The 2021-22 Budget: LAO Preliminary Comments on the May Revision Medi-Cal Budget

analysis full gutter The 2021-22 Budget: LAO Preliminary Comments on the May Revision Medi-Cal Budget MAY 2021 Below, we provide our preliminary comments in 2020-21 and 2021-22, the following bullets on the Governor’s 2021-22 May Revision proposal describe three of the major drivers of these for Medi-Cal. We first provide an overview of the changes in estimated and proposed spending. proposal, noting the major changes made relative • Caseload Revised Significantly Downward. to the Governor’s January budget, as well as The 2020-21 Budget Act and the Governor’s changes made to estimated 2020-21 spending 2021-22 budget both projected extraordinary relative to the January estimates. We then describe, Medi-Cal caseload growth as a result of and provide our comments on, the Governor’s coronavirus disease 2019 (COVID-19). While proposal to augment the January proposal for significant caseload growth has occurred the California Advancing and Innovating Medi-Cal to date, this growth has been substantially (CalAIM) package. We follow with descriptions less than anticipated. With the May Revision, of, and comments on, the Governor’s modified the administration recognizes that caseload telehealth policy proposal, the proposal to growth has been slower than previously extend full-scope Medi-Cal coverage to older anticipated and revises its expectations of undocumented immigrants, and the proposal to current and future caseload growth down use American Rescue Plan Act funding to provide significantly. This downward revision results in financial relief for designated public hospitals. General Fund savings of around $2.5 billion across 2020-21 and 2021-22 relative to the OVERVIEW January budget assumptions. We provide further analysis of the Governor’s updated Revises Medi-Cal Budget Downward by caseload projections below. $1.8 Billion General Fund Across 2020-21 and 2021-22. As shown in Figure 1, the May Revision • Lower Federal Repayments and Deferrals. revises the General Fund budget for Medi-Cal The Governor’s January budget assumed downward by $1 billion in 2020-21 and $800 million $1.3 billion in General Fund would be needed in 2021-22. These downward revisions are largely across 2020-21 and 2021-22 to repay the the result of technical budget adjustments. While a federal government or backfill deferred large number of positive and negative adjustments federal funding for federal funds that were contribute to these net negative adjustments claimed in error. A significant portion of this Figure 1 Proposed Medi-Cal Budget: May Revision Versus Governor’s Budget (In Billions) 2020-21 2021-22 Difference Total General Total General Total General Funds Fund Funds Fund Funds Fund Governor’s January budget $117.9 $22.5 $122.2 $28.4 $4.3 $5.9 May Revision 115.6 21.5 123.8 27.6 8.2 6.1 Difference -$2.3 -$1.0 $1.6 -$0.8 $3.9 $0.2 2021-22 LAO Budget Series 1 analysis full gutter funding related to erroneous federal claiming reimburse COVID-19 testing in schools and the for Medi-Cal services delivered to immigrant projected phase out of savings from reduced populations that are not eligible for federal service utilization during COVID-19. funding and therefore have to be fully funded Discretionary Spending Proposals in the by the state. The May Revision revises the May Revision. The Governor’s January budget amount of General Fund needed to cover proposed around $1.5 billion in discretionary federal repayments and deferrals downward General Fund spending in Medi-Cal in 2021-22— by $900 million General Fund across 2020-21 with the bulk of this spending proposed to and 2021-22. This downward revision largely implement the CalAIM package and to develop is due to (1) higher federal claiming levels for behavioral health continuum infrastructure. The May certain federally eligible immigrant populations Revision adds (on net) $408 million in discretionary following the discovery of situations where General Fund spending proposals. $222 million the state was under-claiming federal funding of this discretionary spending reflects a deposit and (2) the release of federal funding following into the Medi-Cal Drug Rebate Fund, which would resolution of several large deferrals. be available in future years to smooth volatility in • Delay in Medi-Cal Rx Implementation. The the Medi-Cal budget. The remaining $186 million Governor’s January budget had assumed in proposed discretionary General Fund spending implementation of Medi-Cal Rx would begin reflects various Medi-Cal augmentations. in April 2021. Following ownership changes Figure 2 lists the major May Revision discretionary at the state’s contracted Medi-Cal Rx General Fund spending proposals. administrative services vendor, implementation of Medi-Cal Rx was delayed. The May Revision now assumes Figure 2 the transition will occur on January 1, 2022. This delay is Major May Revision Discretionary Spending Proposals assumed by the administration in Medi-Cal to increase General Fund 2021-22 General Fund (In Millions) costs by around $400 million CalAIM relative to what they would Providing Access and Transforming Health (PATH) $100 otherwise be across 2020-21 Population health management service 30 and 2021-22. Medically tailored meals pilot program 9 Higher Proposed General Other One-time deposit into drug rebate fund $222a Fund Spending of $6.1 Billion Coverage expansion for older undocumented immigrants 50 Between 2020-21 and 2021-22. Postpartum coverage extension 45 As shown in Figure 1, the May Eliminate rate freeze for ICF-DDs and pediatric subacute facilities 11 Revision proposes increased Accelerated enrollment for adults 7 General Fund spending in Medi-Cal Community health worker and doula benefit expansion 6 of $6.1 billion over 2020-21 levels. Medication therapy management program 4 While this growth in year-over-year Funds dental integration pilot program 0.3 General Fund spending is the Enhancement to January telehealth proposal —b Transition to dental fee for service in Los Angeles and -8 result of many factors, the largest Sacramento counties drivers are (1) nearly $1.7 billion in Behavioral health continuum infrastructure -69c discretionary spending proposals, Total $408 (2) around $1.4 billion in higher a Deposit would be made in 2020-21. projected caseload costs, (3) roughly b No fiscal estimate of the expanded telehealth proposal is available at this time. c $1.2 billion in underlying per-enrollee Funding reduction generally reflects a proposed shift in funding from the General Fund to American Rescue Plan Act funds. cost growth (largely due to medical ICF-DD = Intermediate care facility for the developmentally disabled. inflation), and (4) new costs to 2021-22 LAO Budget Series 2 analysis full gutter Administration’s Caseload Projections caseload increases to around $3.6 billion across Align With LAO Expectations 2020-21 and 2021-22, a roughly $2.5 billion reduction compared to the Governor’s budget. Administration Previously Projected Excess Revised Caseload and Related Cost Caseload Growth, Leading to Overstated Projections Generally Align With LAO Caseload-Related Costs. The 2020-21 Budget Expectations. The administration’s updated Act and the Governor’s 2021-22 January budget Medi-Cal caseload and related cost projections projected enormous Medi-Cal caseload growth as are much more in line with LAO expectations for a result of COVID-19. In the Governor’s January caseload. While there is risk that 2021-22 caseload budget, the administration projected that caseload actually could be somewhat higher than projected would grow by 3 million enrollees (24 percent) by the administration, we generally find the updated by 2021-22, increasing General Fund costs by estimates reasonable and do not recommend any over $6 billion compared to what they would associated adjustments to the May Revision. have been absent the pandemic. In our February 2021 analysis of the Governor’s January Medi-Cal CALAIM AUGMENTATIONS budget, we found that the administration’s caseload growth projections exceeded the actual caseload trends observed during the pandemic. Moreover, Proposal we had concerns that the administration had The May Revision proposes three new, largely projected higher growth among certain high-cost one-time augmentations related to CalAIM. Medi-Cal enrollee populations than was consistent Otherwise, the CalAIM proposal remains largely with the caseload data. These two factors led unchanged from January (though certain details us to conclude that the Governor’s January absent in January have been provided). The budget overstated costs related to Medi-Cal May Revision package of new CalAIM proposals caseload growth. collectively would cost $139 million General Administration Has Lowered Its Caseload Fund, bringing total proposed CalAIM spending Growth Projections Significantly in the May to $649 million General Fund in 2021-22. Below, Revision. Following our preliminary review, we we describe and provide our initial comments on find that the May Revision’s updated caseload the May Revision’s new CalAIM proposals. For an projections appear much more reasonable. Rather overview of CalAIM, see our February post. than reaching a caseload of 15.6 million enrollees Medi-Cal Population Health Management in 2021-22, as projected in the Governor’s Service. The Governor’s January CalAIM January budget, the May Revision projects more proposal included new requirements on Medi-Cal modest caseload growth of somewhat more than managed care plans to operate population health 2 million enrollees, leading to a total caseload management programs, which represent a bundle of 14.5 million enrollees. Moreover, the May of administrative activities aimed at (1) identifying Revision significantly changes its caseload growth beneficiaries’ medical and nonmedical risks and assumptions among the high- and low-cost needs and (2) facilitating care coordination and Medi-Cal enrollee populations. For example, the referrals. The May Revision proposes to spend May Revision assumes a much larger portion of the $30 million General Fund ($300 million total funds) higher caseload due to COVID-19 will fall within the on a Medi-Cal population health management childless adult population (which is low cost from service that is intended to help improve care a state perspective) and a much smaller portion coordination, delivery, and monitoring for the of higher caseload will fall within the senior and Medi-Cal program as a whole. The service, which persons with disabilities population (which is high would be provided by a contracted vendor, would cost from a state perspective). With these updated serve as a centralized data repository and portal assumptions, the May Revision lowers projected whereby users could obtain administrative and General Fund costs due to COVID-19-related clinical services data on Medi-Cal recipients 2021-22 LAO Budget Series 3 analysis full gutter (de-identified, as necessary). The administration’s funding would go directly from the state to service goal is to collect beneficiary data from multiple providers, rather than flowing through Medi-Cal Medi-Cal delivery systems—such as managed managed care plans. care, fee-for-service, and behavioral health— LAO Comments and other social services programs—such as In-Home Supportive Services (IHSS) and CalFresh. Medi-Cal Population Health Management Potential users and uses of the service include Service Could Improve Medi-Cal Performance Medi-Cal beneficiaries, who could access the Monitoring and Care Delivery… In our portal to view their own clinical service records; March 2021 analysis of CalAIM equity Medi-Cal providers, who could view patients’ prior considerations, we raised the question of how responses to standard medical assessments; and enhancements to Medi-Cal managed care plans’ state policymakers, who could use the data and population health management infrastructure would associated analytics to identify and serve members translate into improved statewide performance with elevated risk and generally inform care quality monitoring of health equity and quality outcomes and needs. in Medi-Cal, including through public reports and Providing Access and Transforming Health dashboards. In concept, the proposed Medi-Cal (PATH) Infrastructure Funding. CalAIM, population health management service could as proposed in January, would place new facilitate this improved statewide performance requirements on counties to initiate Medi-Cal monitoring by serving as a central repository for enrollment, care coordination, and services for administrative and clinical data across Medi-Cal county inmates prior to their release from jail. These delivery systems and other programs. For example, new requirements would take effect in January the service potentially could collect and report 2023. To help counties build the capacity necessary information on Medi-Cal beneficiaries’ self-reported to meet the new requirements under CalAIM, the health status and housing stability, which would May Revision proposes $100 million General Fund be collected via assessments that managed care ($200 million total funds). In budget documents, plans would be required give their members. In the administration notes that this proposal remains addition, better data sharing across health care under development and could change following providers and delivery systems on Medi-Cal consultation with implementation partners such beneficiaries’ services and needs could improve as stakeholders and the federal government (the care coordination and delivery. latter of which would provide the non-General Fund …However, Proposal Lack Detail. We have share of cost). a number of outstanding questions about the One-Time Medically Tailored Meals Medi-Cal population health management services Augmentation. The medically tailored meals pilot proposal. These include (1) whether the proposal program is a three-year pilot, which began in 2018, reflects an information technology (IT) project to provide Medi-Cal participants with congestive subject to the state’s IT project oversight rules, heart failure medically tailored meals. The 2020-21 (2) what the full intended scope of functionality Budget Act extended the pilot through calendar for the project would be (for example, how the year 2021. Under CalAIM, as part of the suite of service might interface with related state efforts to 14 in-lieu-of-services (ILOS) benefits, Medi-Cal expand the use of health information exchanges), managed care plans could, for the first time, (3) what the anticipated time line for when the receive Medi-Cal reimbursement for the medically service would be operational would be, and tailored meals delivered to their enrollees beginning (4) what the ongoing cost of maintaining the service in January 2022. The May Revision proposes a would be. We recommend that the Legislature one-time augmentation of $9 million General Fund consider deferring action on this proposal until to expand the availability of medically tailored some of these important details are provided by meals to additional populations and counties. This the administration. 2021-22 LAO Budget Series 4 analysis full gutter While Building Capacity Among Criminal services proposal, we recommend the Legislature Justice Agencies Likely Is Warranted, consider deferring action on this proposal until Fundamental Details on the PATH Proposal more detail is made available. Are Missing. CalAIM’s new requirements for Rationale for Temporarily Augmenting local criminal justice agencies to enroll inmates in Medically Tailored Meals Programs Is Not Medi-Cal and coordinate and initiate health care Clear. Under existing law and the Governor’s services prior to their release represent significant CalAIM proposal, funding for the medically new responsibilities for criminal justice agencies. tailored meals program would expire at the same Accordingly, while the full extent of existing agency time as medically tailored meals paid for by capacity is not clear at this time, assisting these Medi-Cal managed care plans would begin to be agencies in building their capacity to meet their reimbursable. Consequently, in concept, there new responsibilities likely is warranted. However, should not be a gap in the ability of managed fundamental details related to the Medi-Cal PATH care plans to offer these services. The May proposal are missing. Available budget documents Revision Medi-Cal proposal does not augment do not indicate (1) what kinds of agencies would be other programs or services that correspond to the eligible to receive this funding, (2) how the funding other 13 ILOS that could begin to be offered in would be distributed, (3) what capacity-building January 2022. Accordingly, why the May Revision activities would be funded, and (4) what the proposes to fund an expansion of one program rationale for the proposed funding amount of that corresponds to the ILOS benefits but not $200 million total funds is. Moreover, receiving any other programs or services that do so is federal Medicaid funding to support this effort unclear. We recommend the Legislature ask the appears uncertain, which could result in additional administration for more detail on the rationale General Fund being needed if the full $200 million for this augmentation before deciding whether to reflects the true funding needs of this effort. As approve the proposal. with the Medi-Cal population health management Modified Telehealth Proposal Proposal to establish a permanent Medi-Cal telehealth policy (originally proposed in the January budget). In the January budget, the Governor proposed First, the May Revision clarifies through updated to establish—through statutory language—a budget-related legislation that the Department of permanent Medi-Cal telehealth policy to take Health Care Services (DHCS) would set Medi-Cal effect after the declared national public health reimbursement rates for telephonic care at emergency related to COVID-19 ends. (The state 65 percent of rates for services provided in person. has temporarily expanded Medi-Cal telehealth Second, the updated proposal limits coverage flexibilities during the pandemic.) In response to the of telehealth services to health care providers Governor’s January proposal, our office published located in California or in border areas adjacent to an analysis in which we raised a number of issues. California, where it is typical for California residents The Governor’s May Revision includes some to seek health care services. Third, the updated updates to the proposed permanent Medi-Cal proposal would allow for telephonic services to telehealth policy. We offer our comments on these be covered at health centers and paid at a lower updates in the next section. reimbursement rate than what would be required May Revision Expands Upon January under the prospective payment system (PPS), Telehealth Proposal. The Governor’s May provided that an alternative payment methodology Revision includes some further detail and for health centers is approved. changes related to the administration’s proposal 2021-22 LAO Budget Series 5 analysis full gutter LAO Comments care for Medi-Cal beneficiaries. Furthermore, the administration still has not released a fiscal Modified Proposal Reflects an Improvement estimate of its Medi-Cal telehealth proposal on the January Proposal. We find that these May (other than for the cost of the new remote patient Revision updates generally reflect an improvement monitoring benefit). We find (as noted in our earlier over the Governor’s January proposal. The May analysis) that there is significant potential that the Revision provides detailed reimbursement rates proposed policy will result in new ongoing costs for services provided through telephone that were given potential increases in utilization of health missing from the January proposal. In addition, care. Accordingly, release of a fiscal estimate we find extending coverage of telephonic services of the proposal would be important for the to health centers and providing reimbursement Legislature to make an informed decision on the for these services on a separate fee schedule Governor’s proposal. from PPS to be a reasonable approach. (In Consider Extending Remote Patient our earlier analysis, we noted concerns about Management Benefit to Health Centers. As disparities in access to telehealth care among noted above, the concerns we have about not Medi-Cal beneficiaries if coverage of telephonic extending the new remote patient monitoring care was not extended to health centers, and also benefit to health centers remain. Accordingly, raised questions about the appropriateness of we would suggest that the Legislature consider providing reimbursement for telehealth services extending this benefit to health centers (we note at an equivalent rate to services provided in that this extension would result in additional costs). person through PPS.) However, we would note Consider Setting a Sunset Date to Allow that gaining federal approval for the alternative for Evaluation and Reconsideration of payment methodology that would allow for the Permanent Medi-Cal Telehealth Policy. Given May Revision’s policy at health centers to be our outstanding questions about the clinical implemented remains uncertain. effectiveness and fiscal impact of telehealth Outstanding Questions Around the Quality expansions, we find that it is premature to and Fiscal Impact of Telehealth Expansions establish a permanent Medi-Cal telehealth policy. Remain, Making It Premature to Set Permanent Accordingly, the Legislature could consider adding Medi-Cal Telehealth Policy. In our earlier analysis, a sunset date (several years into the future) we noted that much about the clinical effectiveness to the proposed statutory change to allow for and fiscal impact of expansions of telehealth evaluation of the proposed policy and provide services is not well understood. Accordingly, the opportunity to reconsider the state’s ongoing we found that it was premature to establish a Medi-Cal telehealth policy as more information permanent Medi-Cal telehealth policy. Although becomes available. we find that the Governor’s May Revision update reflects an improvement over the January proposal FULL-SCOPE EXPANSION (for the reasons stated above), we find that these outstanding uncertainties persist and that FOR OLDER UNDOCUMENTED establishing permanent policy remains premature. IMMIGRANTS Moreover, Proposal Still Raises Equity and Fiscal Concerns. In our earlier analysis we Proposal raised concerns with the equity implications of the Governor’s January proposal (particularly in Proposed Expansion of Comprehensive terms of access to care at health centers). While Medi-Cal Coverage for Otherwise Eligible the Governor’s May Revision addresses some of Undocumented Immigrants Ages 60 and Older. these concerns, others remain. For example, the The May Revision proposes to spend $50 million administration still does not propose to extend in 2021-22 to expand comprehensive Medi-Cal the new remote patient monitoring benefit to coverage to undocumented immigrants ages health centers, a common source of preventive 60 and older no sooner than May 1, 2022. As 2021-22 LAO Budget Series 6 analysis full gutter shown in Figure 3, the administration projects that has provided billions of dollars in relief funding to ongoing costs for the expansion gradually will rise California health care providers. over the next several years, reaching $856 million Proposal General Fund in 2024-25. These funding amounts reflect the incremental cost of expanding coverage Proposes $300 Million in Provider Financial beyond what the state would otherwise pay for Relief for Designated Public Hospitals. California emergency- and pregnancy-related services used has 21 designated public hospitals, which are by undocumented immigrants ages 60 and older safety-net hospitals operated by counties or currently enrolled in restricted-scope coverage. the University of California. The May Revision Additionally, the funding amounts include those proposes to spend $300 million in American projected in DHCS’ and the Department of Social Rescue Plan fiscal relief funds in 2021-22 on Services’ budgets, the latter of which administers grants to designated public hospitals to cover IHSS. For additional background, please see the costs of care provided during and after the our post on expanding comprehensive Medi-Cal COVID-19 pandemic. coverage for undocumented immigrants. LAO Comments LAO Comments Proposal to Exclusively Provide Financial Currently Evaluating the Reasonableness Relief to One Group of Health Care Providers of the Administration’s Cost Estimate as Warrants Scrutiny. To date, individual health Administration’s Underlying Assumptions Are care providers’ and facilities’ net fiscal position Unknown. The administration’s cost estimate for as a result of (1) changes in health care utilization the 60 and older population appears higher than we and associated reimbursement and (2) federal would anticipate based on our recent assessment health care provider financial relief is not clear. of the cost of such expansions. However, the Accordingly, we do not know which health care administration has yet to provide detail on the providers and facilities—or which provider and assumptions behind its cost estimate, making facility types—are under the greatest financial it challenging to evaluate the reasonableness of stress as a result of the pandemic. Why the the cost estimate. We have requested this detail administration has proposed financial relief and will share any concerns we have about the for one class of providers is unclear. Prior to reasonableness of the estimate once this detail deciding on whether to approve this proposal, we becomes available. recommend the Legislature ask the administration why designated public hospitals alone are being PROVIDER FINANCIAL RELIEF FOR targeted with health care provider financial relief DESIGNATED PUBLIC HOSPITALS and what information on designated public hospitals’ net financial position during the The COVID-19 pandemic has significantly pandemic informed its proposal. affected health care delivery in the state, generally resulting in declines in routine service utilization; surges in Figure 3 COVID-19-related hospitalizations; Cost of Expanding Comprehensive Coverage to and likely higher care-delivery Undocumented Immigrants Age 60 and Older costs due, for example, to the Administration’s May Revision Estimate, General Fund (In Millions) additional safety precautions that 2021-22 2022-23 2023-24 2024-25 have to be made to combat the pandemic. To mitigate financial DHCS (Medi-Cal) $50 $296 $337 $362 losses on the part of health care DSS (IHSS) — 15 353 494 providers and sustain health Totals $50 $310 $690 $856 care access during and after the DHCS = Department of Health Care Services; DSS = Department of Social Services; and IHSS = In-Home Supportive Services. pandemic, the federal government 2021-22 LAO Budget Series 7 analysis full gutter LAO Publications This report was prepared by Ben Johnson 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. 2021-22 LAO Budget Series 8