay for the health care of their members. A to arrange and pay for the health care services parallel structure of FFS and managed care exists available to Medi-Cal FFS enrollees. within Denti-Cal, which covers dental services for Medi-Cal enrollees. Denti-Cal managed care is • Maintains a “Network” of Providers. To provided through specialized dental managed care facilitate the delivery and reimbursement plans that are distinct from the managed care plans of services, DHCS enrolls health care www.lao.ca.gov 3 analysis full gutter 2019-20 BUDGET Figure 1 Managed Care Has Grown to Become Medi-Cal’s Predominant Delivery System Caseload: Managed Care Versus Fee-for-Service (In Millions) 12 Managed Care Fee-for-Service 10 8 6 4 2 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 Expenditures: Managed Care Versus Fee-for-Service (Total Funds in Billions) $60 Managed Care Fee-for-Service 50 40 30 20 10 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 4 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET providers into the Medi-Cal FFS provider insurers, but generally higher than the rates paid by network, contracts with hospitals and other state Medicaid programs. For example, researchers institutional care facilities (such as skilled have compared Medi-Cal FFS provider rates to nursing facilities), makes arrangements with those paid under Medicare and found that Medi-Cal pharmacies to dispense drugs, and performs FFS provider rates for physician services are about a variety of other related tasks. 50 percent of what Medicare pays. Commercial • Sets Payment Levels. DHCS establishes insurer providers rates tend to be around provider reimbursement levels, or “provider 50 percent higher than Medicare rates, though they rates,” via state regulation. Medi-Cal FFS vary significantly. provider rates are generally set on a statewide Managed Care: A Delegated basis. Health Care Service Delivery Model • Processes Payments. DHCS, with the assistance of contracted vendors, adjudicates DHCS Contracts With Managed Care Plans and processes claims for payment for services to Arrange for Their Members’ Health Care rendered under Medi-Cal FFS. Services. Medi-Cal managed care is a delegated • Manages Service Utilization. Health care service delivery model whereby the state contracts services are covered and reimbursed by with about 30 public or private managed care Medi-Cal to the extent they are medically plans—such as Kaiser Foundation Health Plan—to necessary, typically as determined by a arrange for covered health care services that the physician or other health care provider. state would otherwise provide directly through Certain covered Medi-Cal services and Medi-Cal FFS. As explained below, Medi-Cal medical products, however, require managed care plans are paid on a “capitated,” administrative prior authorization in addition or per member, basis in return for arranging their to a medical-necessity determination by members’ health care services. Medi-Cal managed a provider before they are delivered. For care plans’ various responsibilities are set in state example, many expensive prescription drugs law, state regulations, and in their contracts with require prior authorization before Medi-Cal will DHCS, with ensuring access to health care services pay for them. The use of prior authorization is among the core responsibilities of Medi-Cal intended to discourage the unnecessary use managed care plans. Below, we summarize of health care services and medical products, selected major responsibilities of Medi-Cal particularly those that are relatively expensive. managed care plans, which largely parallel those of DHCS under Medi-Cal FFS. Medi-Cal FFS Provider Rates Relatively Low Compared to Rates Paid by Other Payers. • Maintain a Network of Contracted Health Medicare, the federal program that provides health Care Providers. Rather than the state care coverage to 60 million elderly and disabled maintaining a network of contracted health people nationwide, sets provider rates on an care providers and facilities—as is the case administrative basis, similar to Medi-Cal. Since in Medi-Cal FFS—in Medi-Cal managed Medicare’s provider rates are public and serve care, managed care plans are responsible as the basis of reimbursement for health care for establishing their own networks of services on behalf of tens of millions of people, participating providers and facilities. As they are often used as a benchmark with which to described below, federal and state rules compare the provider rates paid by other payers of establish minimum requirements on the size health care services. Among the major categories and structure of Medi-Cal managed care plan of payers—commercial insurers, Medicare, and provider networks. Medicaid—Medicare provider rates are understood • Set Provider Reimbursement Rates. to be moderately generous. That is, they are Medi-Cal managed care plans, rather than the generally lower than the rates paid by commercial state, set their own provider reimbursement www.lao.ca.gov 5 analysis full gutter 2019-20 BUDGET rates through negotiations with their network care services to each of their members. Average providers. As described below, the state’s role member costs are computed using utilization is to review the costs associated with these and cost data from prior years, and subsequently provider rates for reasonableness both from trended forward using inflation factors. The PMPM a state fiscal standpoint and a beneficiary payment amounts differ for distinct populations access standpoint. of Medi-Cal enrollees whose health care costs • Oversee Members’ Service Utilization. As tend to differ. For example, Medi-Cal pays much the state does in FFS, Medi-Cal managed higher capitated rates on behalf of seniors (around care plans are charged with managing the $600 per member per month for certain seniors) service utilization of their members to ensure compared to children (around $100 per member that members are receiving only medically per month). Medi-Cal’s managed care capitated necessary care. rates are certified by credentialed actuaries as actuarially sound. This certifies in the judgment of • Provide Care Coordination. In addition to the actuaries that the capitated rates are projected managing their members’ service utilization, to provide funding for all reasonable, appropriate, managed care plans are charged with and attainable costs of services that are required coordinating beneficiaries’ care. In general, under Medi-Cal managed care plans’ contracts with this involves providing a “medical home” DHCS. for their members, which is a primary care physician (PCP) to which members are Use Capitated Payments to Fund Health Care assigned and through which they can be Services Utilized by Their Members. Medi-Cal referred to specialty care and other supports. managed care plans use the pooled funding from their capitated rates to pay for the Medi-Cal Managed Care Plans Typically Operate Within services utilized by their members, as well as to and Vary Across Counties. The state contracts pay for their administrative expenses. The portion with managed care plans on a county-by-county of capitated rate funding that is not ultimately used or sometimes regional basis. Accordingly, different to pay for health care services or administration is Medi-Cal managed care plans serve different parts generally retained by the plans as profits, reserves, of the state. In 23 counties, the state contracts with or used for other purposes. a single managed care plan in each county to serve Managed Care Plans Have Flexibility to the vast majority of Medi-Cal beneficiaries within Negotiate Their Own Provider Reimbursement that county. In 33 counties, the state contracts Rates. As previously mentioned, DHCS does not with two managed care plans, between which set managed care plan provider rates—these Medi-Cal managed care enrollees may choose. In are negotiated between managed care plans the remaining two counties, the state contracts with and providers. Generally, managed care plan several managed care plans. provider rates may be as high as is reasonably Medi-Cal Managed Care Plans Paid on a necessary to ensure that members have sufficient Capitated Basis. Medi-Cal managed care plans access to health care services. DHCS oversees receive a predetermined amount of funding per the reasonableness of provider rates through its member per month, regardless of the cost of reviews of managed care plans’ costs under the services utilized by the member. We refer to capitated rate-setting process. these per-member per-month (PMPM) payments Managed Care Plans Use a Variety of interchangeably as capitated rates. On an annual Payment Methodologies. In addition to having basis, DHCS, with the assistance of a contracted flexibility around how much they pay their providers, actuary, determines PMPM payment amounts Medi-Cal managed care plans have flexibility through an actuarial capitated rate-setting process. to reimburse their network providers through a With a variety of adjustments, the fixed PMPM variety of payment methodologies. For example, amounts are set to equal each Medi-Cal managed many managed care plans “sub-capitate” down care plan’s average costs of providing health to the provider level, whereby a physician group 6 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET or clinic will receive a PMPM payment and be adequately serve its members, the plan may have responsible for providing all contracted services to to pay higher rates for oncology services to make assigned members. In other situations, managed the opportunity attractive to potential providers. care plans pay for services on a FFS basis, at FFS Establishing higher provider rates for oncology reimbursement rates that are negotiated between services will generally raise the plan’s costs. Those the plan and the provider. In still other situations, higher costs will subsequently appear in the data managed care plans will pay either a “base” used by DHCS to update the managed care plan’s sub-capitated or FFS provider rate, and supplement capitated rates. As long as the costs associated it with an incentive payment based on providers with the oncology provider rate increase are achieving a predetermined outcome or goal. deemed reasonable by the state’s use of actuarial Managed Care Plan Provider Rates Are standards, the plan’s capitated rates would then Generally Confidential. The provider rates be adjusted upward to account for the associated paid by Medi-Cal managed care plans are higher costs. It should be noted that, in practice, generally considered a trade secret and therefore it typically takes two to three years for a managed kept confidential. As a result, there is minimal care plan’s higher costs, such as those associated transparency into what managed care plans pay with provider rate increases, to be reflected in their network providers. higher capitated rates. To finance the provider rate increase until the capitated rate adjustment takes Managed Care Plans Attest to Reimbursing place, managed care plans have to reduce other Providers at Higher Levels Than Medi-Cal FFS. spending, reduce their anticipated profits, and/or For Medi-Cal managed care plans, Medi-Cal FFS spend down their financial reserves. Ultimately, the provider rates often serve as the starting point of delay in when capitated rates are adjusted has the negotiations between the plans and providers, with likely effect of sometimes discouraging—but by no increases beyond the Medi-Cal FFS provider rates means forestalling—periodic provider rate increases being agreed as needed. Although we do not have within Medi-Cal managed care. access to actual data on the provider rates paid by Medi-Cal managed care plans, we understand from Managed Care Financing Brings Benefits public testimony and conversations with Medi-Cal Relative to FFS . . . The financing of Medi-Cal managed care plans that at least some plans pay services differs markedly under managed care higher provider rates than typically provided under compared to FFS. Generally, Medi-Cal managed Medi-Cal FFS. Some Medi-Cal managed care plans care financing reflects an attempt to address pay significantly higher than Medi-Cal FFS—with some of the drawbacks of reimbursing health care certain plans sharing that they pay comparable services on a FFS basis. First, within Medi-Cal, provider rates to Medicare, which are generally the use of managed care allows for variability in understood to be about twice as high as Medi-Cal provider rates to reflect local differences in health FFS provider rates. care infrastructure and needs across the state. Medi-Cal FFS provider rates, to the contrary, are Capitated Payments Adjust Over Time to generally established on a statewide basis. As a Account for Changes in the Provider Rates payment methodology, FFS tends to encourage Managed Care Plans Pay. As previously utilization of health care services, since providers discussed, capitated rates are updated annually are paid for each service they deliver. In addition, to reflect changes in Medi-Cal managed care FFS reimbursement in Medi-Cal places full financial plans’ costs. Changes in costs can reflect higher risk on the state, as the state will immediately utilization on the part of their members—for bear the costs or savings of any spike or fall in the example, as a result a bad flu season. Changes costs of services utilized. Managed care financing in costs can also reflect changes in the provider in Medi-Cal addresses these drawbacks by giving rates that managed care plans pay. For example, managed care plans a global budget comprising should a Medi-Cal managed care plan experience the full amount of capitated payments that are difficulty in contracting with a sufficient number provided, and tasking the plans with providing all of oncologists (who treat cancer) in order to www.lao.ca.gov 7 analysis full gutter 2019-20 BUDGET necessary covered services using that funding. Medi-Cal is generally thought to be comparable In this case, risk is transferred from the state to to the reimbursement levels available through managed care plans, as plans are required to Medicare. deliver services even if, in a given year, the costs Community clinics form a major part of exceed the funding provided. Medi-Cal’s PCP network, both in FFS and managed . . . As Well as Drawbacks. Managed care care. In managed care, plans negotiate their own financing in Medi-Cal also brings significant provider rates with community clinics. However, trade-offs. While having managed care plans certain community clinics are entitled to cost-based negotiate provider rates facilitates a tighter reimbursement under federal law. To ensure these alignment between the provider rates paid and the community clinics are reimbursed at cost, the state local health care market conditions than is possible pays supplemental, or “wraparound,” payments to under statewide FFS provider rates, this flexibility these clinics equal to the difference between the makes it more challenging for state policymakers reimbursement level required by federal law and the to understand how much Medi-Cal providers amount paid by Medi-Cal managed care plans. The are being paid, and therefore whether access or state and federal government share in the cost of quality may be negatively impacted by low provider these wraparound payments. rates. Moreover, managed care financing can reduce transparency into not only how much is ACCESS AND QUALITY being paid for a given service, but what services MONITORING IN MEDI-CAL are being paid for and provided. Finally, as a payment methodology, given that managed care Defining Access in Medi-Cal plans are paid a fixed amount per member per month, managed care financing can encourage Access to Health Care Services Reflects lower utilization of services than may ultimately be Ability to Obtain Covered Services. At its desirable. most basic level, access represents the ability of Medi-Cal enrollees to receive covered services in Supplemental Payments in Medi-Cal a timely manner when medically appropriate. For In addition to funding health care services example, access means having sufficient available through (1) FFS reimbursement and (2) capitated medical providers within a reasonable proximity payments, a significant amount of Medi-Cal funding as to allow a Medi-Cal enrollee to make an (in the low tens of billions of dollars annually) goes appointment to receive services within a reasonable to Medi-Cal providers in the form of supplemental period of time. Health coverage through Medi-Cal is payments. Supplemental payments are paid on not meaningful unless that coverage provides real top of the base reimbursement rates that providers access to services. receive for a given Medi-Cal service or on behalf Quality of Care Is an Important Component of a given Medi-Cal member. Major examples of of Access. Beyond basic access to services, the Medi-Cal supplemental payments include hospital quality of services received through Medi-Cal is supplemental payments and community clinic also important. Health care services provided in supplemental payments. Hospitals typically receive Medi-Cal can be thought of as “quality” to the supplemental payments on top of the rates paid extent that they (1) increase the likelihood of an by Medi-Cal FFS and Medi-Cal managed care individual’s desired health outcomes and (2) are plans for inpatient stays. These supplemental consistent with recommended care based on payments are funded with a combination of local current medical knowledge. Quality of care does funds, special funds, and federal funds, and thus not necessarily mean the ability to access a greater have the effect of increasing total hospital payment quantity of services, but rather depends on the levels without affecting General Fund costs. Once ability to receive appropriate health care services these supplemental payments are factored in, based on recommended care and patients’ needs reimbursement for hospital inpatient services in and preferences. In some instances, fewer or less 8 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET costly services may actually be more appropriate Managed Care Access Monitoring and provide a higher level of quality. On the other Federal and state law is considerably more hand, in some instances, certain services may be prescriptive in establishing access standards in underprovided to patients and additional services Medicaid managed care, relative to Medicaid FFS. may be appropriate. The state has different Below, we summarize these standards. approaches to monitoring access and quality Provider Network Adequacy Requirements. in Medi-Cal’s two primary delivery systems, as State law places various requirements on Medi-Cal described below. managed care plans in relation to access, as FFS Access Monitoring described below and displayed in Figure 2 (see next page). (These requirements are comparable Federal “Equal Access” Provision. Federal to or exceed those in the Knox-Keene Act, which law currently requires states to maintain sufficient imposes various requirements on most managed providers in their FFS Medicaid programs so as care plans in the state, including those that do not to provide health care services that are at least participate in Medi-Cal.) comparable to those available to the general population. This requirement is often referred to as • Provider Ratios. First, managed care plans the equal access provision. However, the meaning are required to maintain minimum ratios of of the equal access provision and how to determine providers to enrollees in their service area. whether a state complies with it has historically not These standards consist of a higher ratio for been clear. PCPs and a second lower ratio that applies to State Developed FFS Access Monitoring Plan. a broader range of health care providers. In 2015, the federal government issued regulations • Geographic Time and Distance Standards. that clarified the meaning of the equal access Managed care plans are also required to provision, but did not establish nationwide access contract with enough providers to limit the standards. Rather, the regulations required each time and distance required for a beneficiary state to develop its own plan for assessing whether to travel to receive services from various its FFS Medicaid program has sufficient providers types of providers. If a managed care plan and access. Such plans must review (1) the can demonstrate to DHCS that it cannot extent to which beneficiary needs are met, (2) the meet these requirements after exhausting all availability of care, (3) changes in service utilization reasonable efforts to contract with additional by beneficiaries, (4) beneficiary characteristics, providers, DHCS may approve alternative time and (5) payment levels in the Medicaid program and distance standards. Beginning in 2018, and by other entities that pay for health care managed care plans are required to certify (such as private insurance). States are to develop that their networks meet these standards, or their own standards and monitor access in their receive approval for an alternative standard, individual Medicaid programs in relation to those each year. standards. Federal regulations specifically require • Appointment Availability Requirements. states to evaluate the impact of any reductions Managed care plans are required to ensure or restructuring of payment rates in advance of that enrollees can obtain appointments to submitting them for federal government approval. receive urgent and nonurgent health care DHCS published California’s FFS access monitoring services within specified time frames. plan in September 2016. The state’s plan includes proposed methods and measures by which to DHCS Performs Annual Managed Care evaluate access and identifies data sources for Plan Audits. Each year, DHCS audits Medi-Cal those measures. The state’s plan does not identify managed care plans’ compliance with various state specific access challenges, but is intended to requirements, including the network adequacy lead to a baseline against which access can be of the requirements just described. When a plan measured in the future. is found to have a deficiency, the state requires www.lao.ca.gov 9 analysis full gutter 2019-20 BUDGET Figure 2 Network Adequacy Standards for Medi-Cal Managed Care Plans Provider Ratios One FTE primary care physician for every 2,000 enrollees One FTE physician of any type for every 1,200 enrollees Geographic Time and Distance Standards Dense Countiesa Medium Countiesb Small Countiesc Rural Countiesd Primary care (including OB/GYN 10 miles or 30 minutes 10 miles or 30 minutes 10 miles or 30 minutes 10 miles or 30 minutes primary care) and pharmacy Specialty care and mental health 15 miles or 30 minutes 30 miles or 60 minutes 45 miles or 75 minutes 60 miles or 90 minutes outpatient services Hospitals 15 miles or 30 minutes 15 miles or 30 minutes 15 miles or 30 minutes 15 miles or 30 minutes Appointment Availability Requirements Urgent Non-Urgent Primary care (including OB/GYN Within 48 hours of requeste Within 10 business days of request primary care) Mental health outpatient services Within 48 hours of requeste Within 10 business days of request Specialty care Within 48 hours of requeste Within 15 business days of request a Counties with at least 600 people per square mile. b Counties with between 200 and 600 people per square mile. c Counties with between 50 and 200 people per square mile. d Counties with less than 50 people per square mile. e Within 96 hours if prior authorization is required. FTE = full-time equivalent and OB/GYN = obstetrician/gynecologist. the plan to enter into a corrective action plan that perceptions of the quality of their managed care identifies steps to address deficiencies. plan, their health care providers, and the services Quality Measurement. DHCS assesses they receive. Figure 3 provides examples of HEDIS the quality of health care in the managed care measures and consumer survey questions. delivery system in two main ways. First, DHCS Relationship Between Access, requires managed care plans to report on an Quality, and Provider Rates array of performance measures, referred to as the Healthcare Effectiveness Data and Information Higher Provider Reimbursement Levels Likely Set (HEDIS), related to the process of providing Improve Access to Care and Potentially Quality, health care and some health care outcomes. Plans but Evidence Is Mixed. Standard economic theory are assessed on their performance on selected suggests that paying health care providers more HEDIS measures against a “minimum performance encourages providers to offer more services, all level” that requires plan performance to be at least else being equal, thereby increasing utilization as good as the worst performing 25 percent of and potentially improving access. For example, Medicaid managed care plans nationally. The state in California, health care providers are relatively also provides an incentive for improved managed more willing to accept new commercially insured care plan performance by assigning new Medi-Cal and Medicare patients, compared to new Medi-Cal enrollees that do not choose a plan on their own patients. To some degree, this likely relates to the to managed care plans that have higher scores higher provider rates paid by these other payers. on certain HEDIS measures. Second, DHCS Nationally, the evidence on whether increases surveys managed care plan enrollees about their in Medicaid provider rates increase access is 10 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET somewhat mixed, with some research supporting availability of health care services, practically this and other research failing to support this hypothesis. is not feasible. Accordingly, provider rate changes Provider rates also may impact the quality of will have variable impacts depending on geographic care. For example, the more health care providers conditions and population density. Other factors, are paid for their services, the more time they may such as the degree to which there is competition be willing to spend with their individual patients, as among providers and provider reimbursement opposed to relying as heavily on service volume to methodologies, also likely influence and add cover their costs and maximize their earnings. complexity to the relationship between providers rates and access to quality care. But Relationship Between Provider Rates and Access Is Complex and Depends Upon a Variety of Factors. The complexity of the PROPOSITION 56 relationship between provider rates and access PROVIDER PAYMENT INCREASES likely contributes to the lack of consensus in the research on the impact of increasing provider Proposition 56 (2016) Funding for rates on access to quality care. Geography plays Medi-Cal. Proposition 56 raised state taxes on a major role in shaping local residents’ access to tobacco products and dedicates most revenues health care services. While primary care services to Medi-Cal on an ongoing basis. Funding from are largely available throughout California in Proposition 56 for Medi-Cal is intended to improve urban and rural settings alike, specialty health payments to ensure timely access, limit geographic care services are less likely to be available in shortages of services, and ensure quality care. more rural regions of the state. Rural areas have Medi-Cal began receiving Proposition 56 funding in less population density and, therefore, fewer 2017-18. Proposition 56 currently provides about people to utilize health care services, particularly $1 billion annually to Medi-Cal. Because tobacco services that treat relatively rare conditions. As use is projected to continue to decline on an such, specialists will often not be able to cover ongoing basis—partially as a result of the new taxes their costs serving rural areas. While it is probably put in place under Proposition 56—revenues from theoretically possible to raise provider rates high Proposition 56 for Medi-Cal are expected to enough to eliminate geographic disparities in the gradually decline on a year-over-year basis. Figure 3 Managed Care Plan Performance Measures Sample HEDIS Performance Measures • Percentage of enrollees two years of age who received Combination 3 vaccines.a • Percentage of female enrollees 50 years through 74 years of age who had a mammogram. • Percentage of female enrollees who delivered a live birth who received a prenatal care visit in the first trimester or within 42 days of enrollment in the plan. • Percentage of female enrollees who delivered a live birth who completed a postpartum visit between 21 days and 56 days after delivery. • Percentage of enrolles 18 years through 75 years of age with diabetes who received an eye exam during the year. Sample CAHPS Survey Questions • Using any number from 0 to 10, where 0 is the worst health care possible and 10 is the best health care possible, what number would you use to rate all your health care in the last six months? • In the last six months, how often was it easy to get the care, tests, or treatment you needed? • In the last six months, when you needed care right away, how often did you get care as soon as you needed? a Includes four diphtheria, tetanus, and acellular pertussis; three polio; one measles, mumps, and rubella; three Haemophilus influenza type B; three hepatitis B; one chicken pox; four pneumococcal conjugate; one hepatitis A; two or three rotavirus; and two influenza vaccines. HEDIS = Healthcare Effectiveness Data and Informaiton Set and CAHPS = Consumer Assessment of Healthcare Providers and Systems. www.lao.ca.gov 11 analysis full gutter 2019-20 BUDGET OVERVIEW OF THE TWO-YEAR Proposition 56 funding available for use in Medi-Cal than was previously anticipated. PROPOSITION 56 AGREEMENT • New and Higher Provider Payment 2017-18 Budget Agreement. In 2017-18, Increases. The 2018-19 budget further the Legislature and Governor Brown reached a increased payments for providers and services two-year agreement on how to use Proposition 56 that had received increases in 2017-18. In funding in Medi-Cal. This agreement addition, the 2018-19 budget expanded allocated Proposition 56 funding for Medi-Cal Proposition 56 provider payment increases to two distinct purposes for both 2017-18 and to provider groups and service categories 2018-19: (1) increasing provider payments and that had not previously received payment (2) offsetting General Fund spending on underlying increases. This expansion was supported by cost growth in Medi-Cal. In 2017-18, $546 million freed-up funding resulting from the revised was allocated for provider payment increases cost estimate described above and the and $711 million was used to offset General additional Proposition 56 funding dedicated to Fund spending in Medi-Cal. Under the 2017-18 provider payment increases. agreement, the amount of Proposition 56 funding • Creation of a Physician and Dentist dedicated to provider payment increases was Student Loan Repayment Program. to increase to up to $800 million in 2018-19, The 2018-19 budget created a Medi-Cal provided the state’s fiscal conditions remained physician and dentist student loan repayment strong. Remaining available Proposition 56 program using $220 million in available funding would continue to be available to offset one-time Proposition 56 funding for Medi-Cal. General Fund spending in Medi-Cal. In approving This funding is intended to be expended the Proposition 56 provider payment increases, over multiple years. We note that the the administration stated an intent to evaluate administration’s current implementation plan the provider payment increases to determine shows that, although the program will begin to whether they ultimately have the predicted effect of implement over the next year, the funding will improving beneficiary access to care. not begin to be spent until 2020-21. The Enacted 2018-19 Budget Reaffirmed Figure 4 summarizes the use of Proposition 56 the 2017-18 Agreement. The 2018-19 budget funding in Medi-Cal under the 2017-18 two-year generally allocated Proposition 56 funding agreement. Below, we describe how the in Medi-Cal in accordance with the 2017-18 Proposition 56 provider payment increases have agreement, with most of the funding going to been structured to date, and provide greater detail provider payment increases and a lesser amount on the specific provider and service types that have used to offset General Fund spending in the received payment increases. program. The major changes made in 2018-19 were: Overall Proposition 56 Supplemental Payment Structure. Most of the Proposition 56 provider • Downward Revision in Cost of 2017-18’s payment increases take the form of supplemental Provider Payment Increases. In the payments that are paid on top of base provider 2018-19 budget, the cost of the 2017-18 rates, as opposed to being increases in base Proposition 56 provider payment increases provider rates. The supplemental payments are was revised downward by over 50 percent. fixed amounts of money and are paid upon the This downward revision related to updated delivery of individual services. To illustrate how this estimates of the federal share of cost for works within Medi-Cal FFS, suppose a provider the Proposition 56 supplemental payments, furnishes a service to a Medi-Cal enrollee—for reducing the state’s costs, and lower example, a standard physician office visit—and projected utilization of the services for which then bills the state for the service. DHCS will providers receive supplemental payments. then simultaneously pay the provider both the This downward revision meant there was more 12 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Medi-Cal FFS base rate for a Figure 4 standard physician office visit Use of Proposition 56 Funding in Medi-Cal and the applicable Proposition 56 Under the Two-Year Agreementa supplemental payment. The supplemental payments work (In Millions) similarly in managed care, with $1,400 providers receiving a fixed supplemental payment on top of base reimbursement following the 1,200 General Fund rendering of eligible services. Offset Supplemental payments 1,000 provide flexibility as they are Provider Student Loan Repayment easy to reduce or eliminate in Program the event, for example, of an 800 economic downturn. Making reductions to base Medi-Cal FFS 600 provider rates, to the contrary, Provider Payment can be more challenging for Increases the state because federal rules 400 (previously discussed) that apply to provider rate reductions—but 200 not reductions in supplemental payments—require enhanced state monitoring of the potential effect of a rate reduction on 2017-18 2018-19 beneficiary access to services. Including Federal a Funding amounts reflect estimates at the time of the 2018-19 Budget Act. Funding, Proposition 56 Provider Payment Increases small set of common physician services: outpatient Raise Medi-Cal Provider and office visits, preventive children’s (“well-child”) Reimbursement Levels by $2 Billion in 2018-19. visits, and psychiatric evaluation and management The most recent estimate of total funding (including services. leveraged federal funds) for Proposition 56 provider payment increases in 2018-19 is about $2 billion. Supplemental Payments in Medi-Cal FFS. The Next, we provide an overview of the various physician services supplemental payment levels Proposition 56 provider payment increases are set to make Medi-Cal FFS reimbursement currently authorized. comparable to the rates paid by Medicare. Figure 5 (see next page) provides examples of the Physician Supplemental Payments Proposition 56 physician services supplemental payments, as they affect physician reimbursement Increases Physician Payments for Small in Medi-Cal FFS. Number of Common Primary Care and Physician Services Supplemental Payments Outpatient Services. The largest amount of Also Paid Through Medi-Cal Managed Care. Proposition 56 funding for provider payment Proposition 56 supplemental payments are also increases support supplemental payments for made for physician services delivered through physician services ($409 million in Proposition 56 Medi-Cal managed care. The structure of the funding, and $1.3 billion in total funding once individual supplemental payments is the same federal Medi-Cal funding is included, in 2018-19). in Medi-Cal managed care as in FFS. That is, These supplemental payments are available for a www.lao.ca.gov 13 analysis full gutter 2019-20 BUDGET Figure 5 Summary of Proposition 56 Supplemental Payments for Physician Services in Medi-Cal FFS Medi-Cal FFS Reimbursement as a Percent of Medicare Without With Base Medi-Cal + Supplemental = Total Provider Supplemental Supplemental Physician Service FFS Rate Payment Reimbursement Payment Payment Office visit $34 $35 $69 42% 85% “Well-child” preventive office visit 55 77 132 42 100 Psychiatric evaluation and management 103 35 138 92 117 Note: Payment amounts reflect actual examples within the three categories of physician services that receive supplemental payments. FFS = fee-for-service. providers receive Proposition 56 supplemental were set to increase Denti-Cal provider rates by payments for the individual supplemental 40 percent. payment-eligible services they provide. However, Other Provider Payment Increases there are important distinctions in how the funding flows to providers. First, rather than the state Proposition 56 funding in Medi-Cal currently directly paying the supplemental payments to supports a number of other Medi-Cal provider providers, funding for the supplemental payments payment increases. These include funding for goes to managed care plans through their capitated supplemental payments for family planning; rates. (The funding amount equals the expected intermediate-care facilities for the developmentally amount of funding managed care plans will need disabled (ICF-DDs); the AIDS Medi-Cal Waiver in order to make the supplemental payments upon Program; and freestanding pediatric subacute delivery of a projected number of supplemental facilities, and base provider rate increases for payment-eligible services.) Using the additional home health services and pediatric day health care funding received in their capitated payments, facilities. In total, Proposition 56 funding for these Medi-Cal managed care plans then pay their other provider payment increases is $114 million in providers a supplemental payment after an eligible 2018-19. service has been rendered and reported to the Figure 6 illustrates how Proposition 56 funding plan. for Medi-Cal provider payment increases overall is targeted. Dental Supplemental Payments Increases Denti-Cal Payments for a Large Implementation Update Number of Services. The second largest amount Implementation of the Proposition 56 provider of Proposition 56 funding for Medi-Cal provider payment increases has met with some, generally payment increases ($194 million) supports anticipated, delays. Often these delays relate to supplemental payments in Denti-Cal. As with the time line of federal approval of the provider physician services, the dental supplemental payment increases. (Federal approval is required payments are available in both Denti-Cal FFS and since Proposition 56 funding is matched with Dental Managed Care. Unlike for physician services, federal Medicaid funding to fully finance the where only a limited number of types of services payment increases.) The 2017-18 provider payment (less than 30) receive supplemental payments, increases were implemented beginning in 2017-18 dental supplemental payments are spread across and have continued to be paid through 2018-19. hundreds of different Denti-Cal services. With The new 2018-19 provider payment increases— exceptions, dental supplemental payment levels which are on top of the 2017-18 increases— have generally either recently been implemented 14 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET or are soon to implement over the next couple payments in the Governor’s January budget of months. In terms of overall funding, updated are relatively consistent with projections from estimates of Proposition 56 spending on provider the 2018-19 Budget Act. GOVERNOR’S 2019-20 PROPOSITION 56 PROPOSAL The Governor’s budget proposes to extend and supplemental payment programs. Federal approval expand upon the previous two-year agreement of the new supplemental payment programs will on the use of Proposition 56 funding in Medi-Cal. be necessary to the extent they are supported For 2019-20, the proposal would spend just over with federal funds (as the administration currently $1 billion in Proposition 56 funding (more than assumes). At the time of this publication, many of $3 billion in total funds) on provider payment the details of the new proposed programs remain increases. Below, we outline the Governor’s in development. The following bullets provide basic proposal. Figure 7 (see next page) summarizes the background on these new proposed supplemental Governor’s proposed use of Proposition 56 funding payment programs. in Medi-Cal. • Value-Based Payment Program. The Proposal States an Intent to Make Most Governor proposes using $180 million in Provider Payment Increases Permanent. The Governor has stated an intent to make most of the Figure 6 provider payment increases— Most Funding for Provider Payment Increases Under the existing as well as Proposition 56 Goes to Physician and Dental Services certain new supplemental payment programs—permanent and ongoing. However, the administration has not shared Other ICF-DDs that it intends to propose Home Health Services budget-related statutory language Physician Services to effect this change. Family Planning Services Dedicates All Proposition 56 Funding to Provider Payment Increases. In 2019-20, the Governor proposes to use $2.1 Billion all Proposition 56 funding in Total Funds Medi-Cal on provider payment increases. This results in the elimination of the General Fund offset in 2019-20, which has the Dental Services effect of increasing General Fund costs in Medi-Cal by $218 million. Establishes New Supplemental Payment Programs. The Governor’s a Other includes pediatric day health care facilities, the AIDS Medi-Cal Waiver Program, freestanding pediatric subacute care facilities, CBAS, and PACE provider payments increases. budget proposes to use ICF-DDs = Intermediate Care Facilities for the Developmentally Disabled; $283 million in Proposition 56 CBAS = Community-Based Adult Services and PACE = Program for All-Inclusive Care for the Elderly. funding to establish new www.lao.ca.gov 15 analysis full gutter 2019-20 BUDGET Proposition 56 funding ($360 million total cost of $1.5 million in Proposition 56 funds funds) to create a value-based payment ($3 million in total funds). program to improve the quality and efficiency • Payments to Encourage Timely of care within Medi-Cal managed care Developmental and Trauma Screenings. The plans. While details for the program remain Governor’s budget includes $53 million in under development, the intent is to establish Proposition 56 funding ($105 million total incentive payments for managed care plans funds) to expand physician screenings for and their network physicians that will reward (1) appropriate childhood development and those that meet predetermined performance (2) early identification of trauma. Of the total benchmarks. According to the administration, amount of proposed Proposition 56 funding, these payments are intended to improve $30 million is for developmental screenings care in three distinct focus areas: (1) chronic and $23 million is for trauma screenings. The disease management, (2) prepartum and funding would provide for a $60 supplemental postpartum care, and (3) behavioral and payment for each developmental screening physical health integration. To develop and and either a $6.50 or a $23 supplemental implement the value-based payment program, payment for each trauma screening. Whereas the Governor’s budget proposes 18 new developmental screenings are currently permanent positions at DHCS at an annual Figure 7 Governor’s 2019-20 Budget Dedicates All Proposition 56 Funding for Medi-Cal to a Variety of Provider Payment Increases (In Millions) 2018-19 2019-20 Proposition 56 Proposition 56 Funds Total Funds Funds Total Funds Existing Provider Payment Increases: Physician services $409a $1,299 $456 $1,387 Dental services 194 510 217 547 Family planning services 54 203 42 160 Home health services 27 57 31 65 Intermediate Care Facilities for the Developmentally Disabled 14 29 13 28 Pediatric day health care facilities 6 12 7 14 AIDS Medi-Cal Waiver Program 3 7 3 7 Freestanding pediatric subacute care facilities 3 6 1 2 Program for All-Inclusive Care for the Elderly 5 5 — — Community-Based Adult Services programs 2 2 — — Subtotals ($717) ($2,130) ($770) ($2,209) New Proposed Provider Payment Increases: Value-based payments — — $180 $360 Developmental and trauma screenings — — 53 105 Medi-Cal family planning — — 50 500 Subtotals (—) (—) ($283) ($965) Subtotals, All Provider Payment Increases ($717) ($2,130) ($1,052) ($3,174) Offset to General Fund spending on Medi-Cal cost growth $218 N/A — N/A Grand Totals, Proposition 56 Spending in Medi-Cal $935 $2,130 $1,052 $3,174 a Estimated Proposition 56 funding for these supplemental payments has been revised significantly downward in the Governor’s January budget relative to the 2018-19 Budget Act. However, total funding for these supplemental payments is actually higher than previously estimated. As such, this change results from an updated estimate of the federal share of cost for these payments—an update that is fiscally beneficial to the state. 16 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET required and funded in Medi-Cal, the state residents with incomes that are low but introduction of trauma screenings would be nonetheless too high for them to qualify for largely new to the program. Medi-Cal. The Governor’s budget proposes to • Extends Family Planning Payments to provide similar supplemental payments within Broader Medi-Cal Program. Currently, the broader Medi-Cal program. $50 million in Proposition 56 funding is used to provide Proposition 56 funding is allocated for these supplemental payments for family planning payments, which, with an enhanced federal services within the Family Planning, Access, share of cost, will provide for $500 million in Care, Treatment Program (Family PACT) that is supplemental payments for these Medi-Cal operated within Medi-Cal. Family PACT serves family planning services. LAO ASSESSMENT In this section, we first describe why focusing have been raised that this level of reimbursement legislative oversight on access and quality within is not sufficient to maintain appropriate levels Medi-Cal managed care is critical. We then provide of access and quality in the Medi-Cal program. our assessment of how well Medi-Cal managed However, we would caution against generalizing care plans perform on the state’s access and from the above findings on low Medi-Cal FFS quality standards today. Finally, we assess the provider rates to the conclusion that Medi-Cal extent to which there are broad access concerns provider rates are uniformly low and insufficient. in Medi-Cal managed care, and whether the . . . But Large Majority of Medi-Cal current and proposed use of Proposition 56 Enrollees Participate in Managed Care, Where funding in Medi-Cal is well suited to addressing Provider Rates Are Unknown. However, while such concerns. We focus on the physician the Legislature should ensure that appropriate services supplemental payments, as well as the access is maintained in the FFS system, less than Governor’s new proposed supplemental payment 20 percent of Medi-Cal enrollees participate in programs. We provide particular attention to the FFS system. A significant majority of enrollees the physician services supplemental payments instead receive services through managed care. since they (1) represent the largest category of As described earlier, managed care plans set the Proposition 56 provider payments at around rates paid to providers on behalf of the state. While two-thirds of total funding and (2) interact with the certain Medi-Cal managed care plans attest to Medi-Cal managed care delivery system in ways paying higher providers rates than Medi-Cal FFS, that raise a number of questions. (Recall that Dental it is not known with certainty how rates paid to Managed Care makes up only a very small part of providers in the broader managed care system the Denti-Cal program.) compare with Medi-Cal FFS or with Medicaid managed care rates nationally. In addition, Monitoring Access and Quality in supplemental payments are regularly made on top Managed Care Is Critical of base provider rates to increase total provider reimbursement in Medi-Cal managed care (as well Medi-Cal FFS Rates Among the Lowest in as FFS). the Nation . . . By some estimates, California’s FFS provider rates rank among the lowest in the Oversight of Access and Quality in Dominant nation, at a little over half of comparable rates Managed Care Delivery System Particularly paid in the federal Medicare program. State Critical. In the delegated managed care system, Medicaid programs nationwide are believed to pay the state pays capitated rates that are determined provider rates for physician services that are about to be actuarially sound. In turn, managed care two-thirds of those paid by Medicare. Concerns plans are contractually required to provide www.lao.ca.gov 17 analysis full gutter 2019-20 BUDGET appropriate levels of access. In recent years, where Medi-Cal enrollees could be required to the Legislature and DHCS have taken steps to travel for a greater length of time and over longer strengthen oversight of access and quality in distances to reach certain providers than laid out in Medi-Cal managed care. In our view, given that Figure 2 previously. the Legislature has chosen to largely delegate For this report, we conducted a preliminary the delivery of Medi-Cal services to managed analysis of where and for which providers DHCS care plans, the Legislature should continue to approved alternative standards, and how these concentrate its oversight on managed care quality alternative standards changed the times and and access rather than on, for example, the level of distances that Medi-Cal enrollees may be required FFS provider rates. We believe this focus is likely to to travel under state law. We caution that time and have a greater impact on overall access and quality distance standards are only one dimension of the in the Medi-Cal program. state’s managed care access requirements and therefore do not conclusively show where access Assessment of Managed Care challenges may or may not exist. For example, Access and Quality having a provider in a managed care plan network in accordance with time and distance standards No Evidence of Widespread Noncompliance does not necessarily imply that the provider is With Managed Care Network Adequacy sufficient to serve the Medi-Cal population in the Requirements. As of January 2019, all of the area. Other requirements—provider-to-enrollee state’s Medi-Cal managed care plans had certified ratios and appointment availability requirements— compliance with required provider-to-enrollee ratios are also important in determining access. Highlights and geographic time and distance standards (in of our preliminary analysis are described below. some cases by gaining approval of an alternative access standard, as we describe in greater Managed Care Plans Appear to Largely detail below). Compliance with these and other Have Sufficient Contracted PCPs to Meet Time requirements, including minimum appointment wait and Distance Standards. Figure 8 shows the times, are reviewed by DHCS on an annual basis as estimated percentage of low-income individuals part of the managed care plan audits. DHCS does (specifically, those with household income less identify deficiencies in plans’ compliance with these than 150 percent of the federal poverty level requirements from time to time and requires plans [FPL], roughly similar to eligibility thresholds for to take corrective actions. However, based on our Medi-Cal) that live in a zip code where at least one preliminary review, the identified deficiencies do not Medi-Cal managed care plan received approval appear to be widespread. of an alternative time and distance standard. As shown in the figure, only about 2 percent of the Analysis of Time and Distance Standards low-income population was in a zip code where Highlights Instances Where Access May Be a managed care plan had an alternative time and Particularly Challenging. As described earlier, distance standard for PCPs (as noted previously, the Legislature gave DHCS authority to approve state standards require PCPs to be within ten miles alternative geographic time and distance standards or 30 minutes). This suggests that managed care for plans that can demonstrate that state standards plans have relatively less difficulty recruiting PCPs. identified in Figure 2 are not attainable after all reasonable efforts have been exhausted. In 2018, Alternative Time and Distance Standards the first year of the new annual network certification More Common for Pediatric Specialists. process, DHCS reviewed hundreds of thousands However, as shown in the figure, alternative time of individual time and distance standards— and distance standards were approved more reflecting all possible combinations of different often for pediatric specialists. This suggests that managed care plans, zip codes, and provider managed care plans have relatively greater difficulty types. Through this process, DHCS has to date locating and recruiting pediatric specialists. For approved almost 10,000 alternative standards. relatively rare conditions, pediatric specialists These alternative standards represent instances may be less common in some parts of the state. 18 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET For example, given the relatively Figure 8 low volume of patients for some Alternative Time and Distance Standards pediatric specialties, these Primarily Affect Pediatric Specialists providers may be concentrated near centralized locations where Percentage of Low-Income Populationa in Zip Code With Alternative Time and Distance Standardb specialized children’s conditions are often treated, such as children’s hospitals. We also note that Figure 8 Specialists displays the portion of the low-income population that lives in a zip code where any managed care plan has received Pediatric Hospital an alternative access standard for Adult any of the 17 types of specialists for which the state has a time and distance standard. The large Primary Care number of types of specialists Physiciansc makes it more likely that a managed care plan would have an alternative time and distance Pharmacy standard for at least one type of specialist. Our analysis suggests that the share of the low-income 10 20 30 40 50 60% population in a zip code where a Household income less than 150 percent of the federal poverty level. a managed care plan has an b The Department of Health Care Services has authority to grant alternative time and distance alternative time and distance standards to managed care plans that demonstrate that they cannot comply with state standards after exhuasting all reasonable efforts to contract with additional providers. standard for any single type c Excludes OB/GYN primary care providers. of pediatric specialist ranges OB/GYN = obstetrician/gynecologist. from close to zero to around 35 percent. Across participating 75 percent of HEDIS measures. At the same time, managed care plans, an average however, Figure 10 (see next page) shows that zip code had an alternative time and distance the average performance of Medi-Cal managed standard for roughly two of the various types of care plans is below the average performance of pediatric specialists. commercial managed care plans nationally on Medi-Cal Managed Care Plan Quality Has many measures. For example, in 2016, the average Room for Improvement. Medi-Cal managed care performance of Medi-Cal managed care plans was plan quality is fairly strong according to certain better than the national commercial average on benchmarks but not others. As shown in Figure 9 only 29 percent of HEDIS measures. In addition, (see next page), the average performance of there is significant variation in the quality scores Medi-Cal managed care plans has typically been of Medi-Cal managed care plans. DHCS regularly better than the average performance of Medicaid publishes a single aggregated quality score, managed care plans nationwide on the majority of based on HEDIS measures, for each Medi-Cal HEDIS measures. For example, in 2016, compared managed care plan. In the most recent release to the average performance of all Medicaid of these aggregated scores, managed care plan managed care plans nationally, the average performance ranged from a low of less than 40 to a performance of Medi-Cal managed care plans high of nearly 100 (scores may theoretically range was better than the national Medicaid average on from 0 to 100) and averaged 68. www.lao.ca.gov 19 analysis full gutter 2019-20 BUDGET Figure 9 Average Performance of Medi-Cal Managed Care Plans Exceeds National Medicaid Average on Many HEDIS Measuresa Percent of HEDIS Measures on Which Average Average Performance of Medi-Cal Managed Care Plans Was: 2013 2014 2015 2016 2013-2016 Above national Medicaid average 55% 55% 45% 75% 57% Below national Medcaid average 45 45 55 25 43 a The number of HEDIS measures included in this analysis varies by year as follows: 22 measures in 2013 through 2015 and 24 measures in 2016. HEDIS = Healthcare Effectiveness Data and Information Set. Figure 10 Average Performance of Medi-Cal Managed Care Plans Below National Commercial Managed Care Plan Average on Many HEDIS Measuresa Percent of HEDIS Measures on Which Average Average Performance of Medi-Cal Managed Care Plans Was: 2013 2014 2015 2016 2013-2016 Above national commercial managed care plan average 32% 27% 32% 29% 30% Below national commercial managed care plan average 68 73 68 71 70 a The number of HEDIS measures included in this analysis varies by year as follows: 22 measures in 2013 through 2015 and 24 measures in 2016. HEDIS = Healthcare Effectiveness Data and Information Set. On consumer surveys, Medi-Cal managed of approaches the Legislature could take that care plans as recently as 2016 scored below the could potentially improve access and quality worst performing 25 percent of national Medicaid of care in Medi-Cal. These could include the managed care plans on key dimensions, including existing Proposition 56 supplemental payments overall quality of health care, the enrollee’s ease and some of the Governor’s proposed new uses of getting needed care, and the enrollee’s ease of for Proposition 56 funding in Medi-Cal like the getting care quickly. The gap between Medi-Cal value-based payment program. In the following managed care plan and national commercial sections, we lay out our assessment of existing managed care plan performance, the variability Proposition 56 provider payment increases and in performance among Medi-Cal managed care other new proposed uses for Proposition 56 plans, and relatively low performance of Medi-Cal funding in terms of their potential to improve managed care plans on survey measures suggest access and quality in Medi-Cal. that there is room for quality improvement. Physician Services Legislature May Wish to Improve Access Supplemental Payments Layer a and Quality Beyond Current State Standards. While Medi-Cal managed care plans appear to FFS Reimbursement Approach be largely complying with the state’s network Onto a Managed Care Structure adequacy standards as laid out in current law, Proposition 56 provider payment increases, to there are clearly areas where the Legislature might date, reflect a FFS reimbursement approach where wish to pursue improvements to access. The individual services receive individual supplemental analysis of alternative time and distance standards payments (or in some cases, higher base rates). above suggests some potential areas of priority— However, particularly for the physician services specifically, pediatric specialists and travel times supplemental payments, they are employed in rural parts of the state in particular. As noted primarily within the Medi-Cal managed care above, there is also room for improvement of setting (93 percent of physician services funding managed care plan quality. There are a variety 20 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET runs through managed care, with the remaining Physician Services Supplemental Payments 7 percent in Medi-Cal FFS). This raises a number of Likely Have a Variable Impact on Medi-Cal questions and concerns since Medi-Cal managed Managed Care Provider Payment Levels. care financing and network provider reimbursement Because the physician services supplemental differs fundamentally from the approach in Medi-Cal payment amounts are fixed, but Medi-Cal FFS. Below, we reiterate some of these differences managed care provider reimbursement rates and their implications on the appropriateness of vary across plans, total reimbursement for continuing to use the existing structure of physician physician services, with the Proposition 56 services supplemental payments within Medi-Cal supplemental payments included, varies across managed care. plans. For Medi-Cal managed care plans that pay State Pays Actuarially Sound Capitated provider rates comparable to Medi-Cal FFS, the Rates to Medi-Cal Managed Care Plans to supplemental payments will bring network provider Ensure Access to Quality Care. Ensuring access reimbursement levels close to Medicare levels, as to quality care is a core responsibility of Medi-Cal was the intent and is the case in Medi-Cal FFS. managed care plans. Medi-Cal managed care For Medi-Cal managed care plans that already plans must pay adequate provider rates to maintain pay provider rates comparable to Medicare, adequate networks of contracted providers. The the supplemental payments will bring network state, in turn, is responsible for providing adequate, provider reimbursement levels well above Medicare actuarially sound capitated rates to ensure reimbursement rates for the services that receive Medi-Cal managed care plans can meet all the supplemental payments. Figure 11 (see next page) standards, including those related to access and illustrates this point for a hypothetical Medi-Cal quality, that the state has in place. managed care plan that already pays providers at rates comparable to Medicare. That providers Capitated Rate-Setting Process Allows for would be paid above Medicare reimbursement Increases in Provider Rates to Address Access levels is by no means, on its own, a drawback. Challenges. The Medi-Cal managed care capitated However, it raises questions as to whether rate-setting process allows for capitated rates to be Proposition 56 funding for provider payments continually updated to reflect changes in Medi-Cal increases is being targeted to the areas of greatest managed care plans’ costs. Accordingly, when need. Medi-Cal managed care plans find it appropriate to increase provider rates, the associated costs A Uniform Approach to Local and Varied eventually are incorporated into the capitated Deficiencies in Access to Quality Care. Where rate funding they receive from the state, as long and how plans should devote resources for as the state deems the costs associated with the improvement likely varies from plan to plan and provider rate increase to be reasonable. Because from county to county. However, Proposition 56’s the capitated rate-setting process is confidential, physician supplemental payments are uniform there is significant uncertainty as to how much statewide and target largely non-specialty scrutiny the state applies to the reasonableness services. Accordingly, the approach may be not of higher Medi-Cal managed care plan costs as be adequately flexible to meet variable local health a result of provider rate increases. Nevertheless, care conditions and needs. since some plans pay provider rates that are Proposition 56 Provider Payment comparable to what is paid in Medicare (as attested Increases May Not Be Sustainable by these Medi-Cal managed care plans), it is clear that Medi-Cal’s capitated rate-setting process can Proposed 2019-20 Proposition 56 Spending accommodate significantly higher provider rates in Medi-Cal Is Greater Than Projected to be paid by Medi-Cal managed care plans than Proposition 56 Revenue for Medi-Cal. The those paid under Medi-Cal FFS. Governor’s budget proposes to use $1.05 billion in Proposition 56 funding on provider payment www.lao.ca.gov 21 analysis full gutter 2019-20 BUDGET increases in 2019-20. Proposition 56 revenues be needed. We would note that certain new dedicated to Medi-Cal are projected to be proposed supplemental payments are potentially $1.02 billion in 2019-20, and to decline on an over-budgeted since the federal share of cost for annual basis thereafter. Moreover, scheduled these is set to 50 percent, which is lower than the changes in the federal share of cost for certain state’s “effective” federal share of cost. (The state’s populations will increase the state’s share of cost effective share of cost takes into account enhanced for Medi-Cal. This will require the state to pay for federal financial participation for certain Medi-Cal a somewhat higher share of the total cost of the populations and services.) Proposition 56 provider payment increases in the Existing Provider Payment Increases coming years if they are extended. Accordingly, unless the administration’s current spending Should Be Further Assessed projections are too high or its revenue projections As previously mentioned, when the overly cautious, we would project annual shortfalls 2017-18 agreement was reached on the use of Proposition 56 revenue for Medi-Cal compared of Proposition 56 funding to support provider to Proposition 56 costs in Medi-Cal. Balances payment increases, the administration stated an in the Proposition 56 fund account could cover intent to evaluate the provider payment increases’ these annual shortfalls, but likely only on a impact on access to care. To date, no analysis temporary basis, after which General Fund could has been released showing that the existing Figure 11 Physician Services Supplemental Payments Affect Provider Reimbursement in FFS and Managed Care Differently Percent of the Medicare Provider Rate: Medi-Cal FFS Versus Hypothetical Managed Care Plan That Already Pays Medicare Rates Office Visit "Well-Child" Psychiatric Evaluation Preventive Office Visit and Management 175% Supplemental Payment Total Reimbursement "Base" Provider Rate 150 125 100 75 50 25 FFS Managed Care FFS Managed Care FFS Managed Care FFS = fee-for-service. 22 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Proposition 56 provider payment increases have administration’s proposal to create a value-based had an effect on access to quality care in Medi-Cal. payment program using Proposition 56 funding Extending Provider Payment Increases for represents an intriguing approach to paying for a Limited Term Would Provide an Opportunity desired improvements in care. The areas targeted to Assess Their Impact. Given implementation with these supplemental payments—chronic challenges and delays, and potential lags in disease management, prepartum and postpartum providers’ behavioral responses to the higher care, and behavioral and physical health payments, it is unlikely that any information coordination—are areas with opportunities for provided by the administration at this time would improvement that could positively impact the overall be able to definitively show an effect of the Medi-Cal system’s fiscal performance and care existing payment increases on access and quality. outcomes. Moreover, paying for specific desired Accordingly, more time and experience under the outcomes, compared to paying higher amounts for existing provider payment increases would be the rendering of certain services, brings promise in needed to assess their effectiveness. Keeping the terms of driving tangible program improvements. provider payment increases limited term, preferably Legislature Could Alternatively Consider for a couple of years, would provide an opportunity Managed Care Plan Pay-for-Performance to assess their impact. A multiple-year extension Program. The proposed value-based payment would allow providers’ medium- to longer-term program would provide payments to providers that behavioral responses to the higher payments to be improve the care they provide their patients. An more properly evaluated. alternative would be to make payments to Medi-Cal Additional Public Deliberation About How managed care plans to promote access and quality. Proposition 56 Funding Is Used to Improve Directing the incentive payments to Medi-Cal Access and Quality Could Be Worthwhile. managed care plans could be worth considering The structure of the existing provider payment since they are the entities generally responsible for increases was developed relatively quickly to ensuring and coordinating Medi-Cal beneficiaries’ facilitate relatively fast implementation (the care. Moreover, as previously discussed, there are structure brings other benefits as well). While there already structures in place that measure Medi-Cal was robust public deliberation over whether to managed care plan performance. In contrast, the use Proposition 56 funding to augment provider infrastructure to assess and pay for high-quality payments to improve access to quality care, there provider performance would largely have to be was less public deliberation around how to best developed. In our 2015 report, Improving Medi-Cal use the funding for this purpose. Although we Managed Care Plan Quality, we found that raise design questions, particularly around how the pay-for-performance programs may lead to better existing physician supplemental payment structure quality performance by Medi-Cal managed care works within Medi-Cal managed care, we have plans, if they are implemented well. not comprehensively evaluated the trade-offs of . . . But Additional Detail Needed alternative approaches, such as raising select on New Proposed Proposition 56 Medi-Cal FFS rates or providing incentive payments based on the achievement of outcomes. Further Provider Payment Increases public deliberation over how to best target funding Outstanding Questions on New Proposed for provider payment increases to improve access Supplemental Payment Programs. At this time, and quality would provide an opportunity to better the administration has not provided very much understand the trade-offs of the various alternative detail on the new proposed supplemental payment approaches. programs. While, conceptually, a new value-based Value-Based Payments Intriguing . . . payment program may have significant potential to drive quality improvements within Medi-Cal, Value-Based Payments May Have Potential the details around how the program would be to Drive Access and Quality Improvements. The structured will be crucial to its success. While www.lao.ca.gov 23 analysis full gutter 2019-20 BUDGET expanding the use of trauma screening could and the standard Medi-Cal program) may be improve patient-provider relationships and referral a worthwhile goal, the administration has not to other supports and services, it is unclear at this presented evidence of access issues affecting the time how the results of the trauma screening will provision of family planning services in Medi-Cal, ultimately affect Medi-Cal beneficiaries’ treatment thereby justifying payment increases. Using the plans and eligibility for additional services. Improved upcoming budget process to gather additional screening for developmental delays is a worthy information from the administration on how the new goal. However, it is unclear whether supplemental proposed supplemental payment programs will be payments reflect the most cost-effective approach structured and how they will ultimately improve to improving the identification of children in need access and care within the Medi-Cal program could of associated services, as discussed further below. help the Legislature in its decisions on whether to Finally, while equalizing payments across the approve these new payment programs. Medi-Cal family planning programs (Family PACT RECOMMENDATIONS Reject Proposed Supplemental Payments for improve access and care within the Medi-Cal Developmental Screenings. As discussed more program. We believe this information would help the fully in our forthcoming brief, 2019-20 Budget: Legislature in its decision on whether to approve Governor’s Proposals for Infants and Toddlers these new payment programs. If approved, these With Special Needs, the Governor’s developmental should be authorized for a limited term to allow screenings proposal would provide supplemental their evaluation. payments for an activity managed care plans are Seriously Consider Value-Based Payment already required to arrange and for which they are Program. Given the potential of the value-based already compensated. For managed care plans payment program to improve areas of know that base their reimbursement off Medi-Cal FFS, deficiency within Medi-Cal, we believe the the Governor’s proposal would exactly double Legislature should seriously consider the proposal the total payment currently provided for these along with other incentive-based payment screenings. Although the state sometimes provides programs tied to quality outcomes, such as a supplemental payments for other services required managed care pay-for-performance program. by managed care plans, such as well-child visits, Should the Legislature approve the Governor’s the administration has not provided a compelling value-based payment proposal, we believe the rationale for why doing so in this case is the additional state operations resources requested by most cost-effective approach to improving the the administration are warranted. identification of children with developmental delays. Keep Existing Provider Payment Increases We recommend more cost-effective strategies Limited Term to Allow Reassessment Within to improve the rate of developmental screenings Next Several Years. Since no analysis has been and reporting be pursued before supplemental released to date showing the effectiveness of the payments are provided. existing provider payment increases in improving Obtain Additional Information From DHCS access to quality care, we recommend keeping the on the Structure and Justification of the existing provider payment increases limited term. New Supplemental Payment Proposals. We To effectuate this change, while also improving recommend that the Legislature use the upcoming the potential for the provider payment increases budget process to gather additional information to have a meaningful impact on provider behavior, from the administration on how the other new we recommend that any extension of provider proposed supplemental payment programs would payments be approved for two years with a be structured and how they would ultimately sunset. This would give providers confidence that 24 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET the payment increases will be available over the deficiencies in access and/or quality, relative near term while also giving the state the ability to to state standards and other performance reassess the payment increases should they not benchmarks. prove effective in achieving the goals of improved • . . . And Whether the Deficiency Can Be access and quality in a cost-effective manner. Tied to Low Provider Reimbursement Direct DHCS to Produce a Report on Rates. The report would also evaluate Using Proposition 56 Funding to Improve provider reimbursement levels, and whether Access to Quality Care. We recommend that the low provider rates are a potential cause of Legislature direct DHCS to produce a report—to be any deficiencies in access or quality that are submitted to the Legislature by January 10, 2020 discovered. so that it can be considered in 2020-21 budget • Present the Trade-Offs Associated deliberations—on the use of Proposition 56 to With Various Statewide Approaches improve access to quality care in Medi-Cal. to Improving Access and Quality in This report should evaluate the following open Medi-Cal. As previously discussed, the questions: existing physician services supplemental payments layer a statewide FFS approach • The Impact of Proposition 56 Provider onto a varied managed care financing and Payment Increases on Access to Quality provider reimbursement structure. Given Care. This portion of the report would this, the report could compare the trade-offs describe changes in services utilization and associated with state’s current statewide, provider participation that have occurred since uniform approach to improving access to the introduction of the Proposition 56 provider quality compare as compared to alternative, payment increases. more targeted and flexible approaches. In • Evaluate Where Access or Quality Is addition, the report could explore future Deficient Within Medi-Cal . . . In this expansions of value-based payments in section, DHCS would report on specific areas Medi-Cal to further enhance access to quality of the program where there continue to be care. www.lao.ca.gov 25 analysis full gutter 2019-20 BUDGET LAO PUBLICATIONS This report was prepared by Ben Johnson and Ryan Woolsey, and reviewed by Mark C. Newton. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 26 LEGISLATIVE ANALYST’S OFFICE