California Code, Welfare and Institutions Code - WIC § 14197.4

(a) The Legislature finds and declares all of the following:

(1) Designated public hospital systems play an essential role in the Medi-Cal program, providing high-quality care to a disproportionate number of low-income Medi-Cal and uninsured populations in the state.  Because Medi-Cal covers approximately one-third of the state's population, the strength of these essential public health care systems is of critical importance to the health and welfare of the people of California.

(2) Designated public hospital systems provide comprehensive health care services to low-income patients and lifesaving trauma, burn, and disaster-response services for entire communities, and train the next generation of doctors and other health care professionals, such as nurses and paramedical professionals, who are critical to new team-based care models that achieve more efficient and patient-centered care.

(3) The Legislature intends to continue to provide levels of support for designated public hospital systems in light of their reliance on Medi-Cal funding to provide quality care to everyone, regardless of insurance status, ability to pay, or other circumstance, the significant proportion of Medi-Cal services provided under managed care by these public hospital systems, and new federal requirements related to Medicaid managed care.

(4) It is the intent of the Legislature that Medi-Cal managed care plans and designated public hospital systems that may enter into contracts to provide services for Medi-Cal beneficiaries shall in good faith negotiate for, and implement, contract rates, the provision and arrangement of services and member assignment that are sufficient to ensure continued participation by Medi-Cal managed care plans and designated public hospital systems and to maintain access to services for Medi-Cal managed care beneficiaries and other low-income patients.

(5) It is the intent of the Legislature that, in order to ensure both the financial viability of Medi-Cal managed care plans and support the participation of designated public hospital systems in Medi-Cal managed care, the department shall provide Medi-Cal managed care plans actuarially sound rates reflecting the directed contract services payments implemented to comply with the new federal requirements relating to Medicaid managed care.

(b) Commencing with the 2017-18 state fiscal year, and for each state fiscal year thereafter, and notwithstanding any other law, the department shall require each Medi-Cal managed care plan to increase contract services payments to the designated public hospital systems by amounts determined under a directed payment methodology that meets federal requirements and as described in this subdivision.  The directed payments may be determined and applied as distributions from directed payment pools, as a uniform percentage increase, or other basis, and may incorporate acuity adjustments or other factors.

(1) The directed payments may separately account for inpatient hospital services and noninpatient hospital services.  The directed payments shall be developed and applied separately for classes of designated public hospital systems.  The department, in consultation with the designated public hospital systems, shall establish the classes of designated public hospital systems consistent with the objectives set forth in subdivisions (a) and (d) and that take into account differences in services provided, service delivery systems, and in the level of risk assumed from managed care plans.  The factors to be considered shall include, but are not limited to, operation by the University of California, designated public hospital systems comprised of multiple acute care hospitals, level 1 or level 2 trauma designation, and the assumption of risk for the provision of inpatient hospital services.

(2) To the extent permitted by federal law and to meet the objectives identified in subdivisions (a) and (d), the department shall develop and implement the directed payment program in consultation with designated public hospital systems or Medi-Cal managed care plans, or both, as follows:

(A) The department, in consultation with the designated public hospital systems, shall annually determine on a prospective basis the aggregate amount of payments that will be directed to each class of designated public hospital systems pursuant to this subdivision and the classification of each designated public hospital system.  Once the department determines the classification for each designated public hospital system for a particular state fiscal year, that classification shall not be eligible to change until no sooner than the subsequent state fiscal year.  For state fiscal years following the 2017-18 state fiscal year, the aggregate amounts of payments to a class of designated public hospital systems shall account for trend adjustments to the aggregate amounts available during the prior state fiscal year, subject to any modifications to account for changes in the classification of designated public hospital systems, changes required by federal law, changes to account for the size of the payments made pursuant to subdivision (c), or other material changes.

(B) The department, in consultation with the designated public hospital systems, shall develop the methodologies for determining the required directed payments for each designated public hospital system.

(C) To the extent necessary to meet the objectives identified in subdivisions (a) and (d) or to comply with federal requirements, the department may, in consultation with the designated public hospital systems, adjust or modify the amounts of the aggregate directed payments for any class of designated public hospital systems, the method for determining the distribution of the directed payment amounts within any class of designated public hospital systems, and may modify, consolidate, or subdivide the classes of designated public hospital systems established pursuant to paragraph (1).

(D) After the aggregate amounts and the distribution methodology of directed payments for each designated public hospital system class have been established, the department shall consult with the designated public hospital systems and each affected Medi-Cal managed care plan with regard to the impact on the Medi-Cal managed care plan capitation ratesetting process and implementation of the directed payment requirements, including applicable interim and final payment processes, to ensure that 100 percent of the aggregate amounts are paid to the applicable designated public hospital system.

(3) The required directed payment amounts shall be paid by the Medi-Cal managed care plans as adjustments, in a form and manner specified by the department, to the total amounts of contract services payments otherwise paid to the designated public hospital systems.

(4) The directed payments required under this subdivision shall be implemented and documented by each Medi-Cal managed care plan and designated public hospital system in accordance with all of the following parameters and any guidance issued by the department:

(A) A Medi-Cal managed care plan and the designated public hospital systems shall determine the manner, timing, and amount of payment for contract services, including through fee-for-service, capitation, or other permissible manner.  The rates of payment for contract services agreed upon by the Medi-Cal managed care plan and the designated public hospital system shall be established and documented without regard to the directed payments and quality incentive payments required by this section.

(B) The required directed payment enhancements provided pursuant to this subdivision shall not supplant amounts that would otherwise be payable by a Medi-Cal managed care plan to a designated public hospital system for an applicable state fiscal year, and the Medi-Cal managed care plan shall not impose a fee or retention amount that would result in a direct or indirect reduction to the amounts required under this subdivision.

(C) A contract between a Medi-Cal managed care plan and a designated public hospital system shall not be terminated by either party for the specific purpose of circumventing or otherwise impacting the payment obligations implemented pursuant to this subdivision.

(D) In the event a Medi-Cal managed care plan subcontracts or delegates responsibility to a separate entity for either or both the arrangement or payment of services, the Medi-Cal managed care plan shall be responsible for paying the designated public hospital system the directed payment described in this subdivision with respect to the services it provides that are covered by that arrangement.  The designated public hospital system and the applicable subcontractor or delegated entity shall work together with the Medi-Cal managed care plan to provide the information necessary to facilitate the Medi-Cal managed care plan's compliance with the payment requirements under this subdivision.

(5) Each state fiscal year, a Medi-Cal managed care plan shall provide to the department, at the times and in the form and manner specified by the department, an accounting of amounts paid or payable to the designated public hospital systems it contracts with, including both contract rates and the directed payments, to demonstrate compliance with this subdivision.  To the extent the department determines that a Medi-Cal managed care plan is not in compliance with the requirements of this subdivision, or is otherwise circumventing the purposes thereof, to the material detriment of an applicable designated public hospital system, the department may, after providing notice of its determination to the affected Medi-Cal managed care plan and allowing a reasonable period for the Medi-Cal managed care plan to cure the specified deficiencies, reduce the default assignment into the Medi-Cal managed care plan with respect to all Medi-Cal managed care beneficiaries by up to 25 percent in the applicable county, so long as the other Medi-Cal managed care plan or Medi-Cal managed care plans in the applicable county have the capacity to receive the additional default membership.  The department's determination whether to exercise discretion under this paragraph shall not be subject to judicial review, except that a Medi-Cal managed care plan that has its default assignment reduced pursuant to this paragraph may bring a writ of mandate under Section 1085 of the Code of Civil Procedure to rectify an abuse of discretion by the department under this paragraph.  Nothing in this paragraph shall be construed to preclude or otherwise limit the right of any Medi-Cal managed care plan or designated public hospital system to pursue a breach of contract action, or any other available remedy as appropriate, in connection with the requirements of this subdivision.

(6) Capitation rates paid by the department to a Medi-Cal managed care plan shall be actuarially sound and account for the Medi-Cal managed care plan's obligation to pay the directed payments to designated public hospital systems in accordance with this subdivision.  The department may require Medi-Cal managed care plans and the designated public hospital systems to submit information regarding contract rates and expected or actual utilization of services, at the times and in the form and manner specified by the department.  To the extent consistent with federal law and actuarial standards of practice, the department shall utilize the most recently available data and reasonable projections, as determined by the department, when accounting for the directed payments required under this subdivision, and shall account for additional clinics, practices, or other health care providers added to a designated public hospital system.  In implementing the requirements of this section, including the Medi-Cal managed care plan ratesetting process, the department may additionally account for material adjustments, as appropriate under federal law and actuarial standards, as described above, and as determined by the department, to contracts entered into between a Medi-Cal managed care plan or applicable subcontracted or delegated entity and a designated public hospital system.

(c) Commencing with the 2017-18 state fiscal year, and for each state fiscal year thereafter, the department, in consultation with the designated public hospital systems and applicable Medi-Cal managed care plans, shall establish a program under which a designated public hospital system may earn performance-based quality incentive payments from the Medi-Cal managed care plan they contract with in accordance with this subdivision.

(1) Payments shall be earned by each designated public hospital system based on its performance in achieving identified targets for quality of care.

(A) The department, in consultation with the designated public hospital systems and applicable Medi-Cal managed care plans, shall establish and provide a method for updating uniform performance measures for the performance-based quality incentive payment program and parameters for the designated public hospital systems to select the applicable measures.  The performance measures shall advance at least one goal identified in the state's Medicaid quality strategy.  Measures shall not duplicate measures utilized in the PRIME program established pursuant to Section 14184.50 .

(B) Each designated public hospital system shall submit reports to the department containing information required to evaluate its performance on all applicable performance measures, at the times and in the form and manner specified by the department.  A Medi-Cal managed care plan shall assist a designated public hospital system in collecting information necessary for these reports.

(2) The department, in consultation with each designated public hospital system, shall determine a maximum amount that each class established pursuant to paragraph (1) of subdivision (b) may earn in quality incentive payments for the state fiscal year.

(3) The department shall calculate the amount earned by each designated public hospital system based on its performance score established pursuant to paragraph (1).

(A) This amount shall be paid to the designated public hospital system by each of its contracted Medi-Cal managed care plans.  If a designated public hospital system contracts with multiple Medi-Cal managed care plans, the department shall identify each Medi-Cal managed care plan's proportionate amount of the designated public hospital system's payment.  The timing and amount of the distributions and any related reporting requirements for interim payments shall be established and agreed to by the designated public hospital system and each of the applicable Medi-Cal managed care plans.

(B) A contract between a Medi-Cal managed care plan and designated public hospital system shall not be terminated by either party for the specific purpose of circumventing or otherwise impacting the payment obligations implemented pursuant to this subdivision.

(C) Each Medi-Cal managed care plan shall be responsible for payment of the quality incentive payments described in this subdivision, subject to funding by the department pursuant to paragraph (4).

(4) The department shall provide appropriate funding to each Medi-Cal managed care plan, to account for and to enable them to make the quality incentive payments described in this subdivision, through the incorporation into actuarially sound capitation rates or any other federally permissible method.  The amounts designated by the department for the quality incentive payments made pursuant to this subdivision shall be reserved for the purposes of the performance-based quality incentive payment program.

(d)(1) In determining the amount of the required directed payments described in paragraph (2) of subdivision (b), and the aggregate size of the quality incentive payment program described in paragraph (2) of subdivision (c), the department shall consult with designated public hospital systems to establish levels for these payments that, in combination with one another, are projected to result in aggregate payments that will advance the quality and access objectives reflected in prior payment enhancement mechanisms for designated public hospital systems.  To the extent necessary to meet these objectives or to comply with any federal requirements, the department may, in consultation with the designated public hospital systems, adjust or modify either or both the directed payments or quality incentive payment program.  Once these payment levels are established, the department shall consult with the designated public hospital systems and the Medi-Cal managed care plans in the development of the Medi-Cal managed care rates needed for the directed payments and the structure of the quality incentive payment program.

(2)(A) For the 2017-18 state fiscal year, the department shall, as soon as practicable after receipt of necessary federal approvals pursuant to paragraph (1) of subdivision (g), provide written notice of the directed payment and quality incentive payment amounts established pursuant to this section.  A Medi-Cal managed care plan's obligation to pay the directed payments and quality incentive payments required under subdivisions (b) and (c), respectively, to a designated public hospital system for the 2017-18 state fiscal year shall be contingent on the receipt of the written notice described in this subparagraph.

(B) For each annual determination, commencing with the 2018-19 state fiscal year and each state fiscal year thereafter, the department shall provide written notice, as soon as practicable, to each affected Medi-Cal managed care plan and designated public hospital system of the applicable Medi-Cal managed care plan's directed payment amounts, the classification of designated public hospital systems, quality incentive payment amounts, and any other information deemed necessary for the Medi-Cal managed care plan to fulfill its payment obligations under subdivisions (b) and (c), as applicable, for the subject state fiscal year.  If the modification of either or both directed payment amounts or quality incentive payment amounts is necessary after receipt of the written notification, the department shall notify the Medi-Cal managed care plan and designated public hospital system in writing of the revised amounts prior to implementation of the revised amounts.

(e) The provisions of paragraphs (3), (4), and (5) of subdivision (a), paragraphs (3) and (4) of subdivisions (b) and (c), and paragraph (2) of subdivision (d) shall be deemed incorporated into each contract between a designated public hospital system and a Medi-Cal managed care plan, and its subcontractor or designee, as applicable, and any claim for breach of those provisions may be brought by the designated public hospital system or the Medi-Cal managed care plan directly in a court of competent jurisdiction.

(f)(1) The nonfederal share of the portion of the capitation rates specifically associated with directed payments to designated public hospital systems required under subdivision (b) and for the quality incentive payments established pursuant to subdivision (c) may consist of voluntary intergovernmental transfers of funds provided by designated public hospitals and their affiliated governmental entities, or other public entities, pursuant to Section 14164 .  Upon providing any intergovernmental transfer of funds, each transferring entity shall certify that the transferred funds qualify for federal financial participation pursuant to applicable federal Medicaid laws, and in the form and manner specified by the department.  Any intergovernmental transfer of funds made pursuant to this section shall be considered voluntary for purposes of all federal laws.  Notwithstanding any other law, the department shall not assess the fee described in subdivision (d) of Section 14301.4 or any other similar fee.

(2) When applicable for voluntary intergovernmental transfers described in paragraph (1), the department, in consultation with the designated public hospital systems, shall develop and maintain a protocol to determine the available funding for the nonfederal share associated with payments for each applicable state fiscal year pursuant to this section.  The protocol developed and maintained pursuant to this paragraph shall account for any applicable contributions made by public entities to the nonfederal share of Medi-Cal managed care expenditures, including, but not limited to, contributions previously made by those specific public entities for the 2015-16 state fiscal year pursuant to Section 14182.15 or 14199.2 , but excluding any contributions made pursuant to Sections 14301.4 and 14301.5 .  Nothing in this section shall be construed to limit or otherwise alter any existing authority of the department to accept intergovernmental transfers for purposes of funding the nonfederal share of Medi-Cal managed care expenditures.

(g)(1) This section shall be implemented only to the extent that any necessary federal approvals are obtained and federal financial participation is available and is not otherwise jeopardized.

(2) For any state fiscal year in which this section is implemented, in whole or in part, and notwithstanding any other law, the department or a Medi-Cal managed care plan shall not be required to make any payment pursuant to Section 14182.15 , 14199.2 , or 14301.5 .  Nothing in this section shall be construed to preclude or otherwise impose limitations on payment amounts or arrangements that may be negotiated and agreed to between the relevant parties, including, but not limited to, the continuation of existing or the creation of new quality incentive or pay-for-performance programs in addition to the quality incentive payment program described in subdivision (c) and contract services payments that may be in excess of the directed payment amounts required under subdivision (b).

(h)(1) The department shall seek any necessary federal approvals for the directed payments and the quality incentive payments set forth in this section.

(2) The department shall consult with the designated public hospital systems with regard to the development of the directed payment levels and the size of the quality incentive payments established pursuant to this section, and shall consult with both the designated public hospital systems and Medi-Cal managed care plans with regards to the implementation of payments under this section.

(3) The director, after consultation with the designated public hospital systems and Medi-Cal managed care plans, may modify the requirements set forth in this section to the extent necessary to meet federal requirements or to maximize available federal financial participation.  In the event federal approval is only available with significant limitations or modifications, or in the event of changes to the federal Medicaid program that result in a loss of funding currently available to the designated public hospital systems, the department shall consult with the designated public hospitals and Medi-Cal managed care plans to consider alternative methodologies.

(i) Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code , the department may implement, interpret, or make specific this section by means of all-county letters, plan letters, provider bulletins, or other similar instructions, without taking regulatory action.  The department shall make use of appropriate processes to ensure that affected designated public hospital systems and Medi-Cal managed care plans are timely informed of, and have access to, applicable guidance issued pursuant to this authority, and that this guidance remains publicly available until all payments made pursuant to this section are finalized.

(j)(1) This section shall cease to be operative on the first day of the state fiscal year beginning on or after the date the department determines, after consultation with the designated public hospital systems, that implementation of this section is no longer financially and programmatically supportive of the Medi-Cal program.  This determination shall be based solely on both of the following factors:

(A) The projected amount of nonfederal share funds available is insufficient to support implementation of this section in the subject state fiscal year.

(B) The degree to which the payment arrangements will no longer materially advance the goals and objectives reflected in this section and in the department's managed care quality strategy drafted and implemented pursuant to Section 438.340 of Title 42 of the Code of Federal Regulations in the subject state fiscal year.

(2) In making its determination, the department shall consider all reasonable options for mitigating the circumstances set forth in paragraph (1), including, but not limited to, options for curing projected funding shortfalls and options for program revisions and strategy updates to better coordinate payment requirements with the goals and objectives of this section and the managed care quality strategy.

(3) The department shall post notice of the determination on its Internet Web site, and shall provide written notice of the determination to the Secretary of State, the Secretary of the Senate, the Chief Clerk of the Assembly, and the Legislative Counsel.

(k) The department, in consultation with the designated public hospital systems and the Medi-Cal managed care plans, shall provide the Legislature with the federally approved evaluation plan required in Section 438.6(c)(2)(i)(D) of Title 42 of the Code of Federal Regulations to measure the degree to which the payments authorized under this section advance at least one of the goals and objectives of the department's managed care quality strategy.  The department, in consultation with the designated public hospital systems and the Medi-Cal managed care plans, shall report to the Legislature the results of this evaluation once the department determines that the evaluation is finalized and complete according to the terms of any applicable federal approval and no earlier than January 1, 2021.

(l)(1) The department may, after consultation with the designated public hospital systems and Medi-Cal managed care plans, exclude certain Medi-Cal managed care enrollee categories of aid, or subcategories thereof, or certain categories of medical assistance provided under a Medi-Cal managed care plan, or subcategories thereof, from the definition of “contract services payments” for purposes of the directed payment requirements described in subdivision (b).

(2) The department shall seek federal approval to implement this subdivision.

(m) For purposes of this section, the following definitions apply:

(1) “Contract services payments” means the amount paid or payable to a designated public hospital system, including amounts paid or payable under fee-for-service, capitation amounts prior to any adjustments for service payment withholds or deductions, or payments made on any other basis, under a network provider contract with a Medi-Cal managed care plan for medically necessary and covered services, drugs, supplies, or other items provided to an eligible Medi-Cal beneficiary enrolled in the Medi-Cal managed care plan, excluding services provided to individuals who are dually eligible for both the Medicare and Medi-Cal programs and any additional exclusions that are approved pursuant to subdivision (l).  Contract services includes all covered services, drugs, supplies, or other items the designated public hospital system provides, or is responsible for providing, or arranging or paying for, pursuant to a network provider contract entered into with a Medi-Cal managed care plan.  In the event a Medi-Cal managed care plan subcontracts or delegates responsibility to a separate entity for either or both the arrangement or payment of services, “contract services payments” also include amounts paid or payable for the services provided by, or otherwise the responsibility of, the designated public hospital system that are within the scope of services of the subcontracted or delegated arrangement so long as the designated public hospital system holds a network provider contract with the primary Medi-Cal managed care plan.

(2) “Designated public hospital” shall have the same meaning as set forth in subdivision (f) of Section 14184.10 .

(3) “Designated public hospital system” means a designated public hospital and its affiliated government entity clinics, practices, and other health care providers, including the respective affiliated hospital authority and county government entities described in Chapter 5 (commencing with Section 101850) and Chapter 5.5 (commencing with Section 101852), of Part 4 of Division 101 of the Health and Safety Code.

(4)(A) “Medi-Cal managed care plan” means an applicable organization or entity that enters into a contract with the department pursuant to any of the following:

(i) Article 2.7 (commencing with Section 14087.3 ).

(ii) Article 2.8 (commencing with Section 14087.5 ).

(iii) Article 2.81 (commencing with Section 14087.96 ).

(iv) Article 2.82 (commencing with Section 14087.98 ).

(v) Article 2.91 (commencing with Section 14089 ).

(vi) Chapter 8 (commencing with Section 14200 ).

(B) “Medi-Cal managed care plan” does not include any of the following:

(i) A mental health plan contracting to provide mental health care for Medi-Cal beneficiaries pursuant to Chapter 8.9 (commencing with Section 14700 ).

(ii) A plan not covering inpatient services, such as primary care case management plans, operating pursuant to Section 14088.85 .

(iii) A Program of All-Inclusive Care for the Elderly organization operating pursuant to Chapter 8.75 (commencing with Section 14591 ).

(5) “Network provider” shall have the same meaning as that term is defined in Section 438.2 of Title 42 of the Code of Federal Regulations , and does not include arrangements where a designated public hospital system provides or arranges for services under an agreement intended to cover a specific range of services for a single identified patient for a single inpatient admission, including any directly related followup care, outpatient visit or service, or other similar patient specific nonnetwork contractual arrangement, such as a letter of agreement or single case agreement, with a Medi-Cal managed care plan or subcontractor of a Medi-Cal managed care plan.


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