Assembly Health Committee advances bill to establish DHCS and Kaiser Permanente direct contract


Soraya Marashi


Assembly Bill 2724, after lengthy discussion, ultimately passed its hearing at the Assembly Health Committee meeting last Tuesday in a 10-2 vote.


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The bill, introduced by Asm. Joaquin Arambula (D–Fresno), following the Newsom administration’s February announcement of the privately-negotiated deal with Kaiser Permanente, would allow the Department of Health Care Services (DHCS) to enter into one or more comprehensive risk contracts with an Alternate Health Care Service Plan (AHCSP) for specified eligible beneficiaries in counties designated by DHCS. 

The AHCSP in the bill is defined to exclusively be Kaiser Permanente, as it is currently the only plan in the state that operates as a health plan, a provider network, and owns and operates its own pharmacies. Arambula emphasized, however, that the bill does not prohibit other plans from moving toward this integrated model “… which can be most beneficial to its members.”

Under the proposal, Kaiser would provide Medi-Cal services in 32 counties in geographic areas where it currently has a commercial footprint (i.e. clinical infrastructure), an increase from the 22 counties in which it currently provides Medi-Cal services (5 through direct contracts with DHCS, and 17 through indirect contracts with the county’s prime plan).

“This bill improves affordability, access, quality, and equity for some of our most vulnerable populations by making it easier for low-income Californians, especially in disadvantaged communities, to go directly to providers for health care,” Arambula said. “In doing so, this bill eliminates confusing bureaucracy that is difficult for consumers to navigate.”

The bill’s supporters argue that the bill is intended to allow a high-capacity, uniquely-situated health plan such as Kaiser to do more for the Medi-Cal program.

Michelle Baass, director of DHCS, highlighted during her testimony in support of the bill that Kaiser consistently scores higher than other Medi-Cal managed care plans on an aggregate level and in factors related to children, preventative care, and maternal care.

“We want to grow their participation in the Medi-Cal space,” she said. “Under this proposal, they will grow their Medi-Cal enrollment by 25% over the course of the 5-year contract. This means that their Medi-Cal growth will be at a faster rate than their commercial and Medicare lines of business. This means that more Medi-Cal beneficiaries will have access to this high-quality plan.”

The bill’s supporters also state that the bill would increase the amount of direct oversight and improve accountability for Kaiser, eliminating exemptions from managed care requirements they currently experience, such as exemptions from facility site reviews and medical record reviews.

Baass said Kaiser has been treated uniquely by the Medi-Cal program due to its integrated and self-contained system, where they have not been subject to the traditional Medi-Cal planned choice methods as their enrollment growth rate would far outpass their physical capacity.

Supporters also say that the bill, in addition to offering enrollment through continuity of care and family linkage, would offer enrollment for dual eligibles and as an option for foster youth.

“This would provide foster youth the opportunity to have a health plan follow them as they cross county lines so that we know their medical information [follows them],” Baass said.

Kaiser would also be required to partner with community health centers for efforts related to population health management, e-consult, or in-patient specialty access.

“We want to grow our Medi-Cal providers, and this is an opportunity to craft different approaches to work with Kaiser [and] different partnerships to expand their contribution to the Medi-Cal program,” Baass added. “Our goal is to provide choice and continuity for Medi-Cal beneficiaries across payer source, across county lines, to increase access to services, and increase quality care.”

Opposers of the bill largely cited concerns for how a state direct contract with Kaiser would impact local health plans in rural areas.

Stephanie Sonnenshine, CEO of the Central California Alliance for Health, testified in opposition to the bill, saying that it undermines the County Organized Health System (COHS) Medi-Cal managed care plan model that has been successful for decades, and that it could harm the delicate balance of provider market competition dynamics in these rural areas.

“The deal enabled by AB 2724 is the result of private negotiations between the state and a commercial entity, which prioritize the commercial entity’s interest over the public interest … the [COHS system model] succeeds at getting public and private providers to work together as partners to strengthen that delicate system,” she said. “This policy infringes on the local governance and control supported by state statute and acted on by 50 counties in the state.”

Jarrod McNaughton, CEO of Inland Empire Health Plan, also testified against the bill. He cited concerns related to the bill’s impact on rural areas where Kaiser facilities are not located, saying the bill is more zip code-specific than county-specific.

“While every other health plan in the state, both nonprofit and for profit, has to abide by the rules of the Medi-Cal state contract, that is not the case for Kaiser through this deal,” McNaughton said. “They get a special dispensation that allows them to only see particular members where they already have a commercial footprint … While they might see patients in larger metropolitan areas such as Ontario, Rancho Cucamonga, or Riverside, those who live in the high desert or low desert are out of luck. Kaiser will only cover those members who live in geographic regions within the county where they already have a commercial footprint.”

McNaughton said that due to these service area limitations and Kaiser’s Medi-Cal eligibility restrictions, local health plans will bear the brunt of the most vulnerable Medi-Cal patients with the most complex and expensive conditions. 

Arambula clarified that Kaiser would not be allowed to look at the medical history of Medi-Cal patients before accepting them, and that they would be required to accept all patients who meet their Medi-Cal eligibility criteria by default, eliminating any possibility of “cherry-picking” patients. 

The bill’s two opposing votes came from Asms. Frank Bigelow (R–O’Neals) and Marie Waldron (R–Escondido). Asm. Jim Wood (D–Santa Rosa), while voting in favor of the bill, expressed concerns over the lack of behavioral health providers in the Kaiser system, and Asm. Cecilia Aguiar-Curry (D–Winters) voiced her belief that FQHCs must continue to be included in the ongoing conversations about the legislation.

The bill has now been re-referred to the Assembly Committee on Appropriations with amendments prohibiting Kaiser from denying enrollment to any eligible beneficiaries and requiring the contract to include the same standards and requirements (except with respect to enrollment) as other Medi-Cal managed care plans.