BILL ANALYSIS
AB 918
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Date of Hearing: April 13, 1999
ASSEMBLY COMMITTEE ON HEALTH
Martin Gallegos, Chair
AB 918 (Keeley) - As Introduced: February 25, 1999
SUBJECT : Health Plans: Capitation Payments to Providers.
SUMMARY : Requires that health care service plan (health plan)
capitation payments to providers be computed appropriately by a
qualified actuary; requires health plans to annually update an
actuarial report required by regulations. Specifically, this
bill :
1)Requires every health plan to annually update the actuarial
report required in a health plan application at the time of
licensure and amendment as provided in the rules and
regulations promulgated by the Department of Corporations
(DOC).
2)Requires any actuarial report to contain an opinion of a
qualified actuary as to whether the capitation-based payment
arrangements are computed appropriately, as specified, and to
comply with applicable laws, including DOC regulations.
3)Requires the actuary opinion to be based on standards adopted
by the Actuarial Standards Board and DOC.
4)Defines "qualified actuary" as a member in good standing of
the American Academy of Actuaries, who also meets any
additional DOC standards adopted by regulation.
5)Provides if a health plan intends to pay some or all of its
providers on a capitated basis, the health plan must attach,
to the actuarial report, a statement with specified
information including the percentage of contracting providers
who will be compensated on that basis and a description of the
method used to determine and adjust the capitation rates.
6)Provides that the statement attached to the actuarial report
also substantiate that the capitation rates are adequate to
reasonably assure the continuance of the relationship between
the plan and provider.
7)Requires that specified financial calculations of a provider
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that are analogous to the information required by health plans
be submitted to the health plan upon request. Provides that
nothing in this bill requires a provider to disclose the
personal financial information of the provider.
8)Requires the health plan's actuarial report and the provider's
financial information to be made available to contracting
parties upon request.
9)Provides that nothing in this bill requires DOC to approve the
capitation rates of a health plan or to regulate providers in
any manner.
EXISTING LAW :
1)Provides for the licensure and regulation of health plans by
DOC.
2)Imposes, by DOC regulation, requirements related to health
plan actuarial reports.
FISCAL EFFECT : Unknown
COMMENTS :
1)PURPOSE OF THE BILL . This bill is sponsored by the California
Medical Association (CMA). The sponsor points out that health
plans charge and receive money up front to pay for treatment
to be rendered in the future, and that the actual costs of
future health care are uncertain. This poses a risk that
requires actuarial evaluation. CMA argues that an actuarial
evaluation will determine whether the health plan has
adequately "spread its risk" through the use of polling,
sufficient stop-loss insurance, and re-insurance, and has the
financial wherewithal (such as adequate reserves) for any
eventuality. The sponsor notes that when actuaries review
health plan capitation rates paid to providers, they are
looking for any indication that such rates are not sound. For
example, if capitation rates to providers are too low, then
there may be underutilization of health care services, or
physicians may not be adequately reimbursed for treatments
given to enrollees. Evaluations may disclose that excessive
risk has been transferred by health plans to physicians. CMA
notes last year's bankruptcy of a large medical group and the
recent DOC seizure of Med Partners as indications that health
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plan capitation payments may not be sufficient to ensure that
patients receive the quality and continuity of care they were
promised. CMA concludes that this bill sets forth clear
guidelines for health plans to follow that protect patient
care, is consistent with the treatment of other health
insurance products that require actuarial soundness, and
assures fair provider reimbursement for quality health care
services.
2)SUPPORT . The California Primary Care Association (CPCA)
representing community-based health centers and clinics
supports the bill pointing out that capitation rates are not
regulated and thus market power rather than actuarial
soundness prevails. Capitation rates end up being the product
of contract negotiations rather than actuarial calculations.
CPCA argues that this bill creates a mechanism for evaluating
the appropriateness of capitation rates which will provide a
check and balance system to prevent abuse. CPCA argues that
providers are not given actuarial information on capitation
rates which puts them at a disadvantage in negotiating
contracts with HMOs. CPCA believes this bill will protect
providers from artificially low capitation rates. The
California Psychiatric Association (CPA) notes that recent
bankruptcies of large medical groups make it clear that in
many instances capitation rates paid to physicians are
inadequate to ensure that patients receive the level of
quality care they have been promised. CPA argues that the
bill is needed to enable physicians to review capitation rates
to determine whether they are adequate to cover the projected
cost of caring for patients.
3)OPPOSITION . The California Association of Health Plans (CAHP)
opposes the bill unless amended. CAHP argues that the bill
improperly requires the disclosure of confidential,
proprietary, competitive information and trade secrets and
that such disclosure would put health plans at a disadvantage
when negotiating with their contracting providers. CAHP
argues that there is no value in having an actuary certifying
capitation rates because they are based on negotiations,
market competition and individual physician income
expectations - there is no "actuarially sound" price for
physician services. CAHP concludes that the bill will result
in higher costs which would divert funds away from medical
care. Health Net argues that the disclosure provisions in the
bill represent an inappropriate insertion of the government
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into negotiations between plans and providers, and that
actuaries should not be making judgments about what level of
compensation providers should receive. United Healthcare
maintains that the mandatory disclosure of capitation rate
setting methodologies is an improper intrusion into freely
negotiated contracts and will result in health plans having to
provide higher reimbursement rates, sometimes without
justification.
4)PRIOR LEGISLATION . This bill is identical to SB 317
(Calderon) that was vetoed last year. In his veto message, the
Governor stated, "Providers can and do retain actuaries and
employ negotiators now, without legislative mandate, if they
feel it necessary to do so. The Department of Corporations is
required to intervene if a plan is found to have set
capitation rates too low to permit necessary care. But this
bill at least implies a larger role for the department as a
rate-setter, a role which the enabling Knox-Keene Act
expressly forbids."
5)SUGGESTED AMENDMENTS . A number of provisions in this bill
require compliance with specified DOC regulations. Those
regulations are subject to change at any time, creating
uncertainty as to the health plan statutory obligations
imposed by this bill. The author may wish to explore
codification of regulatory provisions into this bill as
opposed to cross-referencing regulations that may be changed.
REGISTERED SUPPORT / OPPOSITION :
Support
California Medical Association (sponsor)
California Primary Care Association
California Psychiatric Association
Opposition
California Association of Health Plans (unless amended)
Health Net
United Healthcare
Analysis Prepared by : Michael Shapiro / HEALTH / (916) 319-2097
AB 918
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