The 2021-22 Budget: CalAIM: The Overarching Issues

analysis full gutter The 2021-22 Budget: CalAIM: The Overarching Issues February 2021 The California Advancing and Innovating CalAIM, summarizes key changes from last year’s Medi-Cal (CalAIM) proposal is a far-reaching set withdrawn proposal, analyzes overarching issues of reforms to expand, transform, and streamline related to CalAIM, and ends by providing several key Medi-Cal service delivery and financing. This post— takeaways. Subsequent posts in this CalAIM series the first in a series assessing different aspects of the will evaluate issues related to financing, aging, and Governor’s proposal—provides a brief overview of equity. Background Medi-Cal Provides a Range of Health Care counties serve as distinct delivery systems both for Services to a Variety of Populations. Medi-Cal, the treatment to Medi-Cal enrollees with severe mental state’s Medicaid program, provides health coverage health conditions and for personal care services— to about 13 million of the state’s low-income the latter provided through the In-Home Supportive residents. The program offers a comprehensive Services program to Medi-Cal beneficiaries who set of health care benefits and services, including need assistance with daily living. Figure 1 on primary care, inpatient services, prescription the next page illustrates the fragmentation and drugs, dental services, behavioral health services, complexity of Medi-Cal’s various delivery systems. maternity and newborn care, and long-term care Governor Proposed CalAIM as Part of the (both in institutions, such as skilled nursing facilities, January 2020-21 Budget Before Withdrawing and in the community, such as personal care the Proposal in May. CalAIM is a large services). Key Medi-Cal populations include families package of reforms aimed at (1) reducing health and children, seniors and persons with disabilities disparities by focusing attention and resources (SPDs), and childless adults who are part of the on Medi-Cal’s high-risk, high-need populations; eligibility expansion under the Patient Protection and (2) rethinking behavioral health service delivery Affordable Care Act. Many SPDs who are eligible and financing, (3) transforming and streamlining for Medi-Cal are simultaneously beneficiaries of managed care, and (4) extending federal funding Medicare. These individuals are called dual eligibles. opportunities currently available under the state’s Medi-Cal Is Complex. Services in the program soon-to-expire 1115 waiver. Originally proposed are delivered through a variety of systems. The in January 2020 as part of the 2020-21 budget, largest of these delivery systems is managed care, CalAIM was withdrawn at the May Revision due to which serves more than 80 percent of enrollees. the coronavirus disease 2019 (COVID-19) pandemic Managed care plans are responsible for arranging and the estimated effects it would have on the and paying for most health care services like primary state’s fiscal situation. To maintain continuity care and hospital inpatient services utilized by their of certain Medi-Cal programs such as Whole members. Medi-Cal beneficiaries not enrolled in Person Care and the Dental Transformation managed care receive such services through the Initiative—whose federal authorization under fee-for-service (FFS) delivery system. Additionally, the state’s 1115 waiver would have expired at 2021-22 LAO Budget Series 1 analysis full gutter Figure 1 Medi-Cal Enrollees Access Services Through Multiple Systems Medi-Cal County Behavioral County Human FFS Medi-Cal Managed Care Plan Health Agency Services Agency • Primary care • Dental services • Treatment for • Personal care • Inpatient services • Certain high-cost substance use services through • Treatment for drugs disorders IHSS mild-to-moderate • Long-term care • Treatment for mental health issues facilities severe mental illness Note: Diagram reflects the perspective of a managed care enrollee and only displays a subset of the delivery systems through which a beneficiary might access services. FFS = fee-for-service and IHSS = In-Home Supportive Services. the end of 2020—the state secured a one-year and analysis of the Governor’s prior-year proposal, extension of the 1115 waiver. With this extension, see our report, The 2020-21 Budget: Re-Envisioning the state’s 1115 waiver is set to expire on Medi-Cal—The CalAIM Proposal. December 31, 2021. For background on CalAIM, Governor’s Proposal Overview Key Changes and Clarifications From Last Year’s Proposal. While the updated CalAIM Reintroduces CalAIM in Largely Similar Form proposal is, in essence, the same as last year’s to Last Year’s Proposal. The Governor’s 2021-22 proposal, the following bullets summarize key budget reintroduces CalAIM. Figure 2 on the next changes and clarifications: page summarizes the major policy reforms included in the Governor’s CalAIM proposal, the vast majority • Pushes Back and Makes Other Changes of which are essentially unchanged from last year’s to the Implementation Time Line. The proposal except as relates to their proposed Governor’s proposed CalAIM implementation implementation time line. time lines generally have been delayed, in 2021-22 LAO Budget Series 2 analysis full gutter Figure 2 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. Reimburse managed care plans to provide nonmedical “in lieu of services.” Require managed care plans to develop population health management programs. Convene foster care workgroup. Transforming and Streamlining Managed Care Transition certain benefits and enrollee populations from fee-for-service to managed care and vice versa. 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. Rethinking Behavioral Health Service Delivery and Financing Streamline behavioral health financing. Seek new federal funding opportunity for residential mental health services. 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. 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 certain components of the Dental Transformation Initiative and provide a new covered benefit, silver diamine floride. CalAIM = California Advancing and Innovating Medi-Cal; NCQA = National Committee on Quality Assurance; and DMC-ODS = Drug Medi-Cal Organized Delivery System. most cases by one year, to reflect last year’s • Commits to Pursuing a New Federal withdrawal of the proposal and the one year Funding Opportunity for Residential extension the state received for its 1115 waiver Services to Treat Individuals With Mental (the state’s 1115 waiver authorizes many of the Illness. In the updated CalAIM proposal, the programs CalAIM seeks to maintain, often in administration announced a commitment to modified form). In select cases, the Governor’s pursuing a federal waiver opportunity—known updated CalAIM proposal would delay by more as the SMI/SED demonstration opportunity— than one year the implementation of certain to potentially receive federal reimbursement reforms, compared to last year’s withdrawn for services provided to individuals with Severe proposal. Most notably, the updated proposal Mental Illness (SMI) and/or Severe Emotional delays the transition of institutional long-term Disturbance (SED) that are normally not eligible care services into managed care by two for federal funding. Specifically, these are years—to January 2023—with a rationale services that are provided during short-term of aligning the timing of this transition with stays in psychiatric hospitals or residential that of other major CalAIM changes affecting mental health facilities with more than 16 beds. dual eligibles. Figure 3 on the next page In last year’s proposal, the administration summarizes the key dates in the Governor’s had not reached a decision on pursuing this updated proposed time line for CalAIM opportunity. implementation. 2021-22 LAO Budget Series 3 analysis full gutter of a more expensive standard Figure 3 Medicaid benefit. As part of Key Implementation Dates last year’s CalAIM package, the In the Proposed CalAIM Time Line administration proposed a menu 2021-22 Governor's Budget Proposal of ILOS that managed care plans could choose to provide. The July 2020 updated CalAIM proposal includes • PRIME transitions to QIP. a new benefit—asthma remediation April 2021 • Pharmacy benefit transitioned from managed care to fee for service. services—to last year’s package of January 2022 ILOS benefit proposals, bringing • One-year extension of current 1115 waiver expired. the total number of distinct ILOS • ECM and ILOS implemented.a • Dental benefits and pay for performance implemented.b that managed care plans may • Phase I of regional rate setting. provide and receive reimbursement • Changes to behavioral health medical necessity. • MSSP transitioned from managed care to fee for service. for to 14. These services would July 2022 consist of physical modifications • Behavioral health payment reform.c made to a beneficiary’s home to January 2023 mitigate environmental triggers that • Population health management programs become mandatory.c • Cal MediConnect plans discontinued. exacerbate asthma conditions. • Dual eligible beneficiaries enrolled in managed care statewide. • Managed care plans in CCI counties required to operate D-SNPs.d The asthma remediation benefit • Institutional LTC transitioned from fee-for-service to managed care.c generally would be limited to a December 2023 maximum amount of $5000 in a • Enforcement begins for updated county eligibility performance standards.c beneficiary’s lifetime. Figure 4 on January 2024 the next page lists and summarizes • Phase II of regional rate setting. the proposed ILOS benefits. January 2026 • All managed care plans required to be NCQA accredited. • Full-integration pilot implements.b,c Updated Funding Plan January 2027 • Single integrated behavioral health managed care plan in each county or region. Updated CalAIM Funding Plan • Implement statewide MLTSS. Is Similar to Last Year’s, With Certain One-Time Components a On this date, ECM and ILOS would initially implement in counties with Whole Person Care pilots or Added. Various components of Health Homes programs. ILOS would fully implement in January 2022 and ECM would fully implement in January 2023. CalAIM are expected to result in b Expected to implement no sooner than this date. new state costs, while others are c Proposed implementation date delayed by more than one year compared to the withdrawn 2020 proposal. anticipated to be cost neutral or d Plans not in CCI counties would be required to operate D-SNPs by January 2025. to result in state or local savings. On net, CalAIM is expected to CalAIM = California Advancing and Innovating Medi-Cal; PRIME = Public Hospital Redesign and Incentives in Medi-Cal; QIP = Quality Incentive Program; ECM = enhanced care management; ILOS = in lieu of services; result in higher costs, at least in the MSSP = Multipurpose Senior Services Program; CCI = Coordinated Care Initiative; D-SNP = Dual Eligible Special Needs Plan; LTC = long-term care; NCQA = National Committee for Quality Assurance; and short and medium term. As shown MLTSS = managed long-term services and supports. in Figure 5 at the top of page 6, in 2021-22, the Governor proposes spending $532 million General • Adds a New In-Lieu of Service Benefit: Fund ($1.1 billion total funds) on Asthma Remediation Services. Under the first half-year of CalAIM implementation (by federal rules, “in lieu of services” (ILOS) and large, CalAIM implementation would begin generally are nonmedical services that can be on January 1, 2022). CalAIM would increase provided as alternatives to standard Medicaid to $756 million General Fund ($1.5 billion total benefits in the managed care delivery system. funds) in 2022-23 and 2023-24, lowering to ILOS are intended to be provided in place $424 million General Fund ($846 million total funds) 2021-22 LAO Budget Series 4 analysis full gutter 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 Assistance with obtaining housing. This may include assistance with searching for housing or servicesa completing housing applications, as well as developing an individual housing support plan. Housing tenancy and sustaining Assistance with maintaining stable tenancy once housing is secured. This may include interventions for servicesa behaviors that may jeopardize housing, such as late rental payment and services, to develop financial literacy. Services for Long-Term Well-Being in Home-Like Settings Asthma remediationb Physical modifications to a beneficiary’s home to mitigate environmental asthma triggers. 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 Physical adaptations to a home to ensure the health and safety of the beneficiary. These may include adaptations ramps and grab bars. Meals/medically tailored meals Meals delivered to the home that are tailored to meet beneficiaries’ unique dietary needs, including following discharge from a hospital. Nursing facility transition/diversion to Services provided to assist beneficiaries transitioning from nursing facility care to community settings, assisted living facilitiesc 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 Services provided to assist beneficiaries with daily living activities, such as bathing, dressing, servicesd housecleaning, and grocery shopping. Recuperative Services 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 Setting in which beneficiaries can continue receiving care for medical, psychiatric, or substance use housinga 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 New benefit introduced this year. Restricted to lifetime maximum amount of $5000, unless beneficiary’s condition changes dramatically. c Includes residential facilities for the elderly and adult residential facilities. d Does not include services already provided in the In-Home Supportive Services program. beginning in 2024-25 and ongoing. The increase those benefits. Additionally, consistent with from 2021-22 to 2022-23 reflects the shift from last year’s proposal, the budget funds a dental half-year to full-year funding, while the decrease pay-for-performance program and a new dental starting in 2024-25 is due to the expiration of certain benefit, silver diamine fluoride. limited-term funding components, most notably the Not part of last year’s budget proposal, the managed care plan incentive payments. updated 2021-22 funding plan includes one-time The updated funding plan for CalAIM is costs related to the transition of certain benefits and substantially similar to last year’s funding plan. populations into and out of managed care. (CalAIM As with last year’s proposal, the Governor’s proposes various benefit and enrollee population budget provides upfront funding for enhanced transitions between managed care and FFS.) While care management (ECM), ILOS, and infrastructure last year’s proposal included these transitions, the managed care plans need to be able to deliver proposal did not include the associated funding. 2021-22 LAO Budget Series 5 analysis full gutter Figure 5 Proposed CalAIM Funding—Governor’s 2021-22 Budget (In Millions) 2021-22 2023-23 2023-24 2024-25 and Ongoing Total General Total General Total General Total General Funds Fund Funds Fund Funds Fund Funds Fund Plan incentivesa $300 $150 $600 $300 $600 $300 — — Enhanced care management 188 94 467 233 490 245 $490 $245 In lieu of services 48 24 115 58 115 58 115 58 Dental services 113 57 227 114 227 114 227 114 Behavioral health QIP 22 22 32 32 32 32 — — Benefit and population delivery 403 175 -10 -5 -10 -5 -10 -5 system transitionsb Local Assistance Subtotal ($1,074) ($521) ($1,431) ($732) ($1,454) ($744) ($822) ($415) DHCS state operations $24 $11 $28 $13 $25 $12 $24c $11c Grand Totals $1,098 $532 $1,459 $745 $1,479 $756 $846 $423 a To assist with the establishment of enhanced care management and in lieu of services. b Not included in last year’s proposal. c While the 2024-25 costs are as listed, ongoing costs are proposed to be $20 million total funds, $10 million General Fund. Note: Totals may not add due to rounding. QIP = Quality Incentive Payments and DHCS = Department of Health Care Services. These transitions create additional costs due to The administration released the statutory changes differences in service reimbursement timing between in the form of proposed trailer bill language in early the managed care and FFS delivery systems. February. The administration also has expressed Statutory Changes to Implement CalAIM Are openness to pursuing at least some CalAIM Needed. We understand that significant state statutory changes through the policymaking process statutory changes are needed to implement CalAIM. should that be the Legislature’s preference. Assessment As we describe below, significant detail on the proposal to undertake a major set of health care CalAIM proposal remains outstanding. In part, delivery and financing reforms concurrently with this is because many policy details remain under COVID-19 response and recovery activities. development. As further details emerge, we will CalAIM Could Bring Major Benefits… update the Legislature on any changes to our assessment of the Governor’s proposal. Potentially Could Reduce Health Disparities Since the updated CalAIM proposal is essentially and Improve Service Delivery. Health disparities the same as last year’s withdrawn proposal—and exist when one population group experiences many of the same details remain outstanding— systematically worse health outcomes than many of the questions and issues for consideration another population group. Population groups that we raised in last year’s CalAIM report remain can be categorized in different ways, such as by relevant. Nevertheless, in the assessment that demographic characteristics like race and gender, follows, we re-emphasize key considerations and by geography, by socioeconomic status, or by the incorporate updated commentary on the Governor’s other factors like health conditions or access to 2021-22 LAO Budget Series 6 analysis full gutter housing. For example, individuals experiencing departments and members with unstable homelessness are disproportionately likely to housing. The objective is for ECM to play develop health conditions such as mental illness, an important role in connecting high-risk, which is associated with comorbidities and excess high-need members to the appropriate ILOS mortality. CalAIM is intended to improve and and other, more standard preventive services expand service delivery, in particular for Medi-Cal’s necessary for the improvement of health highest-risk, highest-need beneficiaries who outcomes. Additionally, the CalAIM proposal often suffer worse health outcomes. The target includes provisions meant to build on the populations for these efforts include, for example, work of the Coordinated Care Initiative to homeless individuals, high utilizers, SPDs at risk of improve Medi-Cal and Medicare coordination institutionalization in nursing homes or hospitals, for dual eligibles. (A future post will explore and individuals transitioning from incarceration. this coordination in greater depth.) The By better targeting and delivering services to CalAIM proposal also takes steps to improve Medi-Cal’s highest-risk, highest-need beneficiaries, coordination of behavioral care by integrating CalAIM potentially could reduce health disparities specialty mental health services and substance by improving the health of those who regularly use disorder services under a single behavioral suffer from worse health outcomes. The following health managed care plans in the majority of bullets summarize several of the ways CalAIM could the state’s counties. improve service delivery and, in doing so, reduce • Reducing Delivery System Complexity. health disparities. Several aspects of the CalAIM proposal could address some of the complexity in • Potentially Expanding the Availability the current Medi-Cal program and move of Supportive Services. Gaps in the toward greater standardization (both across coordination and availability of supportive program components and across the state) services likely impede access to such services, and simplicity. Key examples of the increased impair health and social outcomes, and result standardization and simplification include: in costs throughout the safety net that might (1) standardizing which benefits are covered be averted through better and more timely through managed care statewide, such as support. For example, providing housing by carving in institutional long-term care; navigation services to individuals who currently (2) requiring plans statewide to provide lack stable housing may help them avoid coordinated managed care to dual eligibles; developing serious conditions associated with and (3) expanding the potential to have a more chronic homelessness. By allowing managed comprehensive approach to addressing the care plans to provide ILOS, and have these needs of high-cost populations, such as those costs reflected in their capitated rates, CalAIM provided through the Whole Person Care and could encourage them to provide these types Health Homes programs, through ECM and of services. ILOS benefits statewide. • Improving Care Coordination. As previously • Modernizing Behavioral Health Service alluded to, CalAIM proposes to create a new Delivery and Financing. The proposed statewide managed care benefit, ECM, to behavioral health reforms under the CalAIM provide intensive case management and care proposal could improve behavioral health coordination for Medi-Cal’s most high-risk service delivery in a number of ways. Revised and high-need beneficiaries (provided they medical necessity criteria (that focus more on are enrolled in managed care). The intent is level of impairment) could lead to beneficiaries for ECM to provide much more high-touch, accessing needed services earlier. The community-centered care coordination proposed financing reforms also could give services than are generally available to county mental health plans more flexibility the targeted populations, which include, to pursue payment models that incentivize for example, high utilizers of emergency 2021-22 LAO Budget Series 7 analysis full gutter the quality of care provided and reduce the plans will be successful is an outstanding question administrative burden associated with tying that we discuss below.) reimbursement to cost. CalAIM also presents …But Major Overarching Questions an opportunity for the state to draw down additional federal funding through Medi-Cal Still Remain for (1) services provided in settings previously Is Managed Care Well Positioned for a ineligible for federal reimbursement through Significant Expansion of Responsibilities? Recent the SMI/SED demonstration opportunity, and evaluations of Medi-Cal managed care have raised (2) services provided to beneficiaries without questions about the extent to which managed a covered diagnosis. This additional federal care plans are meeting their core responsibilities funding could increase capacity to provide of ensuring access to high-quality, appropriate services, to the extent that it frees up county care, particularly in the area of prevention. For funding to make further investments in the example, the California State Auditor recently found behavioral health system. that utilization of children’s preventive services in CalAIM Could Strengthen Managed Care Medi-Cal—which managed care plans are primarily Plans’ Capacities and Incentives to Coordinate responsible for arranging—lags that of most other Care. The administration’s CalAIM proposal reflects state Medicaid programs. CalAIM would layer new a vision that managed care is uniquely positioned to responsibilities onto managed care plans, requiring effectively and efficiently manage not only the basic or encouraging them to (1) significantly improve their health care needs of Medi-Cal beneficiaries, but also capacities to identify and target specialized services many of their broader social support needs as well. to their high-risk, high need members; (2) arrange Through ECM and ILOS, CalAIM would authorize and pay for services for which they have limited and fund managed care plans to provide higher experience offering (such as housing services and levels of care coordination and an expanded array of long-term services and supports); (3) and provide nonmedical benefits. Through these new benefits, integrated care for Medi-Cal members also enrolled for example, CalAIM vests managed care plans with in Medicare. How managed care plans will balance tools to better identify and address their members’ their new responsibilities under CalAIM while housing needs by paying apartment rental deposits, meeting their core responsibilities—particularly as nutritional needs by providing medically tailored implementation occurs as the country deals with a meals, and home-environmental needs by installing pandemic—is a major outstanding question. ramps or employing asthma remediation services. Whether managed care plans are positioned Today, such services generally are accessible to take on these new responsibilities is not simply through other systems of care, but in many cases a question of readiness in the near term. The outside of Medi-Cal. initial years of CalAIM are intended to test new Moreover, under CalAIM, additional Medi-Cal approaches and expand plan capacities. The services would become accessible primarily longer-term vision is broader and includes, for through managed care. For example, institutional example, the piloting of fully integrated managed long-term care (LTC), such as nursing facility care where managed care plans would be fully stays, would become a statewide managed care responsible for providing physical health care, benefit. (Currently, institutional LTC is only carved dental services, behavioral health, and long-term into managed care in certain counties.) In giving services and supports (the latter three of which plans new tools (ECM and ILOS) and consolidating are, to varying extents, not accessed currently financial responsibility for institutional care within through managed care). Ultimately, this vision would managed care (plans are already responsible for concentrate responsibilities for meeting the medical covering hospital inpatient services), CalAIM has and nonmedical needs of Medi-Cal members within the potential to strengthen plan incentives to deliver managed care. While such concentration has the preventive and supportive services that could divert potential to reduce fragmentation, improve care costly institutional care where possible. (Whether coordination, and align fiscal incentives, the nature, 2021-22 LAO Budget Series 8 analysis full gutter management, and financing of Medi-Cal services General Fund spending reflects a change in how the could look significantly different than today under state would fund fairly new but existing services. the long-term vision for CalAIM. In its deliberations For example, programs such as Whole Person Care of CalAIM, the Legislature may wish to consider and the Dental Transformation Initiative, currently whether managed care is best positioned to take authorized under the 1115 waiver and funded with a on the expanded role envisioned by the Governor’s mix of federal and non-General Fund state and local proposal. funds, expire at the end of 2021. Under CalAIM, Would New Benefits Expand the Supply of ECM, ILOS, and dental pay for performance would Already Limited Services? The success of the build upon and replace expiring programs, such as CalAIM proposal would depend, in part, on Medi-Cal those mentioned above, but use General Fund to managed care plans’ ability to marshal community cover the nonfederal share of costs rather than the resources to serve the broader, nonmedical needs existing fund sources. We will further explore how of their members. As such, limits in the availability of and why the Governor’s proposal reflects a change community resources could impair the effectiveness in funding responsibility in our forthcoming post on of the reform effort, as well as the speed of its CalAIM financing issues. success. For example, constraints in the local Is the Funding Plan Reasonable and What housing supply in certain communities could make Are the Longer-Term Fiscal Risks? Following assisting members in obtaining appropriate housing our preliminary review, the Governor’s 2021-22 a challenge for managed care plans. spending proposal for CalAIM largely appears What New Complexities Does CalAIM Create? reasonable. However, we have some outstanding While CalAIM would streamline and simplify questions about the reasonableness of the Medi-Cal in some ways, it also would result in Governor’s CalAIM funding plan, both in 2021-22 new complexities. For example, the ILOS benefits and in later years. For example, CalAIM involves a available to a beneficiary would vary depending broad array of new requirements on county partners on where they live in the state and what managed (who play a key role in administering and delivering care plan they are enrolled in. Additionally, the various services available through Medi-Cal). CalAIM proposal represents a significant increase Specifically, CalAIM would make various changes in the role of managed care plans to provide that affect county responsibilities, such as (1) the nonmedical supportive services to individuals with transfer of responsibility for covering specialty complex needs, including individuals experiencing mental health services in two counties where today homelessness. There are multiple other entities a Medi-Cal managed care plan (Kaiser) covers such that administer homelessness services and other services and (2) new requirements for counties programs targeted at these populations. Expanding to initiate the Medi-Cal enrollment process and the role of managed care plans to provide these coordinate care for county inmates. The funding nonmedical supports could further fragment the plan does not appear to reimburse counties for delivery, financing, and administration of these these costs despite potential responsibility on the services. part of the state to reimburse counties for new state mandates placed on them. Does a Major Ongoing Augmentation Make Sense in Light of the State’s Projected Multiyear In addition, ongoing spending on CalAIM partially Shortfall? Under the Governor’s budget proposal, would depend on the reform’s success in diverting the state would spend hundreds of millions of costly services such as emergency room visits dollars of General Fund monies on an ongoing basis and LTC facility stays through better coordination to implement CalAIM. Unlike when CalAIM was and access to preventive and social supportive proposed in January 2020, the 2021-22 proposal services. The degree to which these preventive comes in the context of a projected multiyear and social supportive services would replace or budget deficit. While much of CalAIM represents supplement more costly services is uncertain. As novel changes to how Medi-Cal services are we summarized in last year’s report on CalAIM, delivered and financed, most of the proposed new research on this question is mixed. If the new 2021-22 LAO Budget Series 9 analysis full gutter services prove to supplement rather than replace in over each of the next five years. At the same more costly Medi-Cal services, the ongoing costs of time as CalAIM is scheduled to be implemented, CalAIM could be significantly more costly than the capacity among the key administrators and service Governor’s funding plan projects. We will explore providers is likely to continue to be strained by further the reasonableness of the funding plan and COVID-19 pandemic response and recovery potential longer-term fiscal risks in a companion activities. Delays in CalAIM implementation appear post analyzing CalAIM financing issues. inevitable. Is the Updated Implementation Time Line How Would the Reforms Be Overseen and Realistic? Implementing the numerous CalAIM Evaluated? Given the scope of CalAIM’s reforms, reforms would be complex and create significant robust evaluation is critical for ensuring the service new workload for the Department of Health Care expansions and delivery system transformations Services (DHCS), managed care plans, counties, are producing their intended benefits. Standard and service providers. The proposed time line mechanisms for legislative oversight, such as the for CalAIM is ambitious. Compared to last year’s budget hearing process, may not be sufficient withdrawn proposal, most implementation deadlines for ensuring enhanced oversight of initial have been delayed by just one year. As a result, implementation of CalAIM. Moreover, to date, many policy changes would be implemented the administration has not released a plan for in less than one year from the release of the how CalAIM will be evaluated. While DHCS has Governor’s updated proposal—beginning on committed to careful performance monitoring, January 1, 2022. These include ECM, ILOS, various oversight, and evaluation of CalAIM and its managed care standardization efforts, changes to implementation, the Legislature’s role in ensuring medical necessity in behavioral health, and others. effective and smooth implementation has yet to be Additional major changes are scheduled to phase fully worked out and established. Key Takeaways Use Budget and Policy Processes to the proposal prior to taking action on it. Figure 6 Resolve Key Outstanding Questions and summarizes the key outstanding questions that we Provide Legislative Input. The CalAIM proposal have about the Governor’s proposal. is ambitious and far-reaching. Summaries of the CalAIM package, even when extensive, cannot fully highlight Figure 6 all the policy decisions embedded CalAIM Questions for Legislative Focus in the proposal. Furthermore, the administration has not yet provided • Is managed care well-positioned to take on a significant expansion of responsibilities in the near and long term? all the information required to • Would new benefits and funding under CalAIM expand the supply of already limited perform a detailed evaluation of the services? proposal (in some cases, this likely • What new complexities and fragmentation would CalAIM create? is because policy decisions have • Does a major ongoing augmentation make sense in light of the state’s projected multiyear yet be finalized). Because of this, budget deficit? we are unable to provide specific • What are the fiscal risks posed by CalAIM? direction on the actions we would • Is the implementation time line realistic? Which deadlines would be easiest to move? recommend the Legislature take on • How would CalAIM be overseen and evaluated? What would be the Legislature’s role in the proposal. Instead, we suggest these efforts? that the Legislature focus primarily CalAIM = California Advancing and Innovating Medi-Cal. on resolving key questions about 2021-22 LAO Budget Series 10 analysis full gutter Explore Where Delays in Implementation May Consider Putting a Process in Place to Be Possible and Advisable. The scope and speed Ensure Legislative Oversight of Implementation. of CalAIM implementation under the Governor’s Given the scope, complexity, and speed of the plan create two significant challenges. First, CalAIM proposal, legislative oversight of CalAIM many important policy decisions on which CalAIM components that ultimately are adopted would components to adopt would have to be made by be critical for ensuring smooth and successful the summer of 2021. This affords the Legislature implementation. Accordingly, prior to January 2022, little time to closely scrutinize and decide upon each the Legislature could consider requiring regular of CalAIM’s numerous reform components, which check-ins with the administration, managed care would have to occur while the Legislature continues plans, and other implementation partners to discuss to work on and through the COVID-19 pandemic. readiness for implementation. After January 2022, Second, the ambitiousness of the implementation the Legislature could expand the focus of these time line could place strains on state and local check-ins to include monitoring of the successes program administrators and other implementation and challenges of CalAIM implementation. partners. This may increase the likelihood of Require a Comprehensive and Independent delays and has the potential to disrupt care for Evaluation. CalAIM comprises a large number of beneficiaries. individual reforms, many of them relatively untested, Some of CalAIM’s proposed implementation that altogether represent a significant departure dates appear difficult to move as their from how Medi-Cal benefits are delivered today. To implementation dates coincide with the expiration of understand the impacts of CalAIM, we recommend federal authority for the programs they are intended that the Legislature establish a framework for to replace. (Whether the state could request further a robust, independent, and public evaluation extensions of the existing federal authorities is of whichever major components of the CalAIM unclear.) Other CalAIM implementation dates proposal ultimately are adopted. As ascertaining the appear to more closely coincide with state-imposed true and myriad impacts of a reform effort this large deadlines, such as requirements for plans to will be a significant challenge, we recommend that have operational population health management the Legislature consider providing direction over programs. To afford itself more time to scrutinize the who performs and oversees the evaluation and what many reforms under CalAIM and grant the state’s pre-identified measures of success should receive currently stressed health care infrastructure more focus. Any such evaluation(s) should be available, time to implement CalAIM’s major changes, the at least in preliminary form, prior to any deadlines Legislature could explore (1) which decisions can be for deciding on whether to reauthorize any major deferred and (2) which implementation dates can be components of CalAIM. delayed. LAO Publications This report was prepared by Ben Johnson, Corey Hashida, and Ned Resnikoff 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. 2021-22 LAO Budget Series 11