Choosing to go full-speed ahead despite a host of complexities, California on Jan. 27 issued a final Request for Solutions (RFS) for a four-county Medicare-Medicaid dual eligibles demonstration project that offers large opportunities for insurers with Medicare Advantage Special Needs Plans (SNP) as well as those with Medicaid experience. And despite reservations expressed in many comments, the state acknowledged, it intends to proceed with a system that requires only the right for beneficiaries to opt out of participation, rather than mandating that they opt in.

The California proposal is “very ambitious,” remarks consultant Jean LeMasurier, a former top CMS official who now is senior vice president, public policy at Gorman Health Group, LLC. She notes that California intends to start enrolling duals in the plans on Jan. 1, 2013, and that it seeks to include in its model counties in which Medicaid services are furnished in multiple ways, one of which is a County Organized Health System (COHS).

The state is one of 15 that got $1 million planning grants from the year-old duals office within CMS. It faces a particularly daunting challenge, according to LeMasurier, since California has carved out many services (e.g., behavioral health) in its Medicaid program and now will need to carve them in to comply with the duals office’s insistence on integrated services in programs the office helps fund.

California, in its 50-page RFS document and accompanying memo from Toby Douglas, director of the state’s Department of Health Care Services (DHCS), points out that there are several steps that need to be completed before the project can start, including the approval of CMS, which would help fund it (MAN 1/5/12, p. 1). But the state nevertheless set out a tight timeline for the steps to occur, including having responses to the RFS in by Feb. 24. DHCS plans to announce the sites selected for the demonstration in mid- to late March and submit the demonstration proposal to CMS in late April or early May.

The state, which has nearly 1.2 million duals, made some clarifications and changes to its earlier documents about the program as a result of comments it received, DHCS noted. The department, for instance, now requires that one plan in each county selected, rather than all plans selected as in the preliminary RFS, have experience operating a dual SNP within the last three years. But consultant Greg Scott, a principal in Deloitte Consulting LLP, stresses that California did not back off on mandating that all bidders selected have a Medi-Cal contract, which of course favors incumbent Medicaid plans, although it wants bidders to get Medicare expertise as well.

In the attachment accompanying the final RFS, DHCS notes that it “intends to pursue special permission from CMS to keep beneficiaries who did not opt out of the demonstration in the same health plan for six months.” Although health plans will be encouraged by this, CMS had indicated earlier that it would like only a 90-day lock-in, LeMasurier recalls, so this is one thing the parties will have to work out. California stresses that it would accompany its policy with “strong consumer protections,” but it is clear the state wants to launch the program as soon as possible, especially since all but about 175,000 of its duals now are in very costly fee-for-service (FFS) arrangements, she tells MAN.

Payment Rates Still Are Unknown

The payment rates for the proposed California initiative won’t be known for a while, although California has made it clear it seeks the capitated rather than the managed FFS option CMS also plans to test. Participating plans, LeMasurier points out, will get a “blended” rate that includes payments for Medicare Part D and Medicaid in addition to Medicare medical. Both state and CMS actuaries will look at the baseline data and come up with a rate intended to assure savings for both Medicare and the state as is required in guidance CMS issued Jan. 25 regarding the capitated dual demonstration programs.

To achieve the January 2013 startup California is seeking, “a lot of these timelines will have to be concurrent,” observes LeMasurier. That includes submitting details on Part D formularies and medication management, so any would-be MA bidders not handling those functions now will “have to learn this stuff quickly.”

Participants in the proposed California initiative also will not be eligible for CMS star-rating quality bonuses on the demonstration project and will be subject to an “increasing quality withhold” (1%, 2% and 3% on years one, two and three, respectively), the DHCS document says.

LeMasurier doesn’t seem worried about some other decisions California outlined in the final RFS. Demonstration sites, California says, will be required to comply with a state law mandating a minimum 85% medical loss ratio (MLR) in the large-group market. This isn’t usually a problem on the MA side, she says.

Nor is LeMasurier concerned about potential problems with the federal funding for the initiative in light of Republicans’ criticism of the budget and some operations of the CMS Center for Medicare and Medicaid Innovation (CMMI), which funds the duals office initiatives. She notes that money for CMMI was appropriated in the reform law.

If the initiative proceeds as planned, numerous MA and Medicaid plans are likely to apply, perhaps in partnership with others. Health Net, Inc. is a logical candidate since it is based in and has extensive operations in California and has expressed interest in the duals market. But securities analyst Scott Fidel in a Jan. 30 research note points out that the company recently agreed to sell its stand-alone Prescription Drug Plan to CVS Caremark Corp. (MAN 1/26/12, p. 5), so it may seek to subcontract with CVS to supply the required Part D portion.

On the Medicaid side, observes Fidel, Molina Healthcare, Inc., which also is based in California and contracts with the state, is a contender.

View the final California RFS at www.dhcs.ca.gov/provgovpart/rfa_rfp/Pages/OMCPDualEligDemoHOME.aspx.

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