Policy Briefing: California Bill Targets Healthcare Affordability

BY BILL BARCELLONA, EXECUTIVE VP, GOVERNMENT AFFAIRS, AMERICA’S PHYSICIAN GROUPS

For many years, California was the home of HMO affordability. The state’s loss of that moniker—due to employer abandonment of HMOs in the early 2000s in favor of full-replacement high-deductible PPO plans—has left California with a slightly higher-than-average cost escalation in the healthcare sector of the state’s domestic product. Policymakers are looking for ways to improve that cost trend.

One proposal is California Assembly Bill 1130, an ambitious piece of legislation that would create a state Office of Health Care Affordability. APG’s California Board members recently met with the bill’s author, Assembly Member Jim Wood (D-Santa Rosa), who chairs the Assembly Health Committee, as well as with representatives of the Newsom administration; Office of Statewide Health Planning and Development (OSHPD) Director Elizabeth Landsberg; and Vishaal Pegany, Assistant Secretary of the California Health & Human Services Agency.

After a lengthy discussion, APG has moved toward a “support if amended” position on this legislation. APG will likely be one of the few provider-oriented organizations to take this position during this legislative session. What does the Office proposal entail, and what are the ramifications for the California healthcare economy?

A DEEPER LOOK

AB 1130 would create a framework for collecting information on the healthcare ecosystem within California. The idea is for policymakers to understand where cost drivers exist so they can attempt to correct affordability issues at the state level and perhaps even at the regional or “sectoral” levels as well.

In addition to cost control, the proposal’s objectives include the expansion of value-based provider payment, standardized quality metrics, systematic decrease of health disparities, support for primary care and behavioral health integration, and monitoring of healthcare workforce stability. How would all of this oversight come about?

The bill creates an Office of Health Care Affordability within the state government. This is different from the direction taken by Massachusetts, with its famous Health Policy Commission model that relies on a public board loosely affiliated with the Commonwealth’s attorney general.

Massachusetts created a system in which state staff report to a publicly appointed board of experts, whereas the California proposal would create an advisory board that would debate and recommend strategies to the director of the Department of Health Care Affordability and Infrastructure. Thus, the California proposal vests final authority with the governor, who also controls the Department of Managed Health Care (DMHC), the Department of Health Care Services (DHCS), and the Health & Human Services Agency.

Is this a better approach than the one taken by Massachusetts? We would argue that it is, since a governing board model would likely be more politically oriented in California and less connected to the other chief organs of healthcare oversight, DMHC and DHCS. But it still results in some level of fragmented oversight, and there is potential for conflicting directives between different departments and agencies within the administration. No solution is perfect, and each has its potential weaknesses and/ or advantages.

However, like Massachusetts, the Office would rely heavily on market data collected and analyzed by the Health Care Payments Database program (HPD), which is the California version of an all-payer claims database. The HPD was created last year under Assembly Bill 80 and will commence operation in early 2023. The HPD provides the foundation for the Office’s activities.

APG’S POSITION

APG has been vocal on the data collection area. This is based on almost 30 years of experience with collecting cost and quality data from our membership that has been publicly reported through the Integrated Healthcare Association’s P4P, AMP, and Regional Cost & Quality Atlas projects.

APG’s support for AB 1130 is qualified on a “universal” data collection and reporting model that includes all providers, all payers, all products, and even the inclusion of employer open enrollment offerings—to show that employers are committed to coverage models that incorporate value-based payment within clinically integrated delivery networks.

What are the functions and jurisdiction of the Office proposal? The Office would have “teeth” in its approach to collecting data and enforcing cost targets. This is the result of advice received from Massachusetts that its commission model lacks power to make needed changes to its healthcare system. The Office would issue a baseline study of the California market after its first year of operation. Currently, that’s in 2023, but that could change.

The baseline report would set a cost target for the entire state. Similar to Massachusetts, this would be in the form of a percentage of California’s gross state product, with a percentage for escalation. Massachusetts has issued cost targets in the range of 3.5% to 4.5% in past years. As the Office develops, it would dig further into the regional markets and determine whether certain plans and/ or providers are sticking to the targets. If they aren’t sticking to them, the Office would have a “gradual enforcement approach” that would include public transparency, corrective action plans, and ultimately monetary fines. Appeals processes are included in the enforcement approach.

APG was obviously concerned that high-quality, low-cost providers could be squeezed further within a regional cost target enforcement model. Policymakers have responded that they will focus on equitable mechanisms to ensure that this does not happen. But the bill needs further work, or a more detailed approach through implementing regulations is necessary to defend “good actors” within a region.

The tough nut here is creating a threshold for monitoring, oversight, and enforcement. How big or small a provider or health plan should be included within the Office’s oversight? Currently, the HPD will only collect data from health plan and thirdparty administrator payers—and only if they have enrollments of 50,000 lives or greater. The HPD will not collect data directly from providers. However, this will likely change over the next several years, if and when the HPD meets certain implementation milestones.

Should certain providers be exempted from cost target oversights? APG has been adamant: Everybody is in, or it won’t work. Data collection from the Medi-Cal system is important to determine the extent of cross-subsidization occurring in the commercial market, as well as whether the elimination of that cross-subsidization will result in provider instability and potential collapse.

Lastly, an entire article of the proposed bill is devoted to the transition from fee-for-service (FFS) provider payment to population-based payment models. The Office would have the ability to monitor payers annually for transition to value-based payment models and would include public reporting on status. APG has urged policymakers to go further, to analyze regions where employers are not offering open enrollment options that include coverage plans that incorporate capitated payment mechanisms for providers.

The bill will also require total cost of care measurement and reporting. This would likely lead, based on our experience with the California Regional Cost & Quality Atlas, to HMO plans that use capitated provider networks scoring higher on both quality and cost metrics than high-deductible PPO plans.

The bill has not yet addressed the employer shared responsibility issue. APG continues to argue strongly for including employers in the oversight structure. If employers only offer high-deductible, FFS-based plans to their employees, there is little likelihood for improvement in the system. In our view, this change is critical to the eventual success of the Office.

WHAT’S NEXT?

AB 1130 was heard in its first policy committee on April 6. It is now progressing through fiscal review and to the Assembly floor. If it proceeds to the state Senate, the process will be repeated, and the bill must be voted out by the Legislature no later than Sept. 10.

The governor would then have 30 days to sign or veto the bill. Chairman Wood has been working closely with Newsom administration officials to craft a bill that is acceptable to the governor for signature. AB 1130 faces stiff opposition and could likely be turned into a “two-year” bill at some point to allow further research and deliberation. It represents a sea change in the approach to strategic oversight of the healthcare market in California.

Meanwhile, another bill, AB 1400, looms close by. AB 1400 proposes to scrap the existing system in favor of a single-payer model. That bill would create an even greater regulatory oversight approach to the healthcare market—tightly regulating provider payment rates, excluding certain players, and removing health plans from the ecosystem. It is important to remember that AB 1130 does not exist in a vacuum. Other options are available to policymakers that would be even more intrusive to our membership in California. o

Bill Barcellona