AB 2327

AB2327:v98#DOCUMENT

Bill Start

CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION

Assembly Bill

No. 2327

An act to add Section 14301.12 to the Welfare and Institutions Code, relating to Medi-Cal.

LEGISLATIVE COUNSEL'S DIGEST

AB 2327, as amended, Lowenthal. Medi-Cal: subcontractors: rates.

Existing law establishes the Medi-Cal program, which is administered by the State Department of Health Care Services and under which qualified low-income individuals receive health care services under fee-for-service or managed care delivery systems. The Medi-Cal program is in part governed by, and funded pursuant to, federal Medicaid program provisions.

Existing law sets forth various provisions relating to the department determining capitation rates for Medi-Cal managed care plans using actuarial methods and a certain methodology that considers, among other factors, utilization and cost data. Relative to these provisions of existing law, in 2023, the department entered into a multi-party settlement agreement for Medi-Cal managed care procurement for plan years beginning January 1, 2024, with specified Medi-Cal managed care plans and certain subcontracting plans.

This bill would require the department, for rates effective on or after January 1, 2027, to require that a Medi-Cal managed care plan operating as a downstream fully or partially delegated subcontractor, as defined, be paid actuarially sound rates developed in accordance with generally accepted actuarial rate development principles and practices. Under the bill, failure to pay the subcontractor in a manner consistent with these provisions would be deemed a violation, constituting an unlawful and unfair business practice, as specified. The bill would afford the contractor the opportunity to enforce these requirements by filing a notice of dispute with the department.

This bill would authorize a subcontracting plan subject to the above-described agreement to request a review of the Medi-Cal managed care rates paid by the primary plan for a particular rating period, as specified. The bill would require the department to direct an independent, qualified actuarial consultant to review those rates upon a showing by the subcontracting plan that certain conditions have occurred or are likely to occur, including, among others, a medical loss ratio in excess of 93% for the preceding 12-month period. If the department determines that the rates paid by the primary plan to the subcontracting plan for a particular rating period are not actuarially sound, the bill would require the department to order a revision of those rates, as specified. The bill would make any failure by the department to comply with these provisions reviewable and subject to appeal at the request of the subcontracting plan through a notice of dispute pursuant to the terms of the Medi-Cal managed care contract. The bill would require these disputes to be concluded and resolved within 120 calendar days of the initial request. The bill would authorize the department to implement, interpret, or make specific these provisions through the use of all-county letters, plan letters, plan bulletins, amendments to the state Medi-Cal managed care contract, or similar instructions without taking any further regulatory action.

Digest Key

Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NO

Bill Text

The people of the State of California do enact as follows:

SECTION 1.

Section 14301.12 is added to the Welfare and Institutions Code, immediately following Section 14301.11, to read:

14301.12. (a) (1) The Legislature finds and declares that federal law and regulations require the actuarial soundness of rates to ensure that Medicaid managed care plans have the resources necessary to ensure the delivery of health care services to Medicaid beneficiaries, maintain stability and fiscal solvency, and limit the potential for cross-subsidization of resources allocated for health care services from one group of Medicaid beneficiaries to another group.(2) It is the intent of the Legislature that:(A) Medi-Cal managed care plans compete based on efficiency, access, quality, and value.(B) Medi-Cal managed care plans, including subcontracting plans, have the resources necessary to ensure the delivery of health care services to the Medicaid beneficiaries the plan serves, maintain stability and fiscal solvency, and limit the potential for cross-subsidization.(C) Fair competition is ensured, in consideration of the special circumstances related to the State Department of Health Care Services’ multi-party settlement agreement for Medi-Cal managed care procurement for plan years beginning January 1, 2024.(b) For purposes of this section the following definitions apply:(1) “Actuarially sound” means a rate that has been certified pursuant to the processes described in Section 438.4 of Title 42 of the Code of Federal Regulations for determining the actuarial soundness of Medicaid managed care plans.(2) “Primary plan” means a Medi-Cal managed care plan that is subject to the department’s multi-party settlement agreement for Medi-Cal managed care procurement for plan years beginning January 1, 2024.(3) “Subcontracting plan” means an entity subject to the department’s multi-party settlement agreement for Medi-Cal managed care procurement for plan years beginning January 1, 2024, that is subcontracted to a primary plan.(c) (1) At any time, but no more than once annually, a subcontracting plan may request a review of the Medi-Cal managed care rates paid by a primary plan for a particular rating period.(2) Nothing in this section shall be construed to allow any entity except a subcontracting plan to submit a request pursuant to paragraph (1).(d) (1) Upon a showing, based on reasonable actuarial documentation and financial data provided by the subcontracting plan that one or more of the conditions described in paragraph (2) have occurred or are reasonably likely to occur, the department shall direct an independent, qualified actuarial consultant to review the rates paid by the primary plan to the subcontracting plan for a particular rating period. An actuarial consultant engaged pursuant to this subdivision shall evaluate the rates for that rating period payable to the subcontracting plan and shall issue a written determination of whether rates payable to the subcontracting plan are actuarially sound.(2) Any of the following conditions may trigger a review described in paragraph (1):(A) The subcontracting plan demonstrates a loss in Medi-Cal membership of 5 percent or more in one calendar year due to members becoming ineligible for the program in the applicable rating region.(B) The subcontracting plan demonstrates a medical loss ratio in excess of 93 percent for the preceding 12-month period in the applicable rating region.(C) Any other condition that, if left unaddressed, would reasonably be expected to result in material service reductions to Medi-Cal beneficiaries served by the subcontracting plan in the applicable rating region.(3) The department shall have 30 calendar days from the date a subcontracting plan submits its documentation to determine whether one or more of the conditions described in paragraph (2) have occurred or are reasonably likely to occur.(e) (1) If the department determines, based on the independent actuarial analysis, that the rates paid by the primary plan to a subcontracting plan for a particular rating period are not actuarially sound, the department shall order a revision resulting in actuarially sound revised rates for that rating period.(2) A revision required by paragraph (1) may include, but is not limited to, a redistribution of any administrative fees retained by the primary plan in excess of the primary plan’s reasonable administrative costs to oversee functions of the subcontracting plan.(3) A revision required by paragraph (1) shall adjust rates paid by the primary plan to a subcontracting plan for the entire applicable rating period.(4) A revision required by paragraph (1) shall be effectuated through a rate reconciliation payment from the primary plan to the delegated plan within 90 calendar days of the department’s determination.(f) Nothing in this section shall be construed to require a revision to the rates paid by the department to a primary plan.(g) Any failure by the department to comply with subdivision (d) or (e) in response to a subcontracting plan’s request for review shall be reviewable and subject to appeal at the request of the subcontracting plan through a notice of dispute pursuant to the terms of the Medi-Cal managed care contract. The dispute shall be concluded and resolved within 120 calendar days of the initial request.(h) This section shall be implemented only to the extent that federal financial participation is available and not otherwise jeopardized and any necessary federal approvals have been obtained.(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, plan bulletins, amendments to the state Medi-Cal managed care contract, or similar instructions, without taking any further regulatory action.

SECTION 1.Section 14301.12 is added to the Welfare and Institutions Code, immediately following Section 14301.11, to read:

14301.12.

(a)It is the intent of the Legislature that all downstream fully delegated subcontractor and partially delegated subcontractor managed care plans arranging for or providing Medi-Cal services be paid in an actuarially sound manner.

(b)For rates effective on or after January 1, 2027, the department shall require that a Medi-Cal managed care plan operating as a downstream fully delegated subcontractor or a partially delegated subcontractor pursuant to the state Medi-Cal managed care contract be paid actuarially sound rates developed in accordance with generally accepted actuarial rate development principles and practices.

(c)(1)Failure to pay a Medi-Cal managed care plan operating as a downstream fully delegated subcontractor or partially delegated subcontractor in a manner consistent with this section shall be deemed a violation of this section, which shall constitute an unlawful and unfair business practice pursuant to Section 17200 of the Business and Professions Code by the Medi-Cal managed care plan that has delegated services to the downstream fully or partially delegated subcontractor managed care plan.

(2)Notwithstanding any contractual rights that the downstream fully delegated subcontractor or partially delegated subcontractor managed care plan has, the downstream fully delegated subcontractor or partially delegated subcontractor managed care plan shall be afforded the opportunity to enforce the requirements of this section by filing a notice of dispute with the department pursuant to Section 100171 of the Health and Safety Code.

(d)Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, the department shall implement, interpret, or make specific this section by means of all-county letters, plan letters, plan bulletins, amendment to the state Medi-Cal managed care contract, or similar instructions, without taking any further regulatory action.

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

(1)“Downstream fully delegated subcontractor” means a downstream subcontractor of a Medi-Cal managed care plan that is contracted with the department and that contractually assumes all duties and obligations of the Medi-Cal managed care plan contracted with the department, except for those contractual duties and obligations where delegation is legally prohibited.

(2)“Downstream partially delegated subcontractor” means a downstream subcontractor of a Medi-Cal managed care plan that is contracted with the department and that contractually assumes some, but not all, duties and obligations of the Medi-Cal managed care plan contracted with the department.