The 2020-21 Budget: Re-Envisioning Medi-Cal—The CalAIM Proposal

The 2020-21 Budget: Re-Envisioning Medi-Cal— The CalAIM Proposal GABRIEL PETEK LEGISLATIVE ANALYST FEBRUARY 28, 2020 analysis full gutter 2020-21 BUDGET LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET Executive Summary Overview of the Governor’s Proposal Administration Proposes Reforms Collectively Known as California Advancing and Innovating Medi-Cal (CalAIM). In October 2019, the Department of Health Care Services (DHCS) released a far-reaching set of Medi-Cal reforms collectively now referred to as CalAIM. These reforms are intended to address longstanding challenges in Medi-Cal. CalAIM (formerly known as “Medi-Cal Healthier California for All”) proposes reforms in the following areas: • Increase the Focus on Medi-Cal’s High-Cost, High-Risk Enrollees. CalAIM aims to improve care coordination and provide a broader suite of supportive services to Medi-Cal members with the most complex needs. Specifically, DHCS proposes to (1) coordinate care through a new “enhanced care management” benefit and (2) provide an the optional suite of “in lieu of services” (ILOS) (such as temporary housing assistance) as alternatives to traditional, and often more expensive, Medi-Cal benefits. • Transform and Streamline Medi-Cal Managed Care. DHCS proposes a number of changes to the managed care delivery system, including (1) moving certain benefits, such as long-term care, out of Medi-Cal’s fee-for-service delivery system and into managed care; (2) setting payment levels for managed care plans on a more regional as opposed to county-by-county basis; and (3) considering a full-integration pilot whereby one or more Medi-Cal managed care plans would not only offer the standard set of physical health services, but also dental services, mental health services, and substance use disorder services (the last two of which together are known as “behavioral health services”). • Extend Components of a Current Federal Waiver. Currently, the state operates much of Medi-Cal under a federally granted Section 1115 waiver, which allows the state to obtain federal funding that might not otherwise be available. Under CalAIM, the state generally would continue programs that are under the current 1115 waiver, such as funding for public hospitals and an expansion of substance use disorder services. • Rethink How Behavioral Health Services Are Financed and Delivered. The CalAIM proposal includes a number of proposed reforms to improve service delivery for county behavioral health, including streamlining its financing, exploring new federal funding opportunities for residential care, integrating behavioral health services at the local level, and changing eligibility rules so more beneficiaries can receive behavioral health services. Many Details of CalAIM Proposal Under Development. At the time of the release of this report, many of the details of the administration’s CalAIM proposal remain in development. Accordingly, this report provides our assessment of the CalAIM proposal as it evolved at the time our report was prepared (January through late February 2020). Governor Proposes $348 Million General Fund to Implement CalAIM in 2020-21. The Governor’s budget proposes $348 million General Fund ($695 million total funds) for CalAIM for a half year of implementation in 2020-21. On an ongoing basis, the Governor projects annual costs of $395 million General Fund ($790 million total funds). www.lao.ca.gov 1 analysis full gutter 2020-21 BUDGET LAO Assessment In Concept, the Approach of CalAIM Appears Promising… CalAIM would expand on the vision of managed care in the Medi-Cal program, giving Medi-Cal managed care plans additional tools to address the broad needs of their beneficiaries. In addition, CalAIM would provide new opportunities to receive federal Medicaid funding for services not previously eligible, including for temporary housing assistance and recuperative care. In some ways, the proposal also would move Medi-Cal toward greater standardization across the state and reduce some complexity. Finally, the behavioral health reforms could improve service delivery by removing barriers to accessing Medi-Cal services and reduce the administrative burden on counties associated with the current financing structure. …However, the Proposal Also Raises Many Questions and Presents Risks. While the CalAIM proposal could bring many benefits, the reform proposal also raises many outstanding questions and presents a number of risks. Some key questions relate to (1) the readiness of Medi-Cal managed care plans for their significantly expanded responsibilities under the proposal; (2) likely difficulties the state and plans would face ensuring that new benefits—particularly the new ILOS benefits—are cost-effective, presenting possible fiscal risks to the state; (3) how new benefits would expand the supply of already limited services; (4) how new benefits would interact with existing services; and (5) how the state could minimize new complexities the proposal could introduce. Key Takeaways From Our Assessment As Details of Proposal Remain Under Development, Focus on Resolving Key Questions. The CalAIM proposal continues to evolve. As of this publication’s release, the administration has not submitted any trailer bill or statutory language for the proposal. This makes providing specific direction on the actions we would recommend the Legislature to take on the proposal difficult. Instead, we suggest that the Legislature primarily focus on resolving key questions about the proposal prior to taking action on it. These questions are summarized in Figure 8 toward the end of the report. Explore Where Delays in Implementation May Be Possible and Advisable. CalAIM is far-reaching and the time line for implementation is aggressive. Given (1) the significant actions the state and managed care plans would have to take in the near future to implement CalAIM as proposed and (2) the risks that unplanned delays could present, we recommend that the Legislature explore whether some components of CalAIM could be delayed. While delays may not be feasible in some cases due to the need to have new federal waivers in place beginning in 2021, some elements of the proposal could be postponed or implemented in phases. Closely Consider and Ensure Measures Are in Place to Mitigate Potential Fiscal Risks of CalAIM. In deciding which components of the Governor’s CalAIM proposal ultimately to approve, we recommend that the Legislature consider (1) the potential for CalAIM to result in significantly higher costs on an ongoing basis than is currently assumed by the administration, (2) what fiscal transparency measures are needed to ensure that the Legislature can know how much is being spent on CalAIM on an ongoing basis, and (3) what policies should be put in place at the outset to mitigate the potential fiscal risks of CalAIM. Ensure Robust Legislative Oversight and Evaluation of Any Reforms Ultimately Adopted. Legislative oversight of CalAIM implementation will be critical to ensuring smooth and successful implementation. In addition, in order to understand the impacts of CalAIM, we recommend that the Legislature establish a framework for an independent and robust evaluation of whichever major components of the CalAIM proposal ultimately are adopted. 2 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET INTRODUCTION In October 2019, the Department of Health Care is receiving feedback on the various proposals. Services (DHCS) released a broad set of Medi-Cal Ongoing discussions through the workgroup reform proposals that now are collectively referred process are likely to affect the details of the overall to as CalAIM (California Advancing and Innovating proposal while it is under legislative consideration. Medi-Cal). We note that when these proposals were Other components of the overall proposal could be presented to the Legislature in the January budget, the subject of legislative deliberations in the policy they were at that time collectively referred to as bill process. This report provides our assessment of Medi-Cal Healthier California for All. The proposals the CalAIM proposal as of the point in time that our are intended to address longstanding challenges report was prepared. in Medi-Cal, such as the disproportionately high This report is laid out as follows. First, we cost of services provided to a relatively small provide some high-level background on Medi-Cal. number of beneficiaries with high needs as well Second, we describe the major components of as significant variation and complexity in how the CalAIM proposal, including funding proposed services are delivered throughout the state. These to implement CalAIM. Third, we assess the proposals are complex and would affect nearly opportunities and challenges of the proposal. all aspects of the Medi-Cal program. As part of Finally, we conclude with key takeaways from our CalAIM, the administration has convened a series assessment. of stakeholder workgroups through which DHCS BACKGROUND Medi-Cal Provides Care to dental services, and long-term care (predominantly in skilled nursing facilities, or SNFs). Some Individuals With Complex and …To a Variety of Populations. Key Medi-Cal Costly Conditions populations include families with children (about Medi-Cal Provides Health Care Services for 7 million), seniors aged 65 or older (about 1 million), Nearly One-Third of Californians. Medi-Cal, persons with disabilities (about 1 million), and California’s Medicaid program, provides health childless adults (about 4 million) who are part of the care services for the state’s low-income residents. eligibility expansion under the Patient Protection Medi-Cal is the single largest provider of health and Affordable Care Act (ACA). care coverage and services in the state, covering A Small Number of Enrollees With Complex nearly 13 million people, or roughly one-third of the Needs Account for a Large Portion of Overall state’s total population. About one-half of children Medi-Cal Spending. Medi-Cal enrollees are in the state are enrolled in Medi-Cal. diverse and have varying health statuses. The cost Medi-Cal Provides a Range of Health Care of Medi-Cal services per enrollee varies significantly Benefits and Services… Medi-Cal provides a and a small number of Medi-Cal enrollees account comprehensive set of health care benefits and for a large and disproportionate share of total services. Key benefits include primary care, spending in Medi-Cal. As shown in Figure 1 (see other outpatient services, inpatient services, next page), the most costly 1 percent of Medi-Cal emergency services, maternity and newborn enrollees accounts for about 20 percent of program care, mental health and substance use disorder spending and the most costly 20 percent of services (together referred to as “behavioral health” Medi-Cal enrollees account for about 70 percent of services), prescription drugs, rehabilitative services, program costs. www.lao.ca.gov 3 2020-21 BUDGET Certain factors have been Figure 1 identified that are related to an A Small Share of Medi-Cal Enrollees enrollee having disproportionately Account for a Large Share of Expenditures high costs in Medi-Cal. Past research indicates that the 2014-15, Estimated highest-cost enrollees typically 1% are being treated for multiple 4% chronic conditions (such as 20% diabetes or heart failure) and often 15% have mental health or substance use disorders. Costs for this 22% population often are driven by frequent hospitalizations and high prescription drug costs. In some cases, social factors 28% like homelessness play a role 80% in the high utilization of these enrollees. Costs are also high for individuals residing in long-term 30% care facilities, the annual costs of which can be about $90,000 for someone who resides in a Enrollment Spending SNF for an entire year. Costs for individuals residing in long-term Source: Department of Health Care Services, Research and Analytic Studies Division. care facilities could potentially increase in coming years as the of nearly $48 billion in 2019-20. While the state’s population ages. benefits provided through managed care Medi-Cal Is Complex vary somewhat in different counties as we describe later, in general, a wide range of Medi-Cal Services Are Provided Through a benefits are provided through managed care, Variety of Delivery Systems. Medi-Cal is large including primary care and other outpatient and complex. As shown in Figure 2, services in the services, inpatient services, and treatment for program are delivered through a variety of systems: mild-to-moderate mental health conditions. • Managed Care. Managed care is one of • Fee-for-Service (FFS). FFS is the second the two main Medi-Cal delivery systems. main delivery system. In FFS, Medi-Cal In managed care, the state contracts beneficiaries may receive services from any with managed care plans (including health care provider that accepts Medi-Cal, some commercial for-profit, commercial rather than choosing a provider from within not-for-profit, and government-sponsored a managed care plan’s network. Because plans) to provide a network of health care most Medi-Cal beneficiaries are enrolled in providers though which Medi-Cal beneficiaries managed care, a relatively small proportion who enroll with the managed care plan receive of beneficiaries obtain general services like services. Plans receive a monthly payment, or primary care and inpatient care through FFS. “capitated rate,” per beneficiary to cover the However, certain services are provided mostly cost of their care. Currently, over 80 percent or exclusively through FFS. Such benefits are of Medi-Cal beneficiaries are enrolled with sometimes referred to as being “carved out” of a managed care plan for their Medi-Cal managed care, because they are not available benefits, with estimated total expenditures through the state’s Medi-Cal managed care 4 LEGISLATIVE ANALYST’S OFFICE seellornE yltsoC eroM analysis full gutter analysis full gutter 2020-21 BUDGET plans. One example of such a benefit is dental mental illness and substance use disorders. services, which are predominantly provided Estimated expenditures on county specialty in FFS. Estimated expenditures in FFS total mental health and substance use services $27 billion in 2019-20. total roughly $5.4 billion in 2019-20. • County Specialty Mental Health and • In-Home Supportive Services (IHSS). The Substance Use Treatment. While managed IHSS program allows persons with disabilities care plans are responsible for providing to hire a worker to provide personal care treatment for mild-to-moderate mental health services, such as help with dressing, bathing, conditions, treatment for more severe mental and household work. This is intended to health conditions is carved out of managed enable persons with disabilities to remain care and is the responsibility of counties. in their homes. IHSS is administered at These county services are often referred to the state level by the Department of Social as “specialty mental health.” Counties also Services. However, it is almost entirely are responsible for providing substance use funded as a Medi-Cal benefit and is by far the treatment services in much of the state. In largest Medi-Cal-funded, community-based, many cases, a single county behavioral health long-term services and support benefit agency administers services for both severe available in the state, with estimated total Figure 2 Medi-Cal Enrolleesa Access Services Through Multiple Systemsb FFS Medi-Cal Provider County Behavioral Medi-Cal County Human Health Agency Managed Care Plan Services Agency • Primary care • Dental services • Treatment for • Personal care • Inpatient services • Certain high-cost substance use services through IHSS • Treatment for drugs disorders mild-to-moderate • Treatment for severe mental health issues mental illness a Reflects perspective of managed care enrollees, who make up over 80 percent of Medi-Cal beneficiaries. b Other systems not pictured include the Department of Developmental Services’ regional centers and schools. FFS = fee-for-service and IHSS = In-Home Supportive Services. www.lao.ca.gov 5 analysis full gutter 2020-21 BUDGET funding of about $13 billion in 2019-20. navigate multiple delivery systems, which can make Individuals apply to receive IHSS services and it difficult for beneficiaries to receive all the services manage their benefit through a county human that their conditions would indicate are needed. services agency. Difficulties navigating Medi-Cal’s multiple systems can be particularly pronounced for individuals with Structure and Availability of Benefits and multiple complex conditions. The complexity of the Service Delivery Varies Across the State. program also increases administrative workload Medi-Cal benefits are not always provided through for DHCS as it develops policy and guidance, the same delivery system in all parts of the state, provides technical assistance, and provides funding and not all benefits are available everywhere in for the large variety of benefit and delivery system the state. This variation largely is the result of past combinations present throughout the state. efforts to test new models of care in only portions of the state. Several examples of this variation Many Key Medi-Cal Program Features include: Are Authorized Through Federal • The SNF long-term care benefit is a managed Waivers care benefit in more than half of counties but Medicaid Waivers Provide States Flexibility is an FFS benefit in the remaining counties. to Test New Approaches to Delivering Services. • Seven counties in the state that participated Federal law lays out many basic requirements for in the Coordinated Care Initiative have how states may operate Medicaid programs and specialized managed care plans—referred requires states to offer certain benefits. Federal law to as “Cal MediConnect” (CMC) plans—that also allows the federal government to waive certain integrate Medi-Cal and Medicare benefits for Medicaid requirements in some cases. States seniors and persons with disabilities that are often take advantage of federal waivers to provide dually eligible for both programs. Medicaid benefits in new ways and, in some cases, • 38 counties have opted in to the Drug obtain funding for services that might not otherwise Medi-Cal Organized Delivery System be available. The CalAIM proposal affects two (DMC-ODS) program, under which counties waivers in particular: provide a more comprehensive substance use • Section 1115 Waivers. Section 1115 waivers benefit than is otherwise available in Medi-Cal. provide broad authority to allow states to • 24 counties and one city have opted in to the (1) expand eligibility for benefits beyond Whole Person Care program, which is testing those who typically would be eligible under local initiatives that coordinate physical health, federal law; (2) provide additional services not behavioral health, and social services for traditionally available under Medicaid; and beneficiaries who are high users of health care (3) use different delivery systems, such as and other services. managed care, that are intended to provide • 12 counties are participating in the Health care more efficiently. (The federal government Homes Program, which has similar goals to now discourages using 1115 waivers to the Whole Person Care program and provides implement managed care delivery systems extra services to Medi-Cal beneficiaries that in light of other waivers being available for have chronic health and/or mental health this purpose, as described shortly hereafter.) conditions that results in high utilization. Changes approved under 1115 waivers are Medi-Cal’s Complexity Puts Burdens on required to be cost-neutral to the federal Beneficiaries and Program Administrators. The government. In the past, the state has been complexity of the Medi-Cal program impacts both able to justify to the federal government that beneficiaries and the state in its oversight and changes included in the waiver—primarily administration of Medi-Cal. Depending on which moving Medi-Cal populations into managed services beneficiaries require, they may need to care—save money for the federal government. 6 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET In turn, the federal government returned at other state health programs as the nonfederal least a portion of these savings to the state share of cost for the Dental Transformation for new services and program improvement Initiative, allowing this waiver program to be initiatives also approved under the state’s funded largely exclusively with federal funding 1115 waiver. for Medi-Cal.) • Section 1915(b) Waivers. Section 1915(b) • The Whole Person Care program, described waivers are more narrow and essentially allow earlier, allows participating counties to states to provide Medicaid benefits through receive funding to coordinate and provide a managed care delivery system instead health, behavioral health, and social services of through FFS, or more generally to allow for Medi-Cal beneficiaries who have high benefits to vary in different regions of a state. utilization of multiple systems of care and have poor health outcomes. Key Medi-Cal Benefits and Services Operate • The DMC-ODS program, described Under Waivers. The state currently has 1115 and earlier, allows the state to receive federal 1915(b) waivers for significant components of the reimbursement for an array of substance Medi-Cal program. As already noted, the state’s use disorder treatments, including those 1115 waiver provides the authority for the state to provided in an Institution for Mental Disease provide core Medi-Cal services through managed (IMD), which are defined as residential mental care. The current 1115 waiver also includes: health facilities with more than 16 beds that • The Public Hospital Redesign and Incentives normally are not eligible for federal funding. in Medi-Cal (PRIME) program, which provides Participation in DMC-ODS is optional for incentive payments tied to the state’s public counties. hospitals meeting certain quality and efficiency Specialty mental health services have targets. been carved out of managed care under the • The Global Payment Program, which 1915(b) waiver. repurposes federal funding for Current Major Medi-Cal Waivers Are Set to uncompensated care at public hospitals to Expire. The state’s 1115 waiver is set to expire at an incentive-based structure that encourages the end of 2020. (A few programs included in the hospitals to provide preventive care in order to wavier have other expiration dates. For example, try to avoid the need for acute care. the Global Payment Program expires in July 2020.) • The Dental Transformation Initiative, which is The state’s 1915(b) waiver expires in July 2020, intended to improve access to dental services but the state applied to the federal government for children with Medi-Cal coverage. Under the to extend waiver authority six months to align program, dental providers receive payments with the expiration of the 1115 waiver. Because for meeting performance benchmarks related these waivers are expiring, the state must seek to the provision of preventive dental care and renewal of these waivers or explore other options continuity of coverage. (The current waiver to gain federal authority if it wishes to continue the allows the state to claim state expenditures on program features described previously. OVERVIEW OF CALAIM At a high level, CalAIM is intended to address benefits and administration. The proposal further some of the challenges identified previously by seeks to promote quality of care and positive (1) providing more comprehensive benefits and health outcomes through payment reforms. Finally, services to high-risk and high-cost populations the CalAIM proposal addresses the upcoming and (2) streamlining and standardizing Medi-Cal expiration of the state’s 1115 and 1915(b) waivers. www.lao.ca.gov 7 analysis full gutter 2020-21 BUDGET Many, but not all, of the changes proposed Create New Enhanced Care Management under CalAIM would be implemented through (ECM) Benefit. To assist high-need beneficiaries the 1915(b) waiver. In this section, we provide a with navigating Medi-Cal’s delivery systems, DHCS high-level overview of the major components of is proposing a new statewide ECM benefit. This CalAIM, summarized in Figure 3. benefit would be modeled after services currently provided in the Health Homes Program and the Increasing the Focus on High-Risk, care coordination services provided through High-Cost Populations the Whole Person Care pilots. The new ECM benefit would be administered by the Medi-Cal The CalAIM proposal reflects an increased focus managed care plans, which would be tasked with on the small portion of beneficiaries with high establishing care management programs for their needs that accounts for a high portion of overall members and contracting with providers to deliver spending in Medi-Cal. These beneficiaries may have care. The benefit would be targeted at high utilizers complex care needs that include issues related of hospital inpatient stays and emergency room to homelessness, behavioral health, or criminal visits; individuals at risk of institutionalization in justice involvement. These beneficiaries also need IMDs or SNFs; individuals experiencing or at risk to navigate multiple health care delivery systems to of homelessness; individuals transitioning from receive the care they need. To improve services for incarceration; and children with complex physical, this population, the administration is proposing new behavioral, and developmental needs. The ECM Medi-Cal benefits that we describe in the following benefit would be implemented beginning in sections. January 2021. Figure 3 Major Policy Reforms Under CalAIM Proposal Increasing the Focus on High-Risk, High-Cost Populations Create new enhanced care management benefit. Ensure enrollment assistance for individuals transitioning from incarceration. Provide new nonmedical “in lieu” benefits. Require managed care plans to develop population health management programs. Convene foster care workgroup. Transforming and Streamlining Managed Care Transition certain Medi-Cal benefits into managed care statewide. Transition certain benefits out of managed care statewide. Modify approach to coordinating care of beneficiaries eligible for both Medi-Cal and Medicare. Set capitated rates on a regional rather than county basis. Require NCQA accreditation of Medi-Cal managed care plans; deem as meeting most federal and state standards. Consider creation of a full-integration pilot. Extending Components of the Current 1115 Waiver Continue public hospital funding under other programs. Maintain expansion of substance use disorder services begun under DMC-ODS. Extend statewide components of Dental Transformation Initiative. Rethinking Behavioral Health Service Delivery and Financing Streamline behavioral health financing. Explore federal funding opportunities for residential care. Change medical necessity criteria for beneficiaries to access services. Implement “no wrong door” approach for children obtaining mental health services. Integrate county administration of specialty mental health and substance use disorder services. CalAIM = California Advancing and Innovating Medi-Cal; NCQA = National Committee on Quality Assurance and DMC-ODS = Drug Medi-Cal Organized Delivery System. 8 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET Ensure Enrollment Assistance for Individuals ILOS are intended to be provided in place of a Transitioning From Incarceration. Currently, more expensive standard Medicaid benefit. If states there is variation among counties in the extent opt in to provide ILOS (and receive federal funds to which they enroll individuals transitioning from in respect of them), federal law requires that ILOS jails in Medi-Cal. DHCS proposes making inmate be optional for managed care plans to provide pre-release application processes mandatory and beneficiaries to accept. DHCS has proposed statewide beginning in January 2022. a menu of ILOS benefits that managed care plans Provide New Nonmedical “In Lieu” Benefits. could choose to provide beginning in January 2021, Under federal rules, “in lieu of services” (ILOS) as shown in Figure 4. Notably, the ILOS benefits are generally nonmedical services that can be proposed to be offered include housing assistance provided as alternatives to standard Medicaid benefits. Some of them have restrictions on how benefits in the managed care delivery system. much they can be used or who is eligible, including Figure 4 Proposed “In Lieu of Services” Benefits Benefit Description Services to Address Homelessness and Housing Housing depositsa Funding for one-time services necessary to establish a household, including security deposits to obtain a lease, first month’s coverage of utilities, or first and last month’s rent required prior to occupancy. Housing transition navigation servicesa Assistance with obtaining housing. This may include assistance with searching for housing or completing housing applications, as well as developing an individual housing support plan. Housing tenancy and sustaining servicesa Assistance with maintaining stable tenancy once housing is secured. This may include interventions for behaviors that may jeopardize housing, such as late rental payment and services to develop financial literacy. Services to Allow Long-Term Placement in Home-Like Settings Day habilitation programs Programs provided to assist beneficiaries with developing skills necessary to reside in home-like settings, often provided by peer mentor-type caregivers. These programs can include training on use of public transportation or preparing meals. Environmental accessibility adaptations Physical adaptations to a home to ensure the health and safety of the beneficiary. These may include ramps and grab bars. Nursing facility transition/diversion to assisted Services provided to assist beneficiaries transitioning from nursing facility care to living facilitiesb community settings, or prevent beneficiaries from being admitted to nursing facilities. Nursing facility transition to a home Services provided to assist beneficiaries transitioning from nursing facility care to home settings in which they are responsible for living expenses. Personal care and homemaker servicesc Services provided to assist beneficiaries with daily living activities, such as bathing, dressing, housecleaning, and grocery shopping. Recuperative Services Meals/medically tailored meals Meals delivered to the home following discharge from a hospital and meals that are tailored to meet beneficiaries’ unique dietary needs. Recuperative care (medical respite) Short-term residential care for beneficiaries who no longer require hospitalization, but still need to recover from injury or illness. Respite Short-term relief provided to caregivers of beneficiaries who require intermittent temporary supervision. Short-term post-hospitalization housinga Setting in which beneficiaries can continue receiving care for medical, psychiatric, or substance use disorder needs immediately after exiting a hospital. Sobering centers Alternative destinations for beneficiaries who are found to be intoxicated and would otherwise be transported to an emergency department or jail. a Restricted to use once-in-a-lifetime, unless managed care plan can demonstrate cost-effectiveness of providing a second time. b Includes residential facilities for the elderly and adult residential facilities. c Does not include services already provided in the In-Home Supportive Services program. www.lao.ca.gov 9 analysis full gutter 2020-21 BUDGET benefits that are only available for use once in a Transforming and Streamlining beneficiary’s lifetime unless the managed care plan Managed Care demonstrates why provision of an additional benefit This section provides an overview of six would be cost-effective. While some other states components of CalAIM that are primarily intended have opted in to provide ILOS, their offerings of to transform and streamline Medi-Cal managed services tend to be more limited in scope than what care. is being proposed under CalAIM. Transition Certain Benefits Into Managed Require Managed Care Plans to Develop Care Statewide. DHCS proposes moving certain Population Health Management Program. A benefits into managed care that currently are in population health management program is an managed care only in certain parts of the state. The approach to planning used by a managed care plan first of these benefits is the long-term care SNF to determine how to address the varying conditions benefit. The second is major organ transplants. across its group of enrollees along a continuum Under the proposal, both of these benefits would of care. Managed care plans are not currently be moved into managed care beginning in January required to have a population health management 2021. program, but would be newly required to under CalAIM. Specifically, managed care plans would Transition Certain Other Benefits Out of be required to outline strategies for (1) focusing Managed Care Statewide. In addition to moving on preventive and wellness services; (2) grouping, certain benefits into managed care on a statewide or “stratifying,” enrollees based on their risk and basis, DHCS intends to carve certain benefits out of need; (3) addressing the needs of enrollees in managed care. The benefits that DHCS intends to these various groups with differing services and carve out include (1) pharmacy services (which we levels of case management; and (4) identifying and discuss separately in The 2020-21 Budget: Analysis mitigating health disparities (for example, across of the Medi-Cal Budget), (2) specialty mental racial or ethnic groups). The population health health services in the two counties (Sacramento management programs would be implemented and Solano Counties) where they are carved in for beginning in January 2022. enrollees in the Kaiser Foundation Health Plan, (3) the Multipurpose Senior Services Program, Convene Foster Care Workgroup. Current and (4) optical lens fabrication. Effective January and former foster youth have unique and complex 2021, these benefits would be reimbursed through needs among Medi-Cal’s various enrollee Medi-Cal FFS. populations. In an effort to create a forum for focused deliberations over potential improvements Modify Approach to Coordinating Care to their care, DHCS intends to convene a of Beneficiaries Eligible for Both Medi-Cal workgroup beginning in 2020 with interested and Medicare. Under the proposal, CMC plans stakeholders. What specific policy changes will be would be discontinued in January 2023 (the considered by the workgroup is unclear. However, date at which federal approval for the integrated the workgroup’s discussions could include whether plans ends). Instead, the state would require or not to encourage greater enrollment of foster all Medi-Cal managed care plan contractors youth in managed care than is the case currently, to establish specialized plans, known as Dual ways to improve behavioral health service delivery Eligible Special Needs Plans (D-SNPs), which are to foster youth, and how to better serve and designed to provide managed Medicare benefits appropriately fund foster youth who move from one to individuals who also are eligible for Medi-Cal. county to another. DHCS intends for the workgroup Under this framework, Medi-Cal beneficiaries who to include participation from a wide variety of also are eligible for Medicare could, but would not stakeholders, including Medi-Cal managed care necessarily be required, to receive their Medicare plans; county child welfare and behavioral health benefits through a D-SNP that is operated by the departments; and other representatives of social same contracted managed care plan that provides services, education, and juvenile justice. their Medi-Cal benefit. (We will describe this 10 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET particular aspect of the CalAIM proposal in more wherever possible. In so doing, DHCS would detail and provide our assessment in a separate be able to reduce some of the administrative forthcoming publication related to CalAIM’s burdens associated with oversight of Medi-Cal implications for aging issues.) managed care plans, from both a state and a plan Set Regional Capitated Rates. Medi-Cal perspective. managed care plans’ capitated rates are set for Consider Creation of a Full-Integration a number of distinct populations of Medi-Cal Pilot. Currently, beneficiaries enrolled in Medi-Cal enrollees. In addition, with the exception of managed care receive most physical health care most of California’s largely rural counties, from their managed care plan; specialty mental managed care plans’ capitated rates are set on a health and substance use services from the county county-by-county basis. Setting different capitated behavioral health delivery system; and many rates for distinct Medi-Cal populations and across other services, such as dental care, through FFS. counties greatly adds to the complexity of the Given the challenges Medi-Cal beneficiaries with capitated rate-setting process. According to DHCS, complex needs may have in navigating potentially the capitated rate-setting process currently involves several different delivery systems for care, DHCS calculating more than 4,000 distinct components. is proposing pilot programs that would integrate In an effort to simplify the capitated rate-setting physical, behavioral, and dental care under a single process and also improve fiscal management contracted entity, and is engaging in stakeholder of Medi-Cal managed care, DHCS proposes to conversations to inform development of these move to a regional capitated rate-setting process pilots and address any issues with implementing whereby capitated rates would be set over broader them. DHCS proposes to implement these pilot geographic areas than they are currently. DHCS integration plans in participating counties beginning intends to implement regional capitated rate-setting in January 2024. in two phases, with the first phase implementing Extending Components of the beginning in January 2021 and the second phase implementing no sooner than January 2023. We Current 1115 Waiver understand that phase one would potentially involve Overall, the CalAIM proposal takes a different implementation of regional capitated rates in areas approach to federal Medicaid waivers than where it is most feasible—for example, across has been used in the past. Under the CalAIM adjacent county lines where the same managed proposal, authority to operate the managed care care plans operate in both counties. delivery system would be moved from the state’s Require National Committee for Quality 1115 waiver into the state’s 1915(b) waiver, the Assurance (NCQA) Accreditation of Managed same authority used for the state’s specialty mental Care Plans. In an effort to increase standardization health carve out. Moreover, relatively few other across Medi-Cal managed care plans and items currently in the state’s current 1115 waiver streamline oversight of them, DHCS proposes to would remain in a new 1115 waiver that the require plans to obtain NCQA accreditation by state would propose to the federal government 2025. Through the accreditation process, plans for approval. In this section, we describe how are evaluated and certified as meeting minimum certain components of the current waiver would be standards in such areas as provider network handled under the CalAIM proposal. management, utilization management, and member Continue Public Hospital Funding Under communication and experience. According to Other Programs. In 2018, the federal government DHCS’ analysis, NCQA accreditation standards are changed how it defines cost-neutrality for purposes equal to, or more stringent than, many if not most of 1115 waivers. This change significantly limited federal and state standards for Medi-Cal managed the state’s ability to use savings in the managed care. DHCS intends to use plan adherence to care delivery system as justification to receive NCQA accreditation standards to “deem” that additional federal funding for state initiatives plans meet federal and state Medi-Cal standards under the waiver. As a result, DHCS does not www.lao.ca.gov 11 analysis full gutter 2020-21 BUDGET propose extending the PRIME program as part the Dental Transformation Initiative was limited to of waiver. Instead, DHCS proposes to increase children’s services, under CalAIM, DHCS proposes quality incentive payments for public hospitals to expand the preventive and continuity of care through a separate program known as the Quality components to cover adult dental services as well. Improvement Program that currently is not part A recent change in federal rules will no longer allow of the state’s 1115 waiver. DHCS proposes to the state to claim state expenditures on other state increase the size of this program to preserve much health programs as the nonfederal share of cost for or all of the funding that public hospitals receive Medi-Cal expenditures. As a result, going forward, through PRIME. Funding for the Global Payment the Governor proposes to use General Fund to fund Program largely is not derived from estimated the nonfederal share of cost for the extension of the savings from the state’s transition to managed care. Dental Transformation Initiative components. As a result, the state likely could continue receiving Rethinking Behavioral Health Service most Global Payment Program funding through an 1115 waiver. DHCS proposes to continue the Delivery and Financing Global Payment Program in the new 1115 waiver The CalAIM proposal includes a number of proposal. proposed reforms to improve service delivery for Maintain Expansion of Substance Use Medi-Cal county behavioral health. (Some of these Disorder Services Begun Under DMC-ODS. changes will be included in the 1915(b) waiver DHCS is proposing to allow counties to continue discussed earlier in this report.) providing the more comprehensive substance use Streamline Behavioral Health Financing. disorder services under DMC-ODS by incorporating The CalAIM proposal intends to streamline how DMC-ODS into the new 1915(b) waiver and county behavioral health departments receive renaming the program to substance use disorder reimbursement for providing Medi-Cal eligible managed care. However, DHCS would still services. Currently, counties pay for behavioral pursue expenditure authority for substance use health services when they are administered. They disorder treatment provided in IMDs through an then submit certified public expenditures (CPEs)— 1115 waiver. Counties still would be able to opt in expenditures that are recognized to be eligible for to the substance use disorder managed care plan federal reimbursement because they provide a model. DHCS intends to implement these changes Medi-Cal covered service—to DHCS so that eligible beginning in January 2021. federal matching funds can be received. The state Extend and Expand Statewide Components then reimburses counties on an interim basis until of Dental Transformation Initiative. With the the completion of a cost reconciliation process (that expiration of the current waiver at the end of 2020, usually takes several years). The current financing the Dental Transformation Initiative would end system is cost-based, which does not account for absent its reauthorization through a new waiver quality or outcomes in reimbursement amounts. or state plan authority. To maintain and build DHCS is proposing to transition behavioral on the increases in dental care utilization that health financing from a CPE structure to a system have occurred since the Dental Transformation that utilizes a different funding mechanism known Initiative began, DHCS proposes to continue the as intergovernmental transfers (IGTs) to provide statewide components of the Dental Transformation payment to counties. Under an IGT framework, the Initiative on an ongoing basis. These statewide state would identify an overall funding amount for Dental Transformation Initiative components, a period of time (such as a month) and counties which would continue in similar forms under the would transfer funds to the state to cover the CalAIM proposal, include funding for (1) dental risk nonfederal share of costs. (This is more akin to assessments for young children, (2) the provision setting a rate for services provided, as opposed of preventive dental services, and (3) meeting to strict cost reimbursement.) The state then benchmarks on continuity of care. While funding for would use these funds to claim federal funding 12 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET and return both the federal funds and the local DHCS is proposing to reform medical necessity funds to counties for use in providing behavioral criteria for behavioral health services to focus health services, eliminating the need for cost more on level of impairment—the degree to reconciliation. Since funding amounts would not which a person’s behavioral health issue affects require detailed and lengthy cost reconciliations, their self-care or daily living skills—rather than an IGT framework could reduce administrative specific diagnoses. DHCS is proposing to develop burden and multiyear fiscal uncertainty. Some statewide, standardized assessment tools (one for additional details need to be clarified before this beneficiaries over age 21 and one for beneficiaries change would be implemented, including how the under age 21) to determine eligibility for specialty advanced funding amounts would be set under an mental health services based on level of IGT framework. impairment. DHCS intends to implement revisions Explore Federal Funding Opportunities for to medical necessity criteria in January 2021. Residential Care. Historically, the state has not Implement “No Wrong Door” Approach for received federal reimbursement for mental health Children Obtaining Mental Health Services. services provided in IMDs. In 2018, the federal Current law and policy is somewhat ambiguous government provided an 1115 waiver opportunity to regarding where beneficiaries under the age of states to potentially receive federal reimbursement 21 are to receive certain mental health services— for otherwise Medi-Cal covered services that are whether this should be through a Medi-Cal provided during short-term stays in psychiatric managed care plan or in the county behavioral hospitals or residential treatment settings that health system. DHCS is proposing a No Wrong qualify as IMDs. If the state chooses to pursue Door approach to care for this population, in this opportunity, it will have to adhere to a set which both managed care plans and county of requirements from the federal government, behavioral health plans would be reimbursed for including requirements related to permissible length behavioral services provided regardless of whether of stay, level of staffing, and state maintenance a beneficiary under age 21 moves to a different of effort for investing in community mental health delivery system. DHCS intends to implement this services. The administration has yet to reach approach in January 2021. a decision on whether to pursue this waiver Integrate County Administration of Specialty opportunity. Mental Health and Substance Use Disorder Change Medical Necessity Criteria for Services. Currently, specialty mental health Beneficiaries to Access Services. Existing services and substance use disorder treatment beneficiary eligibility for specialty mental health services are administered separately at the county services is determined by diagnosis and level level. DHCS is proposing to eventually integrate of impairment. Individuals often present with specialty mental health services and substance use symptoms of mental illness before providing an disorder services under single behavioral health accurate diagnosis of their condition is possible. managed care plans in the majority of the state’s Consequently, the need to diagnose prior to counties. DHCS intends to implement this proposal receiving services is problematic for county mental under a new 1915(b) waiver in 2026. health plans. For example, some plans may be reluctant to offer services to beneficiaries who have significant mental health impairments but do not have a diagnosis for mental illness. Alternatively, plans may have to forego federal funding for specialty mental health services that ultimately could be eligible for federal reimbursement. www.lao.ca.gov 13 analysis full gutter 2020-21 BUDGET GOVERNOR’S 2020-21 BUDGET PROPOSAL TO FUND CALAIM Proposal Funds Key Aspects of Proposal this estimate of funding needs based on experience to Be Implemented in 2020-21. The CalAIM with the Health Homes Program. proposal includes significant funding in 2020-21 to Funding for “Existing” ILOS. The Governor’s implement its reforms. The Governor’s budget proposal includes $28.8 million from the General proposes $695 million total funds ($347.5 million Fund ($57.5 million total funds) in 2020-21 and General Fund) for CalAIM for a half year of $57.5 million from the General Fund ($115 million implementation in 2020-21. Additional funding total funds) in 2021-22 and ongoing to pay for would be provided in 2021-22 and 2022-23 to services that are currently being provided through reflect a full year of implementation. On an ongoing current programs like Whole Person Care and basis, the Governor proposes to provide a lower Health Homes that now would be provided under amount of $395 million General Fund ($790 million ILOS. The Governor’s budget does not explicitly total funds) annually to reflect the phase out of identify new funding for additional ILOS benefits temporary incentive payments. We briefly describe that would be implemented through CalAIM, as these funding components later in this section these benefits would be provided in place of more and display amounts for these items over time in costly benefits currently being provided and that Figure 5. Notably, these totals do not include any are already included in capitated rates paid to state operations funding for DHCS to implement managed care plans. the CalAIM proposal. The Governor’s budget Incentives for ILOS and ECM. However, the includes a placeholder amount of $40 million total Governor’s proposal does include significant funds ($20 million General Fund) for this purpose. funding for “incentive payments” to managed The administration intends to provide more detail care plans to encourage the adoption of ILOS on estimated state operations costs later in the benefits and to build up capacity to provide year before the budget is enacted. ECM. The budget includes $150 million from Funding for ECM Benefit. The Governor’s the General Fund ($300 million total funds) in proposal includes $112.5 million from the General 2020-21, and $300 million from the General Fund Fund ($225 million total funds) in 2020-21 and ($600 billion total funds) in each of 2022-23 and $225 million from the General Fund ($450 million 2023-24. No additional incentive funding would be total funds) in 2021-22 and ongoing to fund the provided thereafter. While the structure of these new ECM benefit. DHCS indicates that it developed incentive payments has not been determined, Figure 5 Components of Proposed CalAIM Fundinga, by Year (In Millions) 2020-21 2021-22 Through 2022-23 2023-24 and Ongoing Components General Fund Total Funds General Fund Total Funds General Fund Total Funds ECM $112.5 $225.0 $225.0 $450.0 $225.0 $450.0 ILOS 28.8 57.5 57.5 115.0 57.5 115.0 Incentives for ECM and ILOS 150.0 300.0 300.0 600.0 — — Dental services 56.3 112.5 112.5 225.0 112.5 225.0 Total $347.5 $695.0 $695.0 $1,390.0 $395.0 $790.0 a Funding amounts do not include state operations funding for the Department of Health Care Services to implement the CalAIM proposal. The Governor’s budget includes placeholder funding (not shown) of $20 million General Fund ($40 million total funds) for this purpose. CalAIM = California Advancing and Innovating Medi-Cal; ECM = enhanced care management; and ILOS = in lieu of services. 14 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET the administration indicates the payments would components of the Dental Transformation Initiative. be provided to managed care plans for meeting The Governor proposes to provide $56.3 million benchmarks related to bringing on ECM and ILOS from the General Fund ($112.5 total funds) in benefits. 2020-21 and $112.5 million from the General Funding for Dental Services. As noted Fund ($225 million total funds) in 2021-22 and previously, a new funding source other than ongoing to support components of the Dental the state’s 1115 waiver is required to continue Transformation Initiative that cannot be continued in the 1115 waiver. LAO ASSESSMENT In this section, we provide our initial assessment new and less costly ways to address beneficiaries’ of the CalAIM proposal. As noted earlier, the needs that provide at least similar outcomes. administration is in the process of developing the However, while managed care plans can provide specific elements of many components of the services similar to ILOS today, plans do not have proposal. Consequently, our assessment is based the ability to claim their spending on these benefits on our understanding of the proposal based on for purposes of setting capitated rates and do conversations with the administration, observation not get to keep savings generated from providing of ongoing working groups, and currently available alternative benefits. The CalAIM proposal, primarily public documents on CalAIM. At the time of this by allowing the option for plans to provide in lieu writing, the administration has not released any services and have these costs reflected in capitated proposed statutory language for CalAIM. rates, encourages managed care plans to provide Overall, we find several ways that the conceptual alternative services. approach of the CalAIM proposal appears By moving the SNF benefit into managed promising. However, the proposal also presents care statewide, the CalAIM proposal also could risks and raises many questions as to how the strengthen plan incentives to provide effective, changes in the proposal would be implemented and less-costly care for those potentially needing SNF the effects they would have in practice. services. Because plans would not immediately receive higher rates when beneficiaries move into POLICY PROPOSAL COULD BRING SNFs, plans might opt to utilize less-costly settings when feasible. There is general agreement that BENEFITS… some SNF residents could be safely cared for in Proposal Expands on Vision of Medi-Cal more community-based settings and would prefer Managed Care. Managed care is intended to do so if appropriate alternative services were to promote efficient and effective health care available. In many cases, these alternative services by (1) making managed care plans and their would be less costly than the individual remaining in contracted providers responsible for arranging a SNF. for care (including which types of services are Provides New Opportunity to Receive Federal available and which types of services to emphasize) Funding for Services. Some of the services that and (2) creating financial incentives for managed managed care plans would provide under CalAIM, care plans to do so in the most cost-effective such as ECM or ILOS, are provided to some degree way possible. This financial incentive is created today by counties and other nongovernment by paying managed care plans a fixed capitated entities. For example, many counties use existing payment for a beneficiary that does not vary, at local resources to operate sobering centers and least in the short run, with the amount of health recuperative care centers in light of their potential care services a beneficiary utilizes. In theory, this to reduce length of stay and repeat admissions should lead to managed care plans identifying to hospitals for individuals that need temporary www.lao.ca.gov 15 analysis full gutter 2020-21 BUDGET housing for recovery. By enabling managed care Medi-Cal managed care plans. California would plans to provide these services as an ILOS, the join 25 other state Medicaid programs—plus the CalAIM proposal effectively would allow the state to District of Columbia’s—that currently require NCQA obtain federal Medicaid funding to offset the cost accreditation. Of these 26 Medicaid programs, of these services and possibly expand services 14 use NCQA accreditation to deem at least partial overall. adherence to federal and state Medicaid standards. In Some Ways, Proposal Would Move Toward Figure 6 provides a summary of the extent to Greater Standardization and Simplicity. Several which adherence to federal and state standards aspects of the CalAIM proposal would address for Medi-Cal could be deemed through compliance some of the complexity in the current Medi-Cal with NCQA accreditation standards. program and move toward greater standardization Continuation of Programs From State’s (both across program components and across the Current 1115 Waiver Has Merit. Overall, the state) and simplicity. Key examples of the increased Governor’s approach to continuing certain standardization and simplification include: programs currently part of the state’s 1115 waiver— (1) standardizing which benefits are covered including public hospital financing programs, through managed care statewide by carving in components of the Dental Transformation Initiative, the long-term care SNF benefit and major organ and DMC-ODS—makes sense and has merit given transplants; (2) requiring plans statewide to offer the benefits of these programs. D-SNPs; and (3) expanding the potential to have Behavioral Health Reforms Could Improve a more comprehensive approach to addressing Service Delivery. The proposed behavioral health the needs of high-cost populations, such as those reforms under the CalAIM proposal could improve provided through the Whole Person Care and behavioral health service delivery in a number of Health Homes programs, through ECM and ILOS ways. Broadening the scope of beneficiaries who benefits statewide. are eligible for these services through revised The CalAIM proposal also would simplify state medical necessity criteria (that focus more on administration in some ways. The state currently level of impairment) could increase utilization and sets separate managed care rates for several provide treatment earlier. The proposed financing categories of service and population types for every reforms (moving from CPE reimbursement to an managed care plan in every county. This results IGT reimbursement framework) also could give in a very large number of rate determinations that county mental health plans more flexibility to need to be made on an annual basis, resulting in provide services, and reduce their administrative significant workload for DHCS and federal oversight burden due to the state’s lengthy cost reconciliation agencies. Combining counties into a smaller process. CalAIM also presents an opportunity for number of regions for rate setting—as proposed— the state to draw down additional funding through would reduce this workload and streamline program Medi-Cal through reimbursement for services administration. provided in IMDs and for services provided to NCQA Accreditation Proposal Has Potential beneficiaries without a covered diagnosis. to Streamline Oversight of Medi-Cal Managed Care Plans. Over two-thirds of Medi-Cal managed …BUT MANY QUESTIONS REMAIN care plans already have or are in the process of While the CalAIM proposal likely could bring obtaining full NCQA accreditation. As a result, significant benefits, the reform proposal also these plans currently face duplicative oversight presents a number of risks and raises many since they must prove to two separate oversight outstanding questions. Given that the CalAIM entities—NCQA and DHCS—that they meet what proposal is a work in progress and is on various are often overlapping standards. By using NCQA tracks—including stakeholder workgroups and accreditation findings to determine whether plans potentially the policy bill process—having a lot of meet or surpass federal and state Medi-Cal outstanding questions is to be expected. Many standards, the state could streamline oversight of 16 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET of these should be answered over the next few health care services. For example, a recent months as more details are ironed out. We organize report from the California State Auditor showed this section by major issue area to highlight the that utilization of children’s preventive services critical questions to be answered during legislative in Medi-Cal lags that of most other states’ deliberations on the proposal. Medicaid programs. (A significant majority of children on Medi-Cal are enrolled in managed Is Managed Care Ready for care, showing that plan efforts to encourage This Significant Expansion? preventive children’s services may be inadequate.) Similarly, researchers recently assessed Medi-Cal The CalAIM proposal would significantly expand managed care plan performance, as measured the role of Medi-Cal managed care plans by by the common Healthcare Effectiveness Data giving them tools and funding not only to address Information Set (HEDIS) quality scores—where their members’ medical conditions, but also their plan quality is assessed based on measures such broader needs related to housing and social as vaccination rates and receipt of prenatal care. services. While this presents Medi-Cal managed The assessment showed that plan performance care plans with an opportunity to better address was below the state’s longstanding, low minimum their members’ overall needs, the expanded role performance standard for nearly one-quarter of of Medi-Cal managed care raises major issues for the HEDIS measures and that plan quality scores consideration, which we discuss in this section. have declined or remained stagnant about as Existing Concerns About Medi-Cal Managed often as they have improved. Given these and Care Plans Meeting Basic Responsibilities. other challenges within Medi-Cal managed care, Multiple evaluations from recent years raise whether Medi-Cal managed care plans currently are concerns about Medi-Cal managed care plans meeting their responsibilities related to their core meeting their basic responsibilities related to competencies—delivering high-quality, appropriate, ensuring their members receive appropriate Figure 6 Federal and State Standards Are Likely at Least Partially Deemable Through NCQA Accreditation NCQA Standard Likely Meets or Exceeds State and Federal Category Standards for: Examples of Standards Met Examples of Standards Not Met Member Experience and 13 out of 27 standards • Language and translation • Machine-readable provider Communications services directories • Up-to-date provider • Guidance on obtaining OON handbooks services Population Health Management 7 out of 9 standards • Screenings for new members • Care coordination of carved-out services • Service plans for enrollees • Timely approval of special with LTSS needs needs care plans Access to Care 17 out of 32 standards • Maintenance of provider • Coverage of OON emergency network services • Appropriate utilization • Credentialing of providers management policies Quality Measurement and 7 out of 12 standards • Monitoring of over- and under- • Performance improvement Improvement and Program utilization of care projects Integrity • Member confidentiality • Oversight of subcontractors protections Note: LAO tabulation based on DHCS’ comparison between NCQA accreditation and federal and state standards for Medi-Cal managed care. NCQA = National Committee on Quality Assurance; OON = out-of-network; LTSS = long-term services and supports; LAO = Legislative Analyst’s Office; and DHCS = Department of Health Care Services. www.lao.ca.gov 17 analysis full gutter 2020-21 BUDGET timely, and cost-effective health care to their freed up by adopting this proposal. Obtaining members—remains an outstanding question. the fiscal information described above would New Benefits Would Require Managed Care allow the Legislature to better understand the net Plans to Develop New Expertise. The CalAIM fiscal impact of the NCQA proposal. Moreover, proposal would encourage plans to arrange and the Legislature likely will want to consider the pay for nonmedical services—specifically ILOS— policy implications of delegating this critical state with which they have limited experience providing, function—oversight of Medi-Cal managed care—to such as temporary housing assistance. Accordingly, a contracted entity. We think the answers to the managed care plans would need to establish new above questions would enable the Legislature to relationships, contracts, and payment mechanisms more fully weigh the benefits and costs associated with community-based organizations and other with this proposal. local entities that provide ILOS such as housing. How Would New Benefits Expand the How quickly and successfully Medi-Cal managed Supply of Already Limited Services? care plans will be able to establish these new relationships with local service providers is Services Similar to ILOS and Case unknown. Moreover, how Medi-Cal managed care Management Services Already May Be Limited. plans will balance (1) adding capacity to provide The success of the CalAIM proposal would depend, new services under CalAIM, including ILOS, and in part, on Medi-Cal managed care plans’ ability to (2) improving their performance on their existing, marshal community resources to serve the broader, core responsibilities, as discussed in the previous nonmedical needs of their members. As such, paragraph, is uncertain. limits in the availability of community resources could affect the effectiveness of the reform effort, What Trade-Offs Does Using as well as the speed of its success. For example, NCQA Accreditation for constraints in the local housing supply in certain Managed Care Oversight Present? communities could make assisting members in obtaining appropriate housing a challenge for As previously discussed, DHCS has proposed managed care plans. In fact, limited housing to require NCQA accreditation of all Medi-Cal availability has been among the most common managed care plans, and to use their accreditation challenges cited by implementers of the Whole to deem that plans meet most federal and state Person Care pilots. As another example, not all standards for Medi-Cal managed care. We believe communities have organizations that provide this proposal merits consideration, though we have general case management services. In these a number of related outstanding questions. First, communities, Medi-Cal managed care plans would while an initial crosswalk of NCQA and federal need to devote time and resources to establish and state Medi-Cal managed care standards has local case management services, meaning that been completed, more detailed analysis appears the full benefits of ECM services may be slow to necessary to validate which federal and state materialize in these communities. standards would and would not be possible to deem as being met due to NCQA accreditation. Whether New Benefits Would Supplement Second, while we understand that obtaining initial or Supplant Existing Services Is Unclear. NCQA accreditation costs hundreds of thousands Existing community services and new benefits of dollars, we have not seen a fiscal estimate under the CalAIM proposal overlap. For example, of the cost to the state of requiring Medi-Cal local ILOS and ECM services currently include: managed care plans to obtain and maintain NCQA (1) local homelessness support programs funded accreditation (a cost to plans that is potentially through the Homelessness Coordinating and reimbursable through capitated rate setting). Finance Council under the Business, Consumer Third, DHCS has not released a fiscal estimate Services, and Housing Agency; (2) targeted case of what state resources currently dedicated to management programs available through county Medi-Cal managed care plan oversight could be specialty mental health plans and the Department 18 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET of Developmental Services delivery system; and practice this will be very difficult to track. Medi-Cal (3) personal care services available through IHSS. spending and utilization data may not be able to While DHCS has indicated that certain existing show definitively that spending on the new ILOS programs would continue to operate in conjunction benefits is in place of and less expensive than with the proposed new ECM and ILOS benefits, providing existing covered benefits. Moreover, how CalAIM ultimately would affect, and operate tracking Medi-Cal expenditure data would not in tandem with, other existing programs is unclear. capture all the ways in which an ILOS benefit At one end—given the level of demand—the potentially could result in savings or costs to new CalAIM benefits could supplement existing government (potentially outside of health care programs and act largely as an additional point of services) or others. entry for obtaining the benefits available through Initial Evidence on Preventive Services ECM and ILOS. At the other end, CalAIM services Raises Questions Regarding Potential Medi-Cal could end up supplanting some of these services— Savings. The following bullets summarize evidence ultimately resulting in Medi-Cal managed care being showing that providing additional preventive and a principal route by which low-income individuals social services does not necessarily result in and families can access these services. significant offsetting reductions in spending on services that are more expensive. What Fiscal Risks Could New Benefits Create? • The ACA. The ACA was intended to reduce hospital stays and emergency department While New Benefits Are Intended to Be visits by increasing access to preventive in Lieu of More Expensive Services… As the health care services, where patients’ name suggests, ILOS are intended to be in place conditions could be treated before they of existing Medi-Cal benefits. Thus, for example, worsen and require inpatient or emergency in-home personal care services are intended to care. Subsequent evidence does not show deter placement in nursing facilities, recuperative this to have been the case; rather, utilization care is intended to reduce hospitals stays, and of preventive, inpatient, and emergency temporary housing assistance is intended to services alike has increased under the ACA. prevent emergency room visits for conditions that • Camden “Hot-Spotters” Model. Researchers might develop during periods of homelessness. To recently published a high-quality study receive federal funding, federal regulations require of a program in Camden, Massachusetts ILOS to be “cost-effective” substitutes for covered that delivered intensive clinical, social health care services. Federal regulations do not supportive, and case management prescribe, however, how cost-effectiveness is to services to “super-utilizers” of health care be determined, and instead appear to give states services—a population comprising less broad flexibility in making this determination. than 0.5 percent of the city’s population but Importantly, the option to provide ILOS was that accounted for 11 percent of the city’s fairly recently granted to state Medicaid programs. hospital’s expenditures. The study found that To our understanding, no state has proposed as super-utilizers who received the intensive expansive a set of ILOS for federal consideration as services had comparable rates of subsequent California would under CalAIM. Without precedent hospital admissions as a control group who for a proposal of this scale, anticipating whether did not receive the intensive services. the federal government would ultimately approve • Whole Person Care Evaluation. As this component of the state’s CalAIM proposal is discussed in the background, CalAIM is in unclear. many ways designed to build upon programs …In Practice, Calculating Cost-Effectiveness in the current 1115 waiver. In particular, the in Medi-Cal Might Be Difficult. While, in theory, proposed new ECM and ILOS benefits reflect ILOS are intended to be cost-effective relative to benefits that were piloted as a part of Whole the costs of covering existing Medi-Cal services, in www.lao.ca.gov 19 analysis full gutter 2020-21 BUDGET Person Care. In late 2019, a preliminary only a limited set of services as cost-effective, the evaluation of Whole Person Care was released proposal may not be as effective as intended. looking at how the pilot has affected service Establishment of New Benefits May Introduce delivery, interagency collaboration, and the New Fiscal Risks for Managed Care Plans… cost-effectiveness of health care. While the Whereas ECM is intended to be a statewide evaluation showed certain improvements in Medi-Cal managed care benefit, managed care service delivery and interagency collaboration, plans would have the power to decide which, if any, the evaluation did not consistently show of the ILOS benefits they will provide. The extent improved cost-effectiveness in the form of to which managed care plans could, once deciding lower hospital and emergency department to provide an ILOS, determine which members are utilization among Whole Person Care eligible or not for the ILOS is less clear. DHCS has beneficiaries relative to a comparison group. yet to release detailed policy guidance on this issue of plan flexibility related to ILOS eligibility decisions. DHCS has not yet released detailed state Relatively lower or higher degrees of plan flexibility policy guidance on how cost-effectiveness will be could come with distinct trade-offs and fiscal overseen and enforced by the state. Depending implications, as described in the next paragraphs. on how the state’s policy on cost-effectiveness is With low flexibility, once plans opt to provide an formulated, there is a distinct possibility that adding individual ILOS benefit, Medi-Cal managed care ILOS benefits ultimately could come with significant plans could be responsible for providing and paying ongoing net costs to the state. That said, there for ILOS generally as an “entitlement” benefit. In could be policy reasons—as we discuss in the next other words, plans could have to provide and pay paragraph—that could make pursuing the benefits for the benefit to the extent that their members worthwhile. meet state-established eligibility requirements Fiscal Risks Should Be Weighed Against for the benefit. This would introduce fiscal risk Potential Policy Benefits of ILOS. Even if ILOS for managed care plans since—absent opting have the potential to result in higher net costs, to no longer provide the ILOS—they might have they still merit policy consideration as potentially only limited authority to manage utilization of the effective approaches to meeting Medi-Cal new benefit. Moreover, in the short term, certain beneficiaries’ broader needs. For example, there is plans would be reimbursed for the projected but evidence from the Camden study that beneficiary not actual cost of providing the benefit. Should access to non-health care programs, such as food the short-term cost of providing the ILOS benefit assistance, can improve by providing intensive exceed provided funding, these managed care case management services. Moreover, while the plans would have to use other plan resources— increased hospitalizations observed under the such as savings from lower costs elsewhere, Whole Person Care interim evaluation do not reserves, or foregone profits—to cover the show that the pilot has been consistently effective unreimbursed costs. in reducing health care costs, the additional On the other hand, with high flexibility, managed hospitalizations might address beneficiaries’ care plans ultimately might have significant sometimes longstanding medical needs and leave discretion to determine whether an ILOS would be them with improved health going forward. a cost-effective alternative to a standard Medi-Cal Managed Care Plans’ Choices About Which benefit for an individual member. Only in cases Services Would Be Offered Would Affect where this determination is positive, and where Cost-Effectiveness. Federal law requires the state the member chooses to accept the ILOS, would to allow managed care plans to choose whether— managed care plans be obligated to provide the and which—ILOS services to offer. If plans do not ILOS. Granting managed care plans this flexibility widely opt to provide ILOS, the availability of these could help mitigate the fiscal risk—for both plans new services could be more limited in scope than and the state—associated with ILOS. However, if the state ultimately desires. Moreover, if plans deem such discretion ultimately is granted to managed 20 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET care plans, there could be inconsistencies in the ILOS costs ultimately are not separately identified provision of ILOS over time, across plans, and even in the standard cost reports, additional reporting across members of the same plan. requirements might be necessary to ensure …And for the State. We understand that, in the transparency. long run, the proposed new ECM and ILOS benefits Regional Rate Setting, if Structured Properly, are intended to be reimbursed by the state in a Could Be a Key Tool for Mitigating the State’s manner similar to how most other benefits within Fiscal Risk. In counties with more than one Medi-Cal managed care are reimbursed. That is, Medi-Cal managed care plan, DHCS currently they would be reimbursed through the standard utilizes “county averaging” in the rate-setting capitated rate-setting process, whereby the state process. Under county averaging, DHCS sets establishes capitated-rate levels largely based on capitated rates that do not necessarily fully Medi-Cal managed care plans’ average reported reimburse plans based on each plan’s reported costs per beneficiary. (Because of the complexity per member costs. Rather, DHCS sets capitated of the rate-setting process, it typically takes two to rates that reimburse plans based, at least partially, three years for year-over-year changes in plan costs on the average cost of a Medi-Cal managed care to be reflected in their capitated rates.) Since the member in the county. In effect, county averaging state pays Medi-Cal managed care plans largely on creates an incentive for plans to provide care the basis of their costs, any growth in managed care more cost-effectively than the other plans in the plans’ ILOS costs would ultimately be borne by the same county. However, since the current capitated state. Since ECM and any ILOS benefits provided rate-setting process limits DHCS’s ability to perform by Medi-Cal managed care plans could be similar county averaging to only counties with more than to entitlement benefits—where the state could not one plan, the state is unable to utilize this fiscal necessarily manage utilization through the use of management tool in 22 counties (where around waiting lists, for example—the state might have less one-fifth of the state’s Medi-Cal managed care control over its fiscal commitment to these services beneficiaries reside). By moving to regional rate than if they were provided through programs other setting, the state could extend the practice to these than Medi-Cal on a nonentitlement basis. 22 counties, as well as generally to regions that Tracking ILOS Spending Could Be extend beyond county lines. Challenging. In early February 2020, DHCS Utilizing this averaging tool on a cross-county announced that managed care plans’ costs for basis could help to ensure the cost-effectiveness of ILOS would likely not be reflected as a separate ILOS services, provided ILOS are included among benefit category within managed care capitated the components of capitated rates that are subject rates. This could mean that the standard managed to county averaging. Doing so would provide an care plan cost reports would not necessarily incentive for Medi-Cal managed care plans to make separately identify their costs on ILOS. These efforts to ensure that any ILOS made available are standard cost reports represent the only reporting provided as cost-effective alternatives to existing mechanism available to the Legislature that we covered benefits. We note that this approach are aware of that provides detailed information represents one of the ways that DHCS could use to on how state funding is used within Medi-Cal ensure the cost-effectiveness of ILOS. managed care. At this time, the rationale for How Could New Complexities not separately identifying ILOS costs is unclear. Accordingly, we have outstanding questions about Be Reduced? how this decision could affect the Legislature’s While CalAIM would streamline and simplify and potentially even DHCS’ ability to accurately Medi-Cal in some ways, it also would result in new identify and oversee how much funding the state is complexities. dedicating to ILOS on an ongoing basis. (Moreover, In Lieu Benefits Would Vary Across the State this could complicate the Legislature’s oversight of and Potentially Even Within Counties. Federal the outcomes achieved from spending on ILOS.) If regulations that allow for the provision of ILOS www.lao.ca.gov 21 analysis full gutter 2020-21 BUDGET benefits in managed care require that the ILOS • In May 2019, the Governor announced the benefits be optional for managed care plans. creation of a Homeless and Supportive Therefore, while the CalAIM proposal identifies Housing Advisory Task Force, which has a limited menu of possible ILOS benefits, which been charged with proposing solutions to specific benefits ultimately would be offered would address the significant level of homelessness vary from county to county. As a result, which in the state. The task force made some ILOS benefits would be available to a Medi-Cal recommendations in early 2020. beneficiary would vary based on where they live • In June 2019, the Governor signed an in the state. Perhaps more significantly, the ILOS executive order requiring that a Master Plan benefits available to a beneficiary could vary within for Aging be developed and established a a county in the majority of counties where more stakeholder advisory committee to assist with than one managed care plan operates. (In two preparing the master plan by October 2020. counties, Sacramento and San Diego, five or more • As part of his 2020-21 budget proposal, managed care plans are available.) This variation the Governor announced the creation of a could lead to confusion within counties as to what Behavioral Health Task Force to develop services are available to Medi-Cal beneficiaries. The recommendations for the Governor on administration has not yet clearly laid out whether how the state can improve timely access or how the array of ILOS benefits available within a to behavioral health services for all state county might be coordinated in a way that complies residents. with the federal requirement that the ILOS benefits be optional to managed care plans. Given the major role that Medi-Cal plays as a source of services for the homeless, low-income Expansion of Managed Care’s Role in seniors, and individuals with behavioral health Providing Nonmedical Benefits Potentially needs, Medi-Cal reforms ultimately adopted under Fragments the Overall Delivery of Supportive CalAIM will influence the direction of these other Services. The CalAIM proposal represents a planning efforts and could prevent them from significant increase in the role of Medi-Cal managed considering policies that conflict with changes care plans to provide nonmedical supportive adopted under CalAIM. services that may benefit Medi-Cal populations with complex needs and high utilization of services, What Would Be the Effects on including individuals experiencing homelessness. Behavioral Health Services? As already noted, there are multiple other entities administering homelessness services and other Unlike Most Other Medi-Cal Benefits, programs targeted at these populations. Expanding Counties Are Responsible for Specialty Mental the role of Medi-Cal managed care plans could Health and Substance Use Disorder Services further fragment the delivery of these services. Under Realignment. Under realignment, counties With more players in the delivery of these services, are responsible for paying for specialty mental the harder holding each one accountable in the health and substance use disorder services. outcomes from the spending becomes. The state provides dedicated revenues to Proposal Overlaps With Many Other counties intended to cover the costs of these Programs and Initiatives. The Medi-Cal program responsibilities. For these programs, the state is interdependent with many other state programs, generally is required to provide additional funding so proposed reforms as broad as CalAIM naturally if the state mandates counties to provide higher affect a number of state departments, programs, levels of service. and initiatives. Some of these other programs are CalAIM Could Affect State and County Costs the subject of “work-in-progress” efforts to rethink in a Variety of Ways. There are a number of areas the state’s overall approach to addressing major in which the proposal’s impact on state and county issues facing the state. For example: costs for behavioral health services is unclear: 22 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET • Full Integration Pilot. There are multiple, the Legislature may wish to consider whether distinct funding streams that fund physical, receiving federal funds for IMDs might incentivize behavioral, and dental health. Implementation institutional placements. More broadly, the of a full integration pilot potentially would Legislature may want to think about what policies require use of these local realignment funds would achieve what it views the appropriate to finance the full integration pilot through a balance between institutional placement and managed care plan. community-based services to be. • Financing Reform. Moving from cost-based What Parts of the Proposal reimbursement payments for behavioral health Are Most Urgent? services could result in a more streamlined system that ultimately results in administrative Implementation Deadline Gives Policymakers savings to counties. However, how significant Little Time to Consider a Large Number of Major the savings would be or how counties would Proposed Changes to Medi-Cal. The scope of use these freed up funds is unclear. changes proposed under CalAIM is significantly • Changing Medical-Necessity Criteria. greater than what the Legislature typically would The proposed update to medical necessity review at one time. CalAIM is a collection of almost criteria likely would increase utilization of two dozen interrelated proposals, each of which Medi-Cal specialty mental health services. raise numerous issues for legislative consideration. This could represent a higher mandated level In part because of the upcoming expiration of of services, which could increase the state’s federal waivers, the Governor has proposed an fiscal obligation to counties’ behavioral health aggressive schedule to discuss and then implement services. However, the degree to which this major components of the CalAIM proposal. will happen is uncertain. Major new benefits, including ECM and ILOS, are • No Wrong Door Approach. The proposal to proposed to be implemented beginning in January allow children and youth to receive mental 2021 (although the administration recently indicated health services through either general that certain counties that did not operate a Whole Medi-Cal managed care plans or through Person Care program could lag on implementation county specialty mental health services of ECM by six months). The carve in of the could (1) increase General Fund costs and long-term care SNF benefit into managed care (2) reduce county costs for providing these also would be implemented beginning in January services, assuming more children and 2021. In order to submit new waiver applications youth would access these services through to the federal government, the administration managed care than today. The extent to which will need to settle on key details of the proposals such a shift would happen is uncertain. this summer. This leaves very little time for the • Federal Reimbursement for Services in Legislature to adequately review the implications IMDs. Little information is publicly available on of the proposal and provide its input. Figure 7 (see the amount local governments currently spend next page) displays key milestones in the CalAIM on services provided in IMDs. Accordingly, implementation time line. the extent to which federal reimbursement for Implementation of All the Proposed Changes services provided in IMDs could offset existing Would Be Administratively Complex for DHCS county spending is unclear. and Its Implementing Partners. Implementing the changes in CalAIM would be complex and create Raises Policy Questions for the Legislature significant new workload for DHCS, managed on Role of IMDs. Historically, the state pursued a care plans, and counties. For example, in the policy of deinstitutionalization, favoring placement near term, the state would need to set rates that in community settings. We suggest the Legislature account for the new ECM benefit and the option consider the policy implications of pursuing federal for plans to provide ILOS benefits and develop reimbursement for services in IMDs. In particular, parameters for ILOS and ECM incentive payments. www.lao.ca.gov 23 analysis full gutter 2020-21 BUDGET Managed care plans would need to engage in care SNF benefit would need to quickly establish significant planning efforts to transition services contracts with SNFs and DHCS would need to currently being provided under Whole Person Care review the adequacy of managed care plans’ or Health Homes programs over to the new ECM long-term care networks prior to transitioning this and ILOS framework, or begin newly providing benefit to managed care. Past implementations them, by proposed deadlines. Managed care of major program reforms in Medi-Cal, such as plans that currently do not provide the long-term the Coordinated Care Initiative, have encountered setbacks that slowed the pace of Figure 7 implementation relative to initial proposed schedules. Given the Selected Events in Proposed scope of the CalAIM proposal, CalAIM Implementation Time Line similar delays seem inevitable. July 2020 How Will the Proposal • Develop guidance for county inmate prerelease application process. • Global Payment Program extended. Be Evaluated? • Start of foster care workgroup meetings. January 2021 Proposal Builds Upon • Current 1115 waiver expires. Previous Waiver Programs That • ECM and ILOS implemented.a • PRIME transitions to Quality Incentive Program. Have Not Been Fully Evaluated. • Dental benefits and pay for performance implemented. Under the Governor’s CalAIM • SNF and major organ transplant benefits carved into managed care. • Pharmacy benefit carved out of managed care. proposal, the state would extend • Phase I of regional rate setting. • Changes to behavioral health medical necessity. and expand upon innovative programs that only were July 2021 • Behavioral health payment reform. implemented as recently as 2016 under the current 1115 waiver. January 2022 • Population health management programs implemented. Major new programs under the • County inmate prerelease application processes implemented. current 1115 waiver that would • Post request for proposal for full integration pilot. be extended and/or expanded July 2022 upon under CalAIM include the • Full integration pilot contracts awarded. Dental Transformation Initiative January 2023 and Whole Person Care—pilots • Cal MediConnect plans discontinued. that have yet to be fully evaluated. • Dual eligible beneficiaries enrolled in managed care statewide. • Managed care plans required to operate D-SNPs. While preliminary evaluations of • Phase II of regional rate setting.b the Dental Transformation Initiative January 2024 appear to show some promising • Full integration pilot goes live. results, preliminary evaluations of January 2025 • All managed care plans required to be accredited by NCQA . Whole Person Care have shown some positive but also some January 2026 • Implement statewide MLTSS. mixed results. Expanding these • Single integrated behavioral health managed care plan in each county or region. pilot programs statewide may be premature until a full evaluation of a DHCS indicates that managed care plans in counties that did not implement the pilots supports this action. Whole Person Care could optionally delay ECM implementation to July 2021. b At the earliest. Administration Has Not Released a Plan to Evaluate CalAIM = California Advancing and Innovating Medi-Cal; ECM = enhanced care management; ILOS = in lieu of services; PRIME = Public Hospital Redesign and Incentives in Medi-Cal; the Effectiveness of the SNF = skilled nursing facility; D-SNP = Dual Eligible Special Needs Plan; NCQA = National Reforms. Given the scope of the Committee for Quality Assurance; MLTSS = managed long-term services and supports; and DHCS = Department of Health Care Services. changes CalAIM would make to the Medi-Cal program, robust evaluation is critical to ensuring 24 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET the reforms are having their intended effects milestones and metrics related to ECM and from a beneficiary perspective; a state, managed ILOS implementation. At the time of this care plan, and provider perspective; and a fiscal publication, what implementation milestones perspective. Moreover, because much of CalAIM and metrics would trigger an incentive would not be authorized under the 1115 waiver— payment remains unclear. the waiver that is designed to test new models of • How Would Temporary Incentive care—the extent to which the federal government Funding Affect Long-Term Funding for would require evaluation of major components Medi-Cal Managed Care? We envision two of CalAIM is unclear. Since not all the details of primary potential uses of the limited-term the proposal have been fully worked out, it is CalAIM incentive funding: (1) establishing understandable that the administration has not yet administrative infrastructure to deliver released a plan to evaluate CalAIM. Nevertheless, ECM and ILOS and (2) directly financing legislative scrutiny of a plan for evaluating CalAIM ECM, ILOS, and potentially other benefits. is warranted prior to approval of any of CalAIM’s Depending on how state policy for the major reforms. incentive payments is developed, managed care plans potentially would be able to claim ASSESSMENT OF GOVERNOR’S these expenditures on their cost reports. FUNDING PROPOSAL Within several years, the state could have to increase managed care reimbursement Funding Needed to Implement CalAIM Will levels by the approximate amount of annual Depend on Final Parameters. The Governor’s incentive funding that plans ultimately funding proposal generally is intended to claim in their cost reports—in particular, adequately fund all the components of CalAIM that if the expenditures are on ECM, ILOS, or require funding, though we expect certain changes other benefits as opposed to administrative to the funding proposal in May. Any changes expenditures. Accordingly, by providing to which components of CalAIM are ultimately flexible incentive funding that ultimately could adopted could have a significant impact on the be claimable in managed care plans’ cost amount of funding needed. In the long term, the reports—even on a limited-term basis—the funding requirements of CalAIM are highly uncertain state could be committing to higher levels since many of the details of the proposal have yet of funding for Medi-Cal managed care on an to be fully worked out. Moreover, ultimate funding ongoing basis. requirements would depend on whether CalAIM’s • Why Is the Per Beneficiary Cost of ECM new benefits and features generate significant Significantly Higher Than Other Medi-Cal offsetting Medi-Cal savings, as intended. Case Management Programs? Proposed Many Questions to Resolve Before Finalizing funding for ECM is based on the state’s Budget. We have several outstanding questions experience under Health Homes. The fiscal related to the Governor’s proposal to fund CalAIM, estimate for ECM assumes about 1 percent including the following: of managed care beneficiaries would utilize ECM at an average monthly cost per ECM • What Managed Care Plan Activities Would beneficiary of $360. This per beneficiary, Trigger an Incentive Payment? As previously per month cost is significantly higher than discussed, the Governor has proposed that of the targeted case management $150 million General Fund ($300 million total programs currently funded by Medi-Cal funds) beginning in 2020-21 on a limited-term and available through county specialty basis to provide incentive payments related mental health services and the Department to ILOS and ECM. DHCS has shared that of Developmental Services. For example, incentive payments would be based on targeted case management for county managed care plans meeting pre-defined specialty mental health services beneficiaries www.lao.ca.gov 25 analysis full gutter 2020-21 BUDGET is around $100 per beneficiary, per month. programs, why per beneficiary EMC spending While we understand that ECM is intended would be so much higher than these other to involve more active case management— Medi-Cal funded case management programs out in the communities where beneficiaries is unclear. live—than at least certain case management KEY TAKEAWAYS FROM OUR ASSESSMENT In this section, we summarize the key takeaways waivers. For example, implementation of ECM from our assessment of the CalAIM proposal. and ILOS might be difficult to delay in counties As Details of Proposal Remain Under that implemented Whole Person Care and Health Development, Focus on Resolving Key Homes without creating a lapse in the benefits and Questions. The CalAIM proposal is ambitious and services available under these programs. That said, far-reaching. As might be expected for a proposal where feasible, delays could be a fiscally prudent of this scope, many of the details of the CalAIM way of avoiding ineffective spending that could proposal continue to be discussed, both through result from implementing without adequate planning various stakeholder workgroups and within the and preparation. administration. The proposal continues to shift and We recommend that the Legislature ask the evolve while the Legislature reviews the proposal administration to comment on which components and the related budget request. Because of this, of the proposal could feasibly be delayed or it is challenging to provide specific direction on phased in more slowly in order to allow more time the actions we would recommend the Legislature for the state and other implementing partners to to take on the proposal. Instead, we suggest that prepare adequately. For example, the Legislature the Legislature focus primarily on resolving key could examine whether it would be possible to questions about the proposal prior to taking action delay implementation of new benefits in counties on it. that did not participate in Whole Person Care or Throughout this report, we have identified a Health Homes programs (beyond the six-month number of questions we view as critical to the optional delay for ECM already proposed by the Legislature’s consideration of the proposal prior administration). Alternatively, DHCS recently to approval of any CalAIM components. These updated its proposal to allow implementation of questions are summarized in Figure 8. We believe D-SNPs to lag for managed care plans in counties many, if not all, of these questions could reasonably that did not participate in the Coordinated Care be resolved by the end of the budget process. Initiative. Explore Where Delays in Implementation May Closely Consider and Ensure Measures Are Be Possible and Advisable. The administration in Place to Mitigate Potential Fiscal Risks of already indicated that some components of the CalAIM. The administration intends for CalAIM CalAIM proposal could lag relative to the time lines savings to offset a significant portion of the laid out in the initial proposal. Given the significant ongoing cost of the reform effort—particularly as actions the state and managed care plans would related to the new ILOS benefits. However, we have to take in the near future to implement CalAIM find there is potential for CalAIM in general, and as proposed and the risks that unplanned delays ILOS in particular, to result in significantly higher could present, we recommend that the Legislature ongoing net General Fund costs than is assumed explore whether some components of CalAIM could by the administration. In part, these fiscal risks be delayed. Delays may not be feasible in some stem from uncertainty about how DHCS intends cases due to the need to get new federal waivers to determine and ensure the cost-effectiveness of in place upon the expiration of the state’s current ILOS. Moreover, because Medi-Cal managed care 26 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET financing is so complex, whether the state and the higher costs on an ongoing basis than is currently Legislature would be able to know how much is assumed by the administration, (2) what fiscal being spent on CalAIM in future years is unclear. transparency measures are needed to ensure In deciding which components of the Governor’s that the Legislature can know how much is being CalAIM proposal ultimately to approve, we spent on CalAIM on an ongoing basis, and (3) what recommend that the Legislature carefully consider policies should be put in place at the outset to (1) the potential for CalAIM to result in significantly mitigate the potential fiscal risks of the MHSA. Figure 8 CalAIM Questions for Legislative Focus Overarching Questions • How is the administration coordinating the development of CalAIM policy with other major statewide planning initiatives, including the Master Plan for Aging, the Behavioral Health Task Force, and other state efforts related to homelessness? • What would be the major drawbacks of pushing back various proposed CalAIM deadlines? Which deadlines would be easier to push back relative to others? • How would managed care plans develop the expertise necessary to deliver new, often nonmedical, services? • What accountability measures would DHCS consider to ensure that managed care plans are meeting their new responsibilities under CalAIM? • What is the administration’s plan for ensuring a comprehensive, independent, and robust evaluation of CalAIM, where findings would be available prior to reauthorization of any CalAIM components? Increasing the Focus on High-Risk, High-Cost Populations • How would managed care plans balance adding capacity to provide new services under CalAIM, such as ECM and ILOS, versus improving their performance on existing core responsibilities? • To what extent would new services available through managed care plans under CalAIM be intended to supplement or replace similar services that are already provided today? • What policies are the administration considering to ensure that ILOS are cost-effective alternatives to standard Medi-Cal benefits? • How would the administration track the cost and utilization of ILOS and the services that they replace to ensure cost-effectiveness and how would this information be made available to the Legislature? • To what extent would ILOS offerings be standardized within a county? • Why is the per beneficiary cost of ECM significantly higher than that of other Medi-Cal case management programs? • What predefined milestones and metrics related to ECM and ILOS implementation would trigger an incentive payment? • Would incentive payment funding be allowed to be claimed as benefit and/or administrative spending on managed care plans’ cost reports, triggering future reimbursement from the state? Transforming and Streamlining Managed Care • What would be the net costs to the state of adopting the Governor’s proposal to deem findings from NCQA accreditation as meeting certain state and federal standards? • Is it appropriate for the state, in effect, to delegate a portion of managed care plan oversight to a private entity? If so, what components would be appropriate to delegate? Rethinking Behavioral Health Service Delivery and Financing • What are the trade-offs associated with moving away from a cost-based reimbursement framework for behavioral health services? • What are the expected fiscal impacts on the state and local governments of: – Obtaining federal reimbursement for IMDs? – Changing medical necessity criteria so that a specific mental health diagnosis is no longer required? – Transitioning to a “no wrong door” approach for children’s mental health services? • Given the potentially significant and sometimes offsetting fiscal impacts of CalAIM’s behavioral health reforms, how would CalAIM generally change the respective fiscal responsibilities of the state and local governments to fund the behavioral health system? • What can the state’s experience under existing integration pilots—Drug-Medi-Cal Organized Delivery System services under Partnership Health Plan and the San Mateo dental integration pilot—tell us about the potential benefits and challenges of implementing a full-integration managed care pilot? CalAIM = California Advancing and Innovating Medi-Cal; DHCS = Department of Health Care Services; ECM = enhanced care management; ILOS = in lieu of services; NCQA = National Committee on Quality Assurance; and IMD = Institution for Mental Disease. www.lao.ca.gov 27 analysis full gutter 2020-21 BUDGET Policies to mitigate the potential fiscal risks could Require a Comprehensive and Independent include, for example, adjustments to managed care Evaluation of Any Major Reforms Ultimately plans’ capitated rates to ensure overall managed Adopted. CalAIM comprises a large number of care spending does not exceed historical trends as individual reforms, many of them relatively untested, a result of at least certain changes under CalAIM. that altogether represent a significant departure Consider Putting a Process in Place for from how—and which—Medi-Cal benefits are Legislative Oversight of Implementation. CalAIM delivered today. In order to understand the impacts makes many major changes to Medi-Cal, with of CalAIM, we recommend that the Legislature significant impacts on beneficiaries, all over a establish a framework for an independent and relatively short period of time. Legislative oversight robust evaluation of whichever major components of CalAIM implementation will be critical to of the CalAIM proposal ultimately are adopted. ensuring smooth and successful implementation. Because ascertaining the true impacts of a reform Accordingly, prior to January 2021, the Legislature effort this large will be a significant challenge, we could consider requiring regular check-ins with, recommend that the Legislature consider providing and reports from, the administration, managed care direction over the evaluation’s design and reporting. plans, and other partners to discuss readiness for Reports of the evaluation should be clear and implementation. After January 2021, the Legislature accessible to policymakers and should focus could expand the focus of the check-ins to include on pre-identified measures of success. Ideally, monitoring of the successes and challenges of the evaluation should be available, at least in a CalAIM implementation. preliminary form, prior to any deadlines for deciding on whether to reauthorize any major components of CalAIM. CONCLUSION The Governor’s CalAIM proposal represents a generally address the associated fiscal impacts significant change to Medi-Cal. Overall, CalAIM’s on other government programs). Additionally, the conceptual approach is promising, and the ultimate effectiveness of some aspects of the reforms could bring benefits. At the same time, reform proposal could hinge, to some extent, on the proposal raises many questions and presents decisions outside of the Legislature’s control— risks to the state. A key question for legislative specifically, choices by managed care plans and focus is whether Medi-Cal managed care plans are the availability of community resources such as ready to become newly responsible for a broad housing. That said, there may be policy reasons array of services that local governments typically the Legislature wishes to pursue the proposal that provide. Also notably, whether the proposal would outweigh considerations about cost-effectiveness. be cost-effective—within Medi-Cal—is unclear. Addressing key questions and planning for potential Recent studies of expansions of preventive risks is critical as the Legislature moves forward and social supportive services have not shown with consideration of the CalAIM proposal. notable health care savings (the studies do not 28 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET www.lao.ca.gov 29 analysis full gutter 2020-21 BUDGET LAO PUBLICATIONS This report was prepared by Ben Johnson, Ryan Woolsey, and Corey Hashida, and reviewed by Mark C. Newton and Carolyn Chu. 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. 30 LEGISLATIVE ANALYST’S OFFICE