Voluntary Behavioral Health Integration in Medi-Cal: What Can Be Achieved Under Current Law AUTHORS Anil Shankar and Diane Ung, Foley & Lardner LLP OCTOBER 2019 Contents About the Authors Introduction 3 Anil Shankar, JD, MA, is a partner with Foley & Lardner Integrating Responsibility for Care in LLP. He focuses his practice on complex regulatory and a Medi-Cal Managed Care Plan 3 reimbursement matters, with a particular concentration on the Medicaid program and issues affecting safety net Transferring MHP Services to a Medi-Cal providers. Diane Ung, JD, MSPH, is a partner and health Managed Care Plan care business lawyer with Foley & Lardner LLP. She focuses Transferring Responsibility for the Drug her practice on federal and state health care legislation Medi-Cal or Drug Medi-Cal Organized and payment issues arising under government programs Delivery System Program to a Medi-Cal such as Medicare and Medicaid. Shankar and Ung have Managed Care Plan extensive experience in structuring Medicaid financing for safety-net providers through federal Medicaid waivers Integrating Responsibility for Care in and demonstrations authorized under Sections 1115 and a County 10 1915 of the Social Security Act. Direct Medi-Cal Managed Care Contract About the Foundation Medi-Cal Managed Care Plan Subcontract The California Health Care Foundation is dedicated to advancing meaningful, measurable improvements in the Conclusion 13 way the health care delivery system provides care to the Endnotes 14 people of California, particularly those with low incomes and those whose needs are not well served by the status quo. We work to ensure that people have access to the care they need, when they need it, at a price they can afford. CHCF informs policymakers and industry leaders, invests in ideas and innovations, and connects with changemak- ers to create a more responsive, patient-centered health care system. For more information, visit www.chcf.org. Voluntary Behavioral Health Integration in Medi-Cal: What Can Be Achieved Under Current Law www.chcf.org 2 Introduction California’s Medicaid program, Medi-Cal, currently The integration of physical and behavioral health could operates separate managed care delivery systems for also be approached from the other direction — by grant- behavioral and physical health services under federal ing new authority for a county to opt to cover physical Medicaid waiver authorities.1 The program excludes health services as a supplement to its existing behav- most mental health and substance use disorder services ioral health services contracts. For example, a county from its contracts with Medi-Cal managed care plans 2 could agree to serve as a Medi-Cal “specialty health and makes those services available through county- plan” responsible for comprehensive health services for operated mental health plans (MHPs) and Drug Medi-Cal a designated patient population (e.g., those currently program contracts. These separate delivery systems receiving Drug Medi-Cal services or specialty mental operate under distinct statutory and regulatory authori- health services through the county). This result could be ties, and the contractors and their network providers are achieved either by having the county enter into a new subject to differential standards developed over decades Medicaid managed care plan contract with the California in the context of separate programs. The programs are Department of Health Care Services that would be in also reimbursed and financed differently, with the Medi- addition to other plans currently operating in the county, Cal managed care plans placed at risk for the cost of or by having the county enter a subcontract with one (or services, and the county programs reimbursed through more) of those plans to provide coverage for a subset of cost-based structures.3 the plan’s enrollees. The separateness of the delivery systems creates Each of these options potentially can be pursued consis- challenges to achieving administrative and financial tent with existing law through the execution of voluntary integration of physical and behavioral health services in contractual agreements. In most cases, in addition to Medi-Cal. In February 2019, the California Health Care having both a county that would initiate the effort and Foundation and Well Being Trust published Behavioral a willing Medi-Cal managed care plan, success would Health Integration in Medi-Cal: A Blueprint for California,4 require the approval and participation of the state Medi- which addressed the benefits of assigning responsibility Cal agency — the California Department of Health for Medi-Cal’s behavioral and physical health services to Care Services (DHCS) — and the approval of the fed- a single accountable entity, thereby creating opportu- eral Centers for Medicare and Medicaid Services (CMS). nities for integration of care. To help identify potential Integration would also require a number of important paths forward, this article explores different contracting decisions about what legal, financial, and operational structures through which a county could lead efforts to standards apply to the accountable entity. In the sections create such an accountable entity. that follow, we identify potential paths forward and high- light some key legal and operational issues. One option is for a county to work with the state and a Medi-Cal managed care plan to have the plan designated as the local MHP or Drug Medi-Cal program contractor. Integrating Responsibility for State laws governing the MHPs and the Drug Medi-Cal Care in a Medi-Cal Managed program were designed to default contracts to counties, but in the absence of a county contract — for example, Care Plan if the county terminates or declines to renew its contract One integration pathway that a county could take would — the laws also permit a contract to be awarded to a be to consolidate responsibility for care in the Medi- qualified nongovernmental entity. Alternatively, a county Cal managed care plan. This section discusses several could achieve a similar result by electing to delegate its options for achieving this for both specialty mental health responsibilities under its MHP or Drug Medi-Cal contract services and for specialty substance use disorder (SUD) to a qualified Medi-Cal managed care plan. services (through the Drug Medi-Cal program). California Health Care Foundation www.chcf.org 3 Transferring MHP Services to a Medi- serve as the MHP, the county would continue to be obligated to provide community mental health services Cal Managed Care Plan to the indigent to the extent it has available resources Under California law, specialty mental health services are to do so.9 The successor MHP could elect to purchase available for Medi-Cal beneficiaries through MHPs that specialty mental health services from the county and contract with DHCS. These services are excluded from would be required to have mutually agreed-upon proto- the contracts held by Medi-Cal managed care plans, cols with the county to clearly establish conditions under although the plans do cover mental health services that which beneficiaries may obtain non-Medi-Cal reimburs- do not qualify as specialty mental health services.5 The able services from the county.10 MHPs are subject to federal Medicaid managed care requirements and provide or contract for the provision The current MHP statutes provide a path for the potential of specialty mental health services. The unique MHP designation of a Medi-Cal managed care plan as an MHP. delivery system is authorized by the Social Security Act To implement this option, a county would first need to section 1915(b) specialty mental health services waiver inform the state that the county is no longer willing to approved by CMS. serve as the MHP. DHCS would then need to approve the Medi-Cal managed care plan as qualified to fulfill the The specialty mental health services “carve out” from obligations of an MHP. Medi-Cal managed care plan contracts is made neces- sary largely by state law that directs DHCS to enter into A county’s ability to terminate its role as the MHP is gov- contracts with MHPs for the provision of those services. erned by the terms of its existing MHP contract with Counties currently holding MHP contracts have rights DHCS. The most recently published boilerplate MHP to continue in this role. In addition, Medi-Cal managed contract identifies the contract term as applicable from care plans would not qualify as MHPs under state law July 1, 2017, through June 30, 2022, but individual MHP unless DHCS modified their contracts to impose stan- contracts may specify a different term.11 Provisions of dards required for the MHPs. Within these parameters, the boilerplate contract allow for a county to terminate we have identified two options for a county to voluntarily prior to the expiration date of an executed contract by “transfer” responsibility for MHP services to a Medi-Cal providing written notice to DHCS, including the reason managed care plan: (1) the county may terminate its and effective date, at least 180 calendar days prior to the MHP contract so as to enable DHCS to designate the effective date of termination.12 The boilerplate contract Medi-Cal managed care plan as a successor MHP if it also requires a county that chooses not to renew its expir- meets the applicable standards; or (2) the county may ing MHP contract to provide written notice but does not delegate some or all of its MHP obligations to a qualified specify a time frame.13 The county could also seek an Medi-Cal managed care plan via a subcontract. amendment of the MHP contract end date that coincides with a planned transition of services. Medi-Cal Managed Care Plan as the MHP California law directs DHCS to implement managed Termination or nonrenewal of a contract could trigger mental health care for Medi-Cal beneficiaries through notice provisions for beneficiaries. If the county termi- contracts with MHPs.6 Currently, each of the MHPs nates a subcontract with a provider (which could be a is operated by a county or by counties acting jointly. consequence of terminating the MHP contract), the However, if a county (or joint county entity) does not county is required to make a good faith effort to pro- serve as the MHP, DHCS must ensure that specialty vide notice within 15 days to beneficiaries who recently mental health services are provided to Medi-Cal bene- or regularly received services from the terminated pro- ficiaries and is required to designate a new MHP for the vider.14 The county may also be required to make patient county.7 The successor MHP would need to enter into a records and files available to DHCS, including informa- contract with DHCS that subjects it to the same duties tion maintained by any subcontractor.15 and obligations otherwise required of a county MHP.8 In this circumstance, while the county would no longer Voluntary Behavioral Health Integration in Medi-Cal: What Can Be Achieved Under Current Law www.chcf.org 4 Once it receives notice of a contract termination, DHCS plan to serve as the MHP, DHCS would need to consider would need to award a new MHP contract. However, the extent to which the plan could apply the processes DHCS is not necessarily limited to looking only to Medi- utilized for its Medi-Cal managed care business rather Cal managed care plans for this purpose; DHCS could than have to develop new systems to re-create the cur- also solicit interest from other counties, counties acting rent county-specific processes. DHCS would also need to jointly, or other qualified governmental or nongovern- consider the extent to which the plan would be required mental entities.16 Before awarding a contract, DHCS to contract with the existing MHP network. would likely evaluate the chosen entity to ensure it can meet MHP standards and preserve MHP protections for Designating a Medi-Cal managed care plan as a succes- beneficiaries and providers through the transition. Failure sor MHP would have significant implications for funding to undergo such a process could leave DHCS’s contract the nonfederal share of mental health services. Currently, award open to challenge. counties use public funds as certified public expenditures (CPEs) to draw down the federal Medicaid matching pay- State law does not address with specificity the standards ments for the MHPs, which are reimbursed based on their MHPs must meet. Instead, MHPs, whether public or allowable costs. Federal rules provide that only public private, are required to be “governed by” a set of guide- agencies may make CPEs.19 Assuming that the Medi-Cal lines. Key requirements among these guidelines include managed care plan serving as the successor MHP is not a the following:17 public agency, a viable and compliant Medi-Cal funding and payment mechanism for drawing federal matching $$ A public planning process for the development of funds would need to be developed. The transfer of the the MHP that includes a significant role for Medi- contract to a Medi-Cal managed care plan could also Cal beneficiaries, family members, mental health prompt changes to the reimbursement methodology advocates, providers, and public and private for specialty mental health services — for example, the contract agencies development of capitation rates in lieu of the current cost- $$ Appropriate standards relating to quality, access, based structure. For all of these reasons, the designation coordination of services within a managed system of a Medi-Cal managed care plan as an MHP would rep- of care, and costs, and opportunities for existing resent a significant change to the delivery system. Medi-Cal providers that meet those standards to continue to provide services under the MHP Stakeholders should carefully consider whether further state legislative direction should be sought to facilitate $$ Provision of covered services in the beneficiary’s an effective transition if a county wishes to initiate this home community, or as close as possible to the option. New legislation could help to clarify the process beneficiary’s home community by which a county could agree to reassign its MHP role $$ Continuity of care for current recipients of ser- to a Medi-Cal managed care plan, potentially eliminat- vices during the transition to managed mental ing a period of uncertainty after the county gives notice health care of its termination and before DHCS has awarded a new contract. Legislation could also establish with greater State regulations additionally provide that an MHP that specificity the standards to which the new MHP contrac- is not a county would be subject to the same standards tor would be held, address the funding of the nonfederal as a county MHP.18 This directive does not fully reflect share, and include protections or assurances for the the impact of contracting with a noncounty plan. The transfer. Short of legislative action, a county could work standards applicable to MHPs have been developed with DHCS to develop a plan, potentially including tem- over decades in the context of the county systems, and porary agreements among the county, DHCS, and the currently MHPs utilize different reimbursement, claims Medi-Cal managed care plan, to arrange for appropriate processing, utilization review, and authorization standards transitions of coverage. This approach is not expressly from other types of Medi-Cal managed care plans. As contemplated in current law but arguably is consistent part of the approval process for a Medi-Cal managed care with DHCS’s authority to amend existing agreements. California Health Care Foundation www.chcf.org 5 Whether via new legislation or under existing authority, compliance with the terms and conditions of the plan changes to the current MHP designations would also contract, notwithstanding any subcontracted relation- require modifications to the terms and conditions of the ships; and (2) the subcontractual relationship includes 1915(b) specialty mental health services waiver. The waiv- assurances that the subcontractor will be subject to er’s terms and conditions authorize the operation of the and comply with all requirements in the state’s contract MHPs, and the authorizations would need to be modi- with the primary plan when performing the delegated fied to reflect the existence of noncounty MHP options. activities or obligations and will be subject to applicable The terms and conditions also indicate that the MHPs Medicaid requirements.20 are operated as non-risk-based managed care entities known as prepaid inpatient health plans (PIHPs). If the State law and regulation do not limit the ability of MHPs MHP contract assumed by a Medi-Cal managed care to enter into subcontracts,21 and DHCS’s boilerplate MHP plan were to become capitated, then the waiver docu- contract states: ments would need to be modified and the MHPs would be subject to additional requirements applicable under Unless specifically prohibited by this contract or by federal law to risk-based Medicaid managed care plans. federal or state law, Contractor may delegate duties and obligations of Contractor under this contract to These additional requirements would need to be incor- subcontracting entities if Contractor determines that porated into the MHP contracts and approved by CMS. the subcontracting entities selected are able to per- Conforming changes to waiver terms and conditions form the delegated duties in an adequate manner in applicable to the Medi-Cal managed care plans and compliance with the requirements of this contract. their covered services also would be needed. In addi- The Contractor shall maintain ultimate responsibil- tion, as noted earlier, changes to the current cost-based ity for adhering to and otherwise fully complying with all terms and conditions of its contract with the reimbursement structure for MHPs may be required to Department, notwithstanding any relationship(s) reflect the new reimbursement and financing structures that the Mental Health Plan may have with any for a noncounty plan. subcontractor.22 County MHP Delegation to a Medi-Cal The MHP contract further specifies the requirements for Managed Care Plan MHP subcontracts, which track federal law.23 If a county wishes to retain its status as the MHP in an integration model, the county could explore subcontract- Significantly, the MHP template agreement states that ing with a Medi-Cal managed care plan. This approach “the Department hereby, and until further notice, waives would allow the county MHP to delegate responsibility its right of prior approval of subcontracts and approval to a Medi-Cal managed care plan for the coverage of of existing subcontracts,” providing an exception to some or all specialty mental health services through the contract provisions that would otherwise require prior Medi-Cal managed care plan’s network. Under a subcon- approval of subcontracts for services costing more than tracting approach, DHCS would not need to designate a $5,000.24 However, DHCS regulations state that an MHP new MHP. Rather, the county would remain designated must request approval from DHCS “to establish a contract as the MHP and ultimately responsible for the contracted with a provider … where that provider is held financially plan’s performance, subject to indemnification provisions responsible for specialty mental health services provided or other protections negotiated between the parties. to beneficiaries by one or more other providers or to DHCS approval of the subcontract may be required. establish a payment arrangement with contract or non- contract providers that would not be allowed under this The ability to subcontract is provided for in state and Chapter absent approval under this section.”25 This regu- federal law and written into the MHP contracts. Federal lation suggests DHCS has a specific interest in approving Medicaid regulations provide that managed care plans risk-based subcontracts. Federal approval is not required (including the MHPs) may enter into subcontracts so for MHP subcontracts. long as (1) the state that contracts with the plan ensures that the plan “maintains ultimate responsibility” for Voluntary Behavioral Health Integration in Medi-Cal: What Can Be Achieved Under Current Law www.chcf.org 6 These authorities support a path forward for a county covered services in their service area.28 Counties are MHP to subcontract with a Medi-Cal managed care plan required to provide all Drug Medi-Cal services to which (or other entity) to help fulfill the MHP’s obligations under beneficiaries are entitled and receive realignment its contract with DHCS. Under this scenario, a county funding for this purpose.29 and a Medi-Cal managed care plan could negotiate the terms of an agreement to allocate responsibilities, Under the Drug Medi-Cal program, counties bear some subject to applicable DHCS approval. Potential arrange- obligations similar to those of a managed care net- ments could run the gamut from the Medi-Cal managed work — namely, meeting requirements for establishing care plan taking sole responsibility for developing a net- assessment and referral procedures for Drug Medi-Cal work for specialty mental health services and processing services.30 However, Drug Medi-Cal counties cannot claims, to more limited arrangements in which the county restrict payment to a Drug Medi-Cal provider certified relies on the plan to supplement its network or to per- by DHCS and are required to pay the rates established form limited administrative activities. by DHCS.31 Moreover, DHCS invoices the county for the nonfederal share of approved Drug Medi-Cal claims As with the option discussed above (Medi-Cal Managed payments to those providers that contract directly with Care Plan as the MHP), the incorporation of Medi-Cal DHCS rather than with the county.32 Because of these managed care plans into the MHP delivery system raises limitations, counties holding Drug Medi-Cal contracts a number of questions. For example, as described earlier, operate more as fiscal intermediaries for a fee-for-service the MHPs currently claim federal financial participation benefit, with only modest ability to coordinate and orga- pursuant to a cost-claiming protocol approved by CMS.26 nize care. These Drug Medi-Cal counties are not subject This protocol does not specifically address the potential to federal Medicaid managed care regulations. for MHPs to make payments (whether on a capitated or other basis) to contractors responsible for developing In part to address these limitations, California received their own network. Clarifying modifications to the pro- federal approval in 2014, under Social Security Act tocol could be made to address how the county MHP section 1115 Medicaid demonstration authority, to can utilize CPEs to claim reimbursement for its expen- expand available SUD services through the Drug ditures to contractors, including its payments to the Medi-Cal Organized Delivery System (DMC-ODS) pilot Medi-Cal managed care plan. Similarly, claims reporting project.33 Through DMC-ODS pilots, counties that elect and processing procedures would need to be available to participate are treated as managed care entities for providers added to the MHP network through their responsible for coordinating and ensuring access to contract with the Medi-Cal managed care plan. A county the continuum of care for SUD services, with greater would likely need to work closely with DHCS to ensure flexibility than under “traditional” Drug Medi-Cal to that the county could continue to meet all MHP require- limit the provider network and establish payment rates.34 ments through such a subcontract. Participating counties enter into a DMC-ODS contract with DHCS. The majority of counties have opted into the DMC-ODS program. Transferring Responsibility for the Drug Medi-Cal or Drug Medi-Cal Because of the different structures of Drug Medi-Cal and Organized Delivery System Program the DMC-ODS pilots, there are different options and considerations for transferring responsibility for the pro- to a Medi-Cal Managed Care Plan grams to a Medi-Cal managed care plan. Specifically, to While some physician-administered SUD benefits are achieve integrated contracts, a “traditional” Drug Medi- available through traditional Medi-Cal (either fee-for- Cal county could ask DHCS to enter into a direct contract service or through Medi-Cal managed care plans), most with the Medi-Cal managed care plan instead of the are available only through California’s Drug Medi-Cal county, while counties operating a DMC-ODS pilot may program.27 Under the Drug Medi-Cal program, counties prefer to subcontract with the Medi-Cal managed care contract with DHCS; establish assessment and referral plan in order to ensure the continued availability of the procedures; and arrange, provide, or subcontract for expanded SUD benefits. California Health Care Foundation www.chcf.org 7 Drug Medi-Cal that differ from those under the Medicaid state plan Drug Medi-Cal Direct Contract Model with a Medi- (this authority is distinct from the waiver authorization for Cal Managed Care Plan DMC-ODS). Modifications to the current demonstration special terms and conditions would be needed to rec- State law governing Drug Medi-Cal provides that DHCS ognize that the plan is responsible for providing Drug “may” contract with each county for alcohol and drug Medi-Cal services. While these systems would be similar use services.35 While this language appears permissive in in some ways to the DMC-ODS pilots, they would not contrast to the MHP statutes discussed earlier, the statu- have the authority to cover the expanded scope of SUD tory framework contemplates that counties would be benefits available in counties opting into DMC-ODS. offered such contracts by addressing the circumstances in which a county decides not to enter into a Drug Medi- To initiate this option, an interested county would Cal contract. As a practical matter, counties do currently approach DHCS about potentially terminating its current hold these Drug Medi-Cal contracts. Drug Medi-Cal contract in favor of a Medi-Cal managed care plan. If DHCS were interested in pursuing such a Like the MHP authorities discussed in section A.1, the change, the parties could explore a transitional agree- Drug Medi-Cal laws provide a path for a county to ter- ment to keep the county’s role in place until the Medi-Cal minate its existing Drug Medi-Cal contract to enable managed care plan’s contract becomes effective, and to DHCS to enter into a new contract with a qualified entity ensure an effective transition. to ensure beneficiary access to Drug Medi-Cal services. Specifically, if a county decides not to enter a Drug Medi- As with the MHP contracts, counties use public funds Cal contract, the county must notify DHCS in writing by and CPEs to provide the nonfederal share of Drug Medi- May 20 preceding the fiscal year in which, or at least 60 Cal expenditures, a mechanism that is not available to a days before, the contract would have become effective.36 nonpublic entity. The termination of the county’s Drug Further, the law provides, “to the extent that a county Medi-Cal contract to facilitate a successor arrangement decides not to enter into or terminates its Drug Medi-Cal with a Medi-Cal managed care plan that is not a public Treatment Program contract with the department, the entity would therefore impact the financing and payment department shall contract for Drug Medi-Cal Treatment of Drug Medi-Cal services, and would require the devel- services in the county as necessary to ensure beneficiary opment of appropriate methods. access to these services.”37 These contracts may be with certified Drug Medi-Cal providers directly or through Drug Medi-Cal Subcontract with a Medi-Cal Managed qualifying individual counties, counties acting jointly, or Care Plan county consortia, and with qualified individuals, organi- zations, or nongovernmental entities.38 While the Drug In theory a county could also seek to delegate its Drug Medi-Cal statutes do not explicitly identify Medi-Cal Medi-Cal obligations to a Medi-Cal managed care plan managed care plans as potential Drug Medi-Cal con- via a subcontract (similar to the model described in sec- tractors, they permit DHCS to contract with “qualified tion A.2 for specialty mental health services). We note, individuals, organizations, or nongovernmental entities,” however, that this option poses few advantages. Unlike and to enter into contracts “for the procurement of ser- services delivered through the DMC-ODS pilots, the vices to assist the department in administering the Drug Drug Medi-Cal program is a fee-for-service Medi-Cal Medi-Cal Treatment Program.”39 benefit. While counties enter into contracts with DHCS to provide Drug Medi-Cal benefits, the counties do not If DHCS were to contract with a Medi-Cal managed care benefit from the authorities available to Medicaid man- plan to cover Drug Medi-Cal benefits, the plan could aged care plans and as a result have limited ability to employ managed care principles not currently available deny claims from noncontracting providers or to vary to the county. As Medi-Cal managed care plans oper- payment rates among providers. A subcontractor to a ating under current demonstration authority, the plan county would also not be able to exercise these options, could operate a closed network and set payment rates limiting the benefits of integrating legal authority of care Voluntary Behavioral Health Integration in Medi-Cal: What Can Be Achieved Under Current Law www.chcf.org 8 into a single entity. For these reasons, a county interested county opts out of the DMC-ODS pilot and the state in assigning authority for Drug Medi-Cal services to a enters into a direct DMC-ODS contract with a Medi-Cal Medi-Cal managed care plan may prefer to either have managed care plan. Such an amendment could be pur- DHCS directly contract with the Medi-Cal managed care sued with DHCS and CMS. plan under the state’s existing managed care authori- ties or elect to participate in the DMC-ODS pilot, which Absent such an amendment, a county could seek incorporates managed care authority into the delivery of approval to have its DMC-ODS program integrated with Drug Medi-Cal services. a Medi-Cal managed care plan through a subcontract. The demonstration special terms and conditions applica- If a county wishes to pursue a subcontracted arrange- ble to the DMC-ODS authorize participating counties to ment with a Medi-Cal manage care plan without opting “contract with a managed care plan to provide services.”42 into DMC-ODS, the county could reach out to DHCS for This authorization provides existing federal approval for clarification and approval of the potential subcontract. a county to subcontract with a Medi-Cal managed care The specifics of those subcontracts would depend on plan to develop the network of certified Drug Medi-Cal language in the county’s existing Drug Medi-Cal contract. providers that will deliver services and potentially man- While DHCS has not issued a boilerplate Drug Medi-Cal age their reimbursement and utilization. To implement agreement, at least some Drug Medi-Cal contracts we this approach, a county may need to modify its implemen- have reviewed include provisions requiring prior written tation plan for the DMC-ODS pilot and should approach authorization from DHCS before a contractor enters into DHCS about requirements related to its prior approval of a subcontract of more than $5,000. Unlike the boiler- the subcontract and change in network model. plate MHP agreement, the agreements did not indicate that DHCS has waived this requirement. In addition, In addition, the county may need to modify its DMC- clarification from DHCS would be needed regarding ODS contract with DHCS to clarify the ability to enter the limitations included in some contracts defining into a subcontract with a plan. The boilerplate version “subcontract” and “subcontractor” to specify that a sub- of the DMC-ODS contract authorizes the use of sub- contractor may not “delegate its obligation to provide contracts that meet federal requirements, which were covered services or otherwise subcontract for the pro- described earlier in section I-A-2.43 However, the contract vision of direct patient/client services.”40 This definition also includes the same definitions of subcontractors we could be construed to prevent a county from delegating have seen in the Drug Medi-Cal contracts, requiring prior to another entity responsibility for contracting with Drug DHCS approval of subcontracts44 and including defini- Medi-Cal providers. tions that appear to prohibit a subcontractor from further subcontracting with other providers to deliver covered Drug Medi-Cal Organized Delivery System services.45 These definitions in a county’s DMC-ODS Since 2014, the state’s section 1115 demonstration project contract should be reviewed with DHCS to determine has authorized counties to implement DMC-ODS pilots whether amendments are needed to allow for subcon- and allow beneficiaries to access an expanded set of SUD tracting a plan that will develop and use its own network. benefits through such pilots.41 Counties are required to submit to DHCS an implementation plan describ- Based on these authorities, a county interested in del- ing how they will provide benefits; once the counties egating DMC-ODS functions to a Medi-Cal managed contract with DHCS they gain additional authority as care plan might wish to approach DHCS about whether managed care plans and are able to offer beneficiaries it would approve the arrangement and confirm any an expanded set of SUD benefits. requirements for modifications to the county’s current agreement or implementation plan. It is also likely that Because authority for the DMC-ODS pilot is currently financial issues would need to be worked out, as DMC- tied to the county’s participation, an amendment to ODS is operated as a non-risk-based managed care the applicable special terms and conditions would be entity from the federal perspective (counties are at risk needed to allow for a DMC-ODS pilot in which the only for the cost of their nonfederal share). A county California Health Care Foundation www.chcf.org 9 that delegates responsibility to a managed care plan scope, duration, and level of care.”46 This statute is not could potentially do so in a manner that pays the plan a limited to any particular geographic area, model of man- capitated rate, with the county claiming federal financial aged care, or scope of services, and by its terms can be participation based on its costs of making such payments, used whenever DHCS determines a managed care con- but approval for claiming those costs would need to be tract would be cost-effective and appropriate. confirmed before committing to such an arrangement. Other statutes specifically authorize DHCS to pursue exclusive contracts with County Organized Health Integrating Responsibility for Systems (COHSs);47 to pursue Geographic Managed Care in a County Care (GMC) pilots in specific geographic areas (San Diego and Sacramento Counties);48 and to expand man- The second general approach to achieving administra- aged care into new, rural counties.49 These authorities tive and financial integration of care in Medi-Cal would also do not limit the scope of Medi-Cal covered services be for a county to serve as a specialty Medi-Cal man- that may be included pursuant to such contracts. In addi- aged care plan with responsibility for covering physical tion, DHCS retains the statutory authority it has had for health services as well as the behavioral health services decades to enter into contracts with one or more “pre- already covered under its MHP and Drug Medi-Cal con- paid health plans” to provide Medi-Cal benefits50 and tracts. For example, DHCS could contract with a county to enter into pilot programs to “aggressively seek the to provide full scope Medi-Cal coverage for those indi- development of alternative forms of financing and deliv- viduals who qualify for specialty mental health services or ering healthcare services.”51 services under the Drug Medi-Cal program. Alternatively, a Medi-Cal managed care plan could enter into a sub- A key barrier to utilizing DHCS’s authority to award contract with the county to cover certain beneficiaries. managed care contracts under this option would be the These arrangements would allow a county to serve as limitations or prior agreements applicable to the other a single accountable entity with legal responsibility for Medi-Cal managed care plans in the area, which are both behavioral and physical health services. These two specific to the details of existing DHCS contracts and approaches are addressed in the next sections. the managed care model operating in the county. $$ COHS Counties. State law grants DHCS authority Direct Medi-Cal Managed Care to enter into exclusive contract with COHS plans. Contract While the COHS boilerplate contract does not Under this model, DHCS would enter into a new Medi- include a specific exclusivity provision, the plans Cal managed care contract directly with a county to currently are exclusive in nature (although they provide comprehensive health services, including physi- are not exclusive with regard to the MHP or Drug cal health services, for Medi-Cal beneficiaries who enroll Medi-Cal services, which are carved out of the with the county. contract), and DHCS may not be willing or able to modify its existing contracts without the COHS’s DHCS has broad authority to contract with Medi-Cal agreement.52 A COHS likely would need to agree managed care plans under multiple statutory provisions, to an amendment to the terms of its contract (or a which have been added over the years in connection modification in the next renewal of its contract) to with various pilots and the implementation of the dif- enable DHCS to contract directly with a county to ferent Medi-Cal managed care models. One statute, for provide coverage for enrollees previously served example, authorizes DHCS to “contract … with any qual- by the plan. ified individual, organization or entity to … provide for the delivery of services in a manner consistent with man- Additionally, most Medi-Cal managed care plans aged care principles, techniques and practices directed operating under the COHS model are exempt at ensuring the most cost-effective and appropriate from many of the federal Medicaid managed care Voluntary Behavioral Health Integration in Medi-Cal: What Can Be Achieved Under Current Law www.chcf.org 10 plan requirements because of federal legislation need to be structured as a prepaid health plan and passed specifically for California.53 For some COHS would be subject to the requirements applicable plans, maintaining this exemption requires that the to Medi-Cal managed care plans. plan enroll all Medi-Cal beneficiaries residing in the plan’s county.54 A new Medi-Cal managed care The state’s various models of Medi-Cal managed care plan that competes with an existing COHS thus are currently authorized under the state’s section 1115 could potentially disqualify the COHS from the demonstration project waiver, called “Medi-Cal 2020.” federal exemption. If DHCS were to award a new plan under any of these models, modification of the current waiver would be $$Two-Plan Model Counties. In Two-Plan model required to identify the new plan. Currently, the state’s counties, DHCS regulations have historically pro- authority to operate the different managed care models vided that all care would be provided through is contained in the Medi-Cal 2020 demonstration, which one of two contracted plans, a local initiative and includes various attachments identifying the currently a commercial option.55 The commercial option is contracted plans, the scope of services they provide, not required to be a nongovernmental entity and and the requirements for beneficiary enrollment.57 These is subject only to the requirement that the con- attachments would need to be modified by DHCS and tract must be awarded through a competitive bid approved by CMS before an additional plan can be process. The local initiative must either be orga- added in a county.58 Requests for amendments must be nized by the county government or stakeholders submitted 120 days prior to the planned implementation in the region or else be designated by the county date and may not be retroactively approved.59 In addi- government or stakeholders in the region and tion, CMS would need to approve the county’s Medi-Cal approved by DHCS. While a county could poten- managed care plan contract. tially qualify under either of these options, adding a new county plan would require one of the cur- If the new Medi-Cal managed care plan contract were to rent Medi-Cal managed care plans that contract place the county at financial risk for the cost of providing with DHCS in the Two-Plan model county to lose services to its enrollees, the county would likely need to its contract. To change these requirements, DHCS acquire a Knox-Keene license. Putting the processes and could modify its regulations to permit the opera- applications in place to be approved for such a license tion of a third plan in the county. DHCS recently can take months or longer. made such a modification to allow it to potentially contract with Kaiser, demonstrating that DHCS can As with the options discussed earlier, the county specialty make changes to the Two-Plan model without leg- plan contract option implicates various finance and pay- islative action.56 ment issues, including establishment of capitation rates and the funding of such payments. For example, if a If the county already serves as one of the Two-Plan county seeks to create a more robust integration of spe- model plans, it could approach DHCS and the cialty behavioral health and physical services, the county Department of Managed Health Care to inquire could also seek to reform or consolidate the funding about modifying the scope of its Medi-Cal man- mechanisms applicable under its current MHP or Drug aged care contract and Knox-Keene license to Medi-Cal contracts. DHCS and the county (and poten- cover specialty mental health services and/or spe- tially the legislature and CMS) would need to either cialty SUD services. separate the reimbursement under the specialty care $$ GMC Model Counties. Unlike the other Medi-Cal plan contract so that the county receives two differ- managed care models, the GMC model does not ent payment streams, or move the county to a single have restrictions on the number of plans that may capitated rate inclusive of specialty mental health and operate in the region. As a result, DHCS could Drug Medi-Cal services. The county would also need contract with a county subject to those models to address the financing mechanisms applicable to the (currently, Sacramento and San Diego Counties) to specialty health plan and to consider how integrated the serve as a new plan. The county contract would funding and reimbursement will be. California Health Care Foundation www.chcf.org 11 Medi-Cal Managed Care Plan A Medi-Cal managed care plan must describe to DHCS Subcontract “systems for ensuring that subcontractors, who are at risk for providing services to Medi-Cal Members, as well as As an alternative to contracting directly with DHCS as any obligations or requirements delegated pursuant to a a Medi-Cal managed care plan, a county could seek Subcontract, have the administrative and financial capac- to have responsibility for services delegated to it by a ity to meet its contractual obligations.”67 It must also local Medi-Cal managed care plan via a subcontract. submit “policies and procedures for a system to evaluate For example, the county could agree via contract to and monitor the financial viability of all subcontracting take over responsibilities from the Medi-Cal managed entities.”68 DHCS maintains control during the term care plan for the provision of physical health services of the contract by reserving the authority to “[r]equire to certain enrollees, or the county could agree to pro- Contractor to temporarily suspend or terminate person- vide nonspecialty behavioral health services. The latter nel or subcontractors.”69 option is contemplated in the current Medi-Cal man- aged care plan boilerplate contracts, which provide that As long as the contractual and regulatory requirements Medi-Cal managed care plans “may subcontract with a are met, the Medi-Cal managed care plan and the county mental health plan to ensure access to Outpatient subcontractor have flexibility in how to structure the Mental Health Services” and that, when they do so, “[a] agreement. For example, boilerplate contracts explicitly subcontracted network shall be deemed adequate upon provide that “Contractor may compensate providers as submission and approval of Contractor’s subcontract Contractor and provider negotiate and agree,” and that boilerplate for a county mental health plan.”60 Other “[u]nless DHCS objects, compensation may be deter- types of subcontractual arrangements are also possible mined by a percentage of the Contractor’s payment under each of the Medi-Cal managed care models. from DHCS.”70 Many Medi-Cal managed care plans in California have delegated significant plan functions to DHCS boilerplate contracts for Medi-Cal managed care other entities via subcontract, including having the third plans expressly authorize plans to subcontract with party entity agree to cover services for a portion of the other entities “in order to fulfill the obligations of the primary plan’s enrollment or delegating responsibility for Contract.”61 All subcontracts must be in writing and meet coverage, network development, and reimbursement of federal requirements, Knox-Keene Act requirements, a subset of services (e.g., mental health services within and Medi-Cal laws and regulations. The subcontracts the primary plan’s scope of coverage). must meet certain requirements, which are consistent with those required under federal law.62 Consistent with this authority, a Medi-Cal managed care plan could delegate a portion of its responsibili- Medi-Cal managed care plan subcontracts are not effec- ties to the county. This option is available in each of the tive until approved by DHCS in writing (or approved by state’s managed care models, subject to DHCS approval. operation of law if DHCS fails to act within 60 days of its Depending on the scope of the arrangements and acknowledged receipt).63 DHCS also has a right of prior the level of financial risk taken by the county under its approval over any amendments that would change com- subcontract, the county may need to acquire a Knox- pensation, services, or term, and DHCS must be notified Keene license. Because the subcontractual arrangement in the event the subcontract is terminated.64 Importantly, would not result in a new DHCS contract, the limitations subcontractors must agree “to hold harmless both the imposed on the number of plans operating in the county State and Members in the event the Contractor cannot or would not apply. will not pay for services performed by the subcontractor pursuant to the Subcontract.”65 DHCS and other state agencies must be given the right to inspect or copy all records of subcontractors (including both first-level and more downstream subcontractors) for a term of at least five years.66 Voluntary Behavioral Health Integration in Medi-Cal: What Can Be Achieved Under Current Law www.chcf.org 12 Conclusion Current state laws reflect Medi-Cal’s fragmented delivery subcontract with a county to develop a network of system and create separate contracting processes and services for “mild to moderate” mental health issues, standards for Medi-Cal behavioral and physical health and for a county to expand its role by contracting with services. Notwithstanding this fragmentation, current DHCS to serve as a full-scope Medi-Cal managed care authorities also include multiple pathways through which plan for beneficiaries with serious behavioral health a county could pursue greater integration of Medi-Cal issues. Stakeholders interested in developing a frame- physical and behavioral health services. These include work for integrated care in partnership with DHCS can options for a noncounty entity such as a Medi-Cal pursue these different options potentially without fur- managed care plan to serve as an MHP or Drug Medi- ther legislative action. Cal contractor, for a Medi-Cal managed care plan to California Health Care Foundation www.chcf.org 13 Endnotes 1 The county-operated mental health plans operate under the 23 DHCS, California MHP Contract 2017-22, Exhibit A, Attachment 1 Specialty Mental Health Services waiver approved by CMS ¶ 4, Subcontracts. pursuant to Social Security Act section 1915(b). The Medi- 24 DHCS, California MHP Contract 2017-22, Exhibit A, Attachment 1 Cal managed care plans and the Drug Medi-Cal Organized ¶ 4.A, Subcontracts. Delivery Systems operate under the California Medi-Cal 2020 Demonstration waiver approved by CMS pursuant to Social 25 9 Cal. Code of Regs. § 1810.438(a). Security Act section 1115(a). 26 CMS Supplemental Approval Letter and Certified Public 2 Throughout this article, “Medi-Cal managed care plan” refers to Expenditure Protocols (Oct. 5, 2016), available at www.dhcs. those plans contracting with DHCS under the County Organized ca.gov/services/MH/Pages/1915(b)_Medi-cal_Specialty_Mental_ Health System (COHS) model, Two-Plan model or Geographic Health_Waiver.aspx. Managed Care (GMC) model (inclusive of managed care 27 Welf. & Inst. Code § 14124.24(d) (providing that Drug Medi-Cal expansion regional models), and does not include mental health services are only reimbursement to Drug Medi-Cal providers with plans (MHPs) or counties contracting for Drug Medi-Cal or Drug an approved Drug Medi-Cal contract). Medi-Cal Organized Delivery System contracts. 28 DHCS, Drug Medi-Cal contract, Exhibit A, Attachment I, Section 3 See, e.g., Sarah Arnquist and Peter Harbage, A Complex Case: 2.A. DHCS has not issued a template Drug Medi-Cal contract Public Mental Health Delivery and Financing in California, July to the public; we have reviewed a version of the Drug Medi-Cal 2013. contract for one county. Individual contracts may vary in key 4 Logan Kelly, Allison Hamblin, and Stephen Kaplan, details, and counties should consult their own contract. Behavioral Health Integration in Medi-Cal: A Blueprint 29 See DHCS, MHSUDS Inf. Notice 14-06, Senate Bill (SB) 1020 for California, February 2019, www.chcf.org/publication/ (Chapter 40, Statutes of 2012); Gov’t Code § 30025(f)(16)(B). behavioral-health-integration-medi-cal-blueprint/. 30 Welf. & Inst. Code § 14124.24(e); DHCS, Drug Medi-Cal contract, 5 Welf. & Inst. Code § 14189. Exhibit A, Attachment I, Section 1 and 2.A. 6 Welf. & Inst. Code § 14712(a); see also Welf. & Inst. Code § 31 See CHCF Issue Brief, Medi-Cal Moves Addiction Treatment into 14680. the Mainstream: Early Lessons from the Drug Medi-Cal Organized 7 Welf. & Inst. Code §§ 14712(c), 14714(i), 14680(d); 9 Cal. Code of Delivery System Pilots at 3–4 (Aug. 2018) (describing barriers in Regs § 1810.305(b). the standard Drug Medi-Cal System). 8 Welf. & Inst. Code § 14712(a); 9 Cal. Code of Regs § 1810.305(c). 32 DHCS, Drug Medi-Cal contract, Exhibit B § 3.B. 9 Welf. & Inst. Code § 5600, et seq. 33 Medi-Cal 2020, Special Terms and Conditions Part X, Drug Medi- Cal Organized Delivery System. 10 Welf. & Inst. Code § 14714(a)(2). 34 Medi-Cal 2020, Special Terms and Conditions ¶ 132.a. 11 We note that the current approval period for the section 1915(b) waiver expires June 30, 2020. Counties should consult their own 35 Welf. & Inst. Code § 14124.20.a contracts, as individual contracts could differ from the DHCS 36 Welf. & Inst. Code § 14124.21(a). boilerplate agreements. 37 Welf. & Inst. Code § 14124.21(b)(1). 12 9 Cal. Code of Regs. 1810.323(a), (h). 38 Welf. & Inst. Code § 14124.21(b)(2). 13 MHP Contract, Exhibit E § 3.A(1) (p. 2 of 16).  39 Welf. & Inst. Code § 14124.23. 14 MHP Boilerplate Contract (July 1, 2017–June 30, 2022), Exhibit E, 40 DHCS, DMC Agreement, Exhibit A, Attachment I, Part IV — § 3.E(2) (p. 5 of 16); Exhibit A – Attachment 11, § 2.B. (p. 3 of 10); Definitions, § 2 ¶ W, X. see § 42 C.F.R. 438.10(f)(1).   41 Medi-Cal 2020, Special Terms and Conditions Section X. 15 9 Cal. Code of Regs. § 1810.323(j). 42 Medi-Cal 2020, Special Terms and Conditions ¶ 132.a. (June 7, 16 Welf. & Inst. Code § 14712. 2018). 17 Welf. & Inst. Code § 14684(a). 43 DHCS DMC-ODS Boilerplate, Exhibit A, Attachment I § II.B.vi 18 Welf. & Inst. Code § 14684(a); 9 Cal. Code of Regs. § 1810.305(b). 44 Interestingly, some of the approved DMC-ODS contracts have 19 42 C.F.R. § 433.51. removed this language from the contracts. The Alameda County 20 42 C.F.R. § 438.230(b)–(c). contract has redacted section 5 of the general terms and conditions, related to subcontracts, but the other DMC-ODS 21 To the contrary, state law authorizing DHCS to enter into MHP contracts we reviewed did not. contracts specifically contemplates the use of subcontractors, although in context these references appear intended to 45 DHCS DMC-ODS Boilerplate, Exhibit A, Attachment I ¶ 107–108. encompass network providers that are part of the MHP network. 46 Welf. & Inst. Code § 14087.3. 22 DHCS, California MHP Contract 2017-22, Exhibit A, Attachment 1 47 Welf. & Inst. Code §§ 14087.5, et seq. ¶ 3, Delegation. 48 Welf. & Inst. Code §§ 14089, et seq. Voluntary Behavioral Health Integration in Medi-Cal: What Can Be Achieved Under Current Law www.chcf.org 14 49 Welf. & Inst. Code § 14087.98. 62 22 Cal. Code of Regs. §§ 53250, 53867; Two-Plan Boilerplate Contract, Exhibit A, Attachment 6 ¶ 14. 50 Welf. & Inst. Code §§ 14200, et seq. 63 22 Cal. Code of Regs. §§ 53250, 53867; Two-Plan Boilerplate 51 Welf. & Inst. Code §§ 14490, et seq. Contract, Exhibit A, Attachment 6 ¶ 14.C. 52 Welf. & Inst. Code § 14087.5 (authorizing exclusive COHS model 64 Two-Plan Boilerplate Contract, Exhibit A, Attachment 6 ¶¶ contracts). However, the COHS boilerplate contract does not 14.B.13, 14.C; COHS Boilerplate Contract, Exhibit A, Attachment make reference to exclusivity. 6 ¶¶ 13.B.13, 13.C. 53 See California Medi-Cal 2020 Demonstration, Special Terms and 65 Two-Plan Boilerplate Contract, Exhibit A, Attachment 6 ¶ 14.B.15; Conditions at 20. COHS Boilerplate Contract, Exhibit A, Attachment 6 ¶¶ 13.B.15. 54 See Section 4734 of the 1990 Omnibus Budget Reconciliation Act 66 Two-Plan Boilerplate Contract, Exhibit A, Attachment 6 ¶¶ 14.B.8, of 1990. 14.B.10; COHS Boilerplate Contract, Exhibit A, Attachment 6 ¶¶ 55 22 Cal. Code of Regs. § 53800. 13.B.8, 13.B.10. 56 22 Cal. Code of Regs. §§ 53800(c), 53810. The regulations now 67 Two-Plan Boilerplate Contract, Exhibit A, Attachment 18 ¶ 2.G; authorize contracts with a third plan in Two-Plan model counties. COHS Boilerplate Contract, Exhibit A, Attachment 18 ¶ 2.G. The plan must qualify as an Alternate Health Care Service Plan 68 Two-Plan Boilerplate Contract, Exhibit A, Attachment 18 ¶ 2.J; (AHSCP). 22 Cal. Code of Regs. §§ 53800(c), 53810. Qualification COHS Boilerplate Contract, Exhibit A, Attachment 18 ¶ 2.I. as an AHSCP is limited to entities meeting requirements that a county would not meet, such as being a nonprofit entity that 69 Two-Plan Boilerplate Contract, Exhibit E, Attachment 2 ¶ 16.E.3; serves at least 3.5 million enrollees statewide. COHS Boilerplate Contract, Exhibit E, Attachment 2 ¶ 16.E.3. 57 Medi-Cal 2020 Demonstration Special Terms and Conditions § 70 Two-Plan Boilerplate Contract, Exhibit A, Attachment 8 ¶1; VII, Demonstration Delivery Systems, Attachment L, Attachment see also COHS Boilerplate Contract, Exhibit A, Attachment M, and Attachment. 8 ¶ 1 (“The Contractor may enter into a Subcontract if the compensation or other consideration which the subcontractor 58 Medi-Cal 2020 Demonstration, Special Terms and Conditions ¶ 7. shall receive under the terms of the Subcontract is determined by 59 Medi-Cal 2020 Demonstration, Special Terms and Conditions ¶ 8. a percentage of the Contractor’s payment from the State, unless 60 Two-Plan Boilerplate Contract, Exhibit A, Attachment 21 ¶ 1.B.1; DHCS objects.”) COHS Boilerplate Contract, Exhibit A, Attachment 21 ¶ 1.B.1. 61 Two-Plan Boilerplate Contract, Exhibit A, Attachment 6 ¶ 14; COHS Boilerplate Contract, Exhibit A, Attachment 6 ¶ 13. California Health Care Foundation www.chcf.org 15