BILL NUMBER: SB 840

BILL NUMBER: SB 840    ENROLLED

        BILL TEXT

        PASSED THE SENATE  AUGUST 31, 2006

        PASSED THE ASSEMBLY  AUGUST 28, 2006

        AMENDED IN ASSEMBLY  AUGUST 24, 2006

        AMENDED IN ASSEMBLY  AUGUST 21, 2006

        AMENDED IN ASSEMBLY  AUGUST 7, 2006

        AMENDED IN ASSEMBLY  JULY 12, 2005

        AMENDED IN ASSEMBLY  JUNE 28, 2005

        AMENDED IN SENATE  MAY 27, 2005

        AMENDED IN SENATE  MAY 4, 2005

        AMENDED IN SENATE  APRIL 18, 2005

INTRODUCED BY   Senator Kuehl

   (Principal coauthor: Senator Ortiz)

   (Principal coauthors: Assembly Members Chan, Goldberg, and Leno)

   (Coauthors: Senators Alarcon, Alquist, Cedillo, Chesbro, Escutia,

Figueroa, Florez, Lowenthal, Migden, Murray, Perata, Romero, and

Soto)

   (Coauthors: Assembly Members Bass, Berg, Bermudez, Chavez, Chu,

Coto, Dymally, Evans, Hancock, Jerome Horton, Jones, Klehs, Koretz,

Laird, Levine, Lieber, Lieu, Montanez, Mullin, Nava, Oropeza, Pavley,

Ridley-Thomas, Salinas, Torrico, Vargas, and Yee)

                        FEBRUARY 22, 2005

   An act to add Division 112 (commencing with Section 140000) to the

Health and Safety Code, relating to health care coverage.

        LEGISLATIVE COUNSEL'S DIGEST

   SB 840, Kuehl  Single-payer health care coverage.

   Existing law does not provide a system of universal health care

coverage for California residents. Existing law provides for the

creation of various programs to provide health care services to

persons who have limited incomes and meet various eligibility

requirements. These programs include the Healthy Families Program

administered by the Managed Risk Medical Insurance Board, and the

Medi-Cal program administered by the State Department of Health

Services.  Existing law provides for the regulation of health care

service plans by the Department of Managed Health Care and health

insurers by the Department of Insurance.

   This bill would establish the California Health Insurance System

to be administered by the newly created California Health Insurance

Agency under the control of a Health Insurance Commissioner appointed

by the Governor and subject to confirmation by the Senate. The bill

would make all California residents eligible for specified health

care benefits under the California Health Insurance System, which

would, on a single-payer basis, negotiate for or set fees for health

care services provided through the system and pay claims for those

services. The bill would require the commissioner to seek all

necessary waivers, exemptions, agreements, or legislation to allow

various existing federal, state, and local health care payments to be

paid to the California Health Insurance System, which would then

assume responsibility for all benefits and services previously paid

for with those funds.

   The bill would create a health insurance policy board to establish

policy on medical issues and various other matters relating to the

health care system. The bill would create the Office of Patient

Advocacy within the agency to represent the interests of health care

consumers relative to the health care system. The bill would create

within the agency the Office of Health Planning to plan for the

health care needs of the population, and the Office of Health Care

Quality, headed by the chief medical officer, to support the delivery

of high quality care and promote provider and patient satisfaction.

The bill would create the Office of Inspector General for the

California Health Insurance System within the Attorney General's

office, which would have various oversight powers. The bill would

prohibit health care service plan contracts or health insurance

policies from being issued for services covered by the California

Health Insurance System. The bill would create the Health Insurance

Fund and the Payments Board to administer the finances of the

California Health Insurance System. The bill would create the

California Health Insurance Premium Commission (Premium Commission)

to determine the cost of the California Health Insurance System and

to develop a premium structure for the system that complies with

specified standards. The bill would require the Premium Commission to

recommend a premium structure to the Governor and Legislature on or

before January 1, 2009, and to make a draft recommendation to the

Governor, the Legislature, and the public 90 days before submitting

its final premium structure recommendation. The bill would specify

that only its provisions relating to the Premium Commission would

become operative on January 1, 2007, with its remaining provisions

becoming operative on the date the Secretary of Health and Human

Services notifies the Legislature, as specified, that sufficient

funding exists to implement the California Health Insurance System.

The bill would require that system to be operative within 2 years of

that date and would provide for various transition processes for that

period.

   The bill would extend the application of certain insurance fraud

laws to providers of services and products under the health care

system, thereby imposing a state-mandated local program by revising

the definition of a crime. The bill would enact other related

provisions relative to budgeting, regional entities, federal

preemption, subrogation, collective bargaining agreements,

compensation of health care providers, conflict of interest, patient

grievances, independent medical review, and associated matters.

  The California Constitution requires the state to reimburse local

agencies and school districts for certain costs mandated by the

state. Statutory provisions establish procedures for making that

reimbursement.

   This bill would provide that no reimbursement is required by this

act for a specified reason.

THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Division 112 (commencing with Section 140000) is added

to the Health and Safety Code, to read:

      DIVISION 112.  CALIFORNIA HEALTH INSURANCE RELIABILITY ACT

      CHAPTER 1.  General Provisions

   140000.  There is hereby established in state government the

California Health Insurance System, which shall be administered by

the California Health Insurance Agency, an independent agency under

the control of the Health Insurance Commissioner.

   140000.6.  No health care service plan contract or health

insurance policy, except for the California Health Insurance System

plan, may be sold in California for services provided by the system.

   140001.  This division shall be known as and may be cited as the

California Health Insurance Reliability Act.

   140002.  This division shall be liberally construed to accomplish

its purposes.

   140003.  The California Health Insurance Agency is hereby created

and designated as the single state agency with full power to

supervise every phase of the administration of the California Health

Insurance System and to receive grants-in-aid made by the United

States government, by the state, or by other sources in order to

secure full compliance with the applicable provisions of state and

federal law.

   140004.  The California Health Insurance Agency shall be comprised

of the following entities:

   (a) The Health Insurance Policy Board.

   (b) The Office of Patient Advocacy.

   (c) The Office of Health Planning.

   (d) The Office of Health Care Quality.

   (e) The Health Insurance Fund.

   (f) The Public Advisory Committee.

   (g) The Payments Board.

   (h) Partnerships for Health.

   140005.  The Legislature finds and declares all of the following:

   (a) An estimated 6.5 million Californians lacked health care

coverage at some time in 2004, including one in every five nonelderly

Californians.

   (b) Health care spending continues to grow much faster than the

economy, and efforts to control health care costs and the growth of

health care spending have been unsuccessful.

   (c) On average, the United States spends more than twice as much

as all other industrial nations on health care, both per person and

as a percentage of its gross domestic product.

   (d) A majority of California residents and businesses support a

system of universal publicly financed health care.

   (e) Consumers can no longer rely on traditional health care

coverage due to a continuous decline of employer-offered coverage,

unstable employment trends, and uncontrolled increases in the amount

of premiums and cost sharing, and increases in benefit gaps.

   (f) As a result, one-half of all bankruptcies in the United States

now relate to medical costs, though three-fourths of bankrupted

families had health care coverage at the time of sustaining the

injury or illness.

   (g) Health insurance companies have no business motive to provide

comprehensive and affordable health care coverage to residents who

are likely to require health care services, including seniors,

disabled residents, residents with or at risk of developing a chronic

illness, and women of child-bearing age.

   (h) Health care quality is rapidly declining, and the United

States Institute of Medicine has declared an epidemic of substandard

health care throughout the nation.

   (i) The World Health Organization ranks the United States below

all other industrial nations and 37th overall in population-based

health outcomes.

   (j) Recent emergencies in the South and growing fears of disease

pandemics, underscore the critical importance of a regular source of

health care for all residents and systemwide health care planning to

ensure disaster and emergency preparedness.

   (k) Growing epidemics of chronic diseases such as diabetes,

obesity, and asthma require a system of universal health care and a

continuous source of health care for all residents in order to

adequately address the health care needs of all residents.

   (l) Severe health access disparities exist by region, ethnicity,

income, and gender. These disparities destabilize the overall health

care system throughout the state and reflect a lack of effective

health care planning.

   (m) Inadequate access to a regular source of care has caused

Medi-Cal and uninsured patients to seek treatment in emergency

facilities for conditions that could have been treated more

appropriately in a nonemergency setting.

   (n) Emergency departments and trauma centers face growing

financial losses, and uncompensated hospital care totaled over one

billion dollars ($1,000,000,000) in 2000. The burden for providing

uncompensated care falls disproportionately on a minority of

hospitals in California and leads to significant financial

instability for the overall health care system.

   (o) Multiple quantitative analyses indicate that under a single

payer health insurance system, the amount currently spent for health

care is more than adequate to finance comprehensive high quality

health care coverage for every resident of the state while

guaranteeing the right of every resident to choose his or her own

physician.

   (p) According to these reports and numerous other studies, by

simplifying administration, achieving bulk purchase discounts on

pharmaceuticals, reducing the use of emergency facilities for primary

care, and carefully managing health care capital investment,

California could divert billions of dollars toward providing direct

health care and improve the quality of, and access to, that care.

   140005.1  (a) It is the intent of the Legislature to establish a

system of universal health insurance in this state that covers all

residents with comprehensive health insurance benefits, guarantees a

single standard of care for all residents, stabilizes the growth in

health care spending, and improves the quality of health care for all

residents.

   (b) It is the intent of the Legislature that, in order to ensure

an adequate supply and distribution of direct care providers in the

state, a just and fair return for providers electing to be

compensated by the health care system, and a uniform system of

payments, the state shall actively supervise and regulate a system of

payments whereby groups of fee-for-service physicians are authorized

to select representatives of their specialties to negotiate with the

health care system, pursuant to Section 140209. Nothing in this

division shall be construed to allow collective action against the

health care system.

   140006.  This division shall have all of the following purposes:

   (a) To provide affordable and comprehensive health insurance

coverage with a single standard of care for all California residents.

   (b) To control health care costs and the growth of health care

spending, subject to the obligation described in subdivision (a).

   (c) To achieve measurable improvement in the quality of care and

the efficiency of care delivery.

   (d) To prevent disease and disability and to maintain or improve

health and functionality.

   (e) To increase health care provider, consumer, employee, and

employer satisfaction with the health care system.

   (f) To implement policies that strengthen and improve culturally

and linguistically sensitive care.

   (g) To develop an integrated population-based health care database

to support health care planning.

   140007.  As used in this division, the following terms have the

following meanings:

   (a) "Agency" means the California Health Insurance Agency.

   (b) "Clinic" means an organized outpatient health facility that

provides direct medical, surgical, dental, optometric, or podiatric

advice, services, or treatment to patients who remain less than 24

hours, and that may also provide diagnostic or therapeutic services

to patients in the home as an alternative to care provided at the

clinic facility, and includes those facilities defined under Sections

1200 and 1200.1.

   (c) "Commissioner" means the Health Insurance Commissioner.

   (d) "Direct care provider" means any licensed health care

professional that provides health care services through direct

contact with the patient, either in person or using approved

telemedicine modalities as identified in Section 2290.5 of the

Business and Profession Code.

   (e) "Essential community provider" means a health facility that

has served as part of the state's health care safety net for low

income and traditionally underserved populations in California and

that is one of the following:

   (1) A "community clinic" as defined under subparagraph (A) of

paragraph (1) of subdivision (a) of Section 1204.

   (2) A "free clinic" as defined under subparagraph (B) of paragraph

(1) of subdivision (a) of Section 1204.

   (3) A "federally qualified health center" as defined under Section

1395x (aa)(4) or 1396d (l)(2) of Title 42 of the United States Code.

   (4) A "rural health clinic" as defined under Section 1395x (aa)(2)

or 1396d (l)(1) of Title 42 of the United States Code.

   (5) Any clinic conducted, maintained, or operated by a federally

recognized Indian tribe or tribal organization, as defined in Section

1603 of Title 25 of the United States Code.

   (6) Any clinic exempt from licensure under subdivision (h) of

Section 1206.

   (f) "Health care provider" means any professional person, medical

group, independent practice association, organization, health

facility, or other person or institution licensed or authorized by

the state to deliver or furnish health care services.

   (g) "Health facility" means any facility, place, or building that

is organized, maintained, and operated for the diagnosis, care,

prevention, and treatment of human illness, physical or mental,

including convalescence and rehabilitation and including care during

and after pregnancy, or for any one or more of these purposes, for

one or more persons, and includes those facilities defined under

subdivision (b) of Section 15432 of the Government Code.

   (h) "Hospital" means all health facilities to which persons may be

admitted for a 24-hour stay or longer, as defined in Section 1250,

with the exception of nursing, skilled nursing, intermediate care,

and congregate living health facilities.

   (i) "Integrated health care delivery system" means a provider

organization that meets all of the following criteria:

   (1) Is fully integrated operationally and clinically to provide a

broad range of health care services, including preventative care,

prenatal and well-baby care, immunizations, screening diagnostics,

emergency services, hospital and medical services, surgical services,

and ancillary services.

   (2) Is compensated using capitation or facility budgets, except

for copayments, for the provision of health care services.

   (3) Provides health care services primarily through direct care

providers who are either employees or partners of the organization,

or through arrangements with direct care providers or one or more

groups of physicians, organized on a group practice or individual

practice basis.

   (j) "Large employer" means a person, firm, proprietary or

nonprofit corporation, partnership, public agency, or association

that is actively engaged in business or service, that, on at least 50

percent of its working days during the preceding calendar year

employed at least 50 employees, or, if the employer was not in

business during any part of the preceding calendar year, employed at

least 50 employees on at least 50 percent of its working days during

the preceding calendar quarter.

   (k) "Premium Commission" means the California Health Insurance

Premium Commission.

   (l) "Primary care provider" means a direct care provider that is a

family physician, internist, general practitioner, pediatrician, an

obstetrician/gynecologist, or a family nurse practitioner or

physician assistant practicing under supervision as defined in

California codes or essential community providers who employ primary

care providers.

   (m) "Small employer" means a person, firm, proprietary or

nonprofit corporation, partnership, public agency, or association

that is actively engaged in business or service and that, on at least

50 percent of its working days during the preceding calendar year

employed at least two but no more than 49 employees, or, if the

employer was not in business during any part of the preceding

calendar year, employed at least two but no more than 40 eligible

employees on at least 50 percent of its working days during the

preceding calendar quarter.

   (n) "System" or "health insurance system" means the California

Health Insurance System.

   140008.  The definitions contained in Section 140007 shall govern

the construction of this division, unless the context requires

otherwise.

      CHAPTER 2.  Governance

   140100.  (a) (1) The commissioner shall be appointed by the

Governor on or before March 1, 2007, subject to confirmation by the

Senate. If in session, the Senate shall act on the appointment within

30 days of the appointment date. If the Senate does not act on the

appointment within that period, the nominee shall be deemed confirmed

and may take office. If the Senate is not in session at the time of

the appointment, the Senate shall act on the appointment within 30

days of the commencement of the next legislative session. If the

Senate does not act on the appointment within that period, the

appointee shall be deemed confirmed and may take office.

   (2) If the Senate by a vote fails to confirm the nominee for

commissioner, the Governor shall make a new appointment within 30

days of the Senate's vote. The appointment is subject to confirmation

by the Senate, and the procedures described in paragraph (1) shall

apply to the confirmation process.

   (b) The commissioner is exempt from the State Civil Service Act

(Part 2 (commencing with Section 18500) of Division 5 of Title 2 of

the Government Code).

   (c) The commissioner may not be a state legislator or a Member of

the United States Congress while holding the position of

commissioner.

   (d) The commissioner shall not have been employed in any capacity

by a for-profit insurance, pharmaceutical, or medical equipment

company that sells products to the California Health Insurance System

for a period of two years prior to appointment as commissioner.

   (e) For two years after completing service in the California

Health Insurance System, the commissioner may not receive payments of

any kind from, or be employed in any capacity or act as a paid

consultant to, a for-profit insurance, pharmaceutical, or medical

equipment company that sells products to the California Health

Insurance System.

   (f) The compensation and benefits of the commissioner shall be

determined pursuant to the same process as provided in Section 8 of

Article III of the California Constitution.

   (g) The commissioner shall be subject to Title 9 (commencing with

Section 81000) of the Government Code.

   140101.  (a) The commissioner shall be the chief officer of the

California Health Insurance Agency and shall administer all aspects

of the agency.

   (b) The commissioner shall be responsible for the performance of

all duties, the exercise of all power and jurisdiction, and the

assumption and discharge of all responsibilities vested by law in the

agency. The commissioner shall perform all duties imposed upon him

or her by this division and other laws related to health care, and

shall enforce the execution of those related to the system, and shall

enforce the execution of those provisions and laws to promote their

underlying aims and purposes. These broad powers shall include, but

are not limited to, the power to establish the California Health

Insurance System budget and to set rates, to establish California

Health Insurance System goals, standards and priorities, to hire,

fire, and fix the compensation of agency personnel, to make

allocations and reallocations to the health planning regions, and to

promulgate generally binding regulations concerning any and all

matters related to the implementation of this division and its

purposes.

   (c) The commissioner shall appoint the deputy health insurance

commissioner, the Director of the Health Insurance Fund, the patient

advocate, the chief medical officer, the Director of the Payments

Board, the Director of Health Planning, the Director of the

Partnerships for Health, the regional health planning directors, the

chief enforcement counsel, and legal counsel in any action brought by

or against the commissioner under or pursuant to any provision of

any law under the commissioner's jurisdiction, or in which the

commissioner joins or intervenes as to a matter within the

commissioner's jurisdiction, as a friend of the court or otherwise,

and stenographic reporters to take and transcribe the testimony in

any formal hearing or investigation before the commissioner or before

a person authorized by the commissioner.

   (d) The commissioner, in accordance with the State Civil Service

Act (Part 2 (commencing with Section 18500) of Division 5 of Title 2

of the Government Code), may appoint and fix the compensation of

clerical, inspection, investigation, evaluation, and auditing

personnel as may be necessary to implement this division.

   (e) The personnel of the agency shall perform duties as assigned

to them by the commissioner. The commissioner shall designate certain

employees by the rule or order that are to take and subscribe to the

constitutional oath within 15 days after their appointments, and to

file that oath with the Secretary of State. The commissioner shall

also designate those employees that are to be subject to Title 9

(commencing with Section 81000) of the Government Code.

   (f) The commissioner shall adopt a seal bearing the inscription:

"Commissioner, California Health Insurance Agency, State of

California." The seal shall be affixed to or imprinted on all orders

and certificate issued by him or her and other instruments as he or

she directs. All courts shall take notice of this seal.

   (g) The administration of the agency shall be supported from the

Health Insurance Fund created pursuant to Section 140200.

   (h) The commissioner, as a general rule, shall publish or make

available for public inspection any information filed with or

obtained by the agency, unless the commissioner finds that this

availability or publication is contrary to law. No provision of this

division authorizes the commissioner or any of the commissioner's

assistants, clerks, or deputies to disclose any information withheld

from public inspection except among themselves or when necessary or

appropriate in a proceeding or investigation under this division or

to other federal or state regulatory agencies. No provision of this

division either creates or derogates from any privilege that exists

at common law or otherwise when documentary or other evidence is

sought under a subpoena directed to the commissioner or any of his or

her assistants, clerks, and deputies.

   (i) It is unlawful for the commissioner or any of his or her

assistants, clerks, or deputies to use for personal benefit any

information that is filed with, or obtained by, the commissioner and

that is not then generally available to the public.

   (j) The commissioner shall avoid political activity that may

create the appearance of political bias or impropriety. Prohibited

activities shall include, but not be limited to, leadership of, or

employment by, a political party or a political organization; public

endorsement of a political candidate; contribution of more than five

hundred dollars ($500) to any one candidate in a calendar year or a

contribution in excess of an aggregate of one thousand dollars

($1,000) in a calendar year for all political parties or

organizations; and attempting to avoid compliance with this

prohibition by making contributions through a spouse or other family

member.

   (k) The commissioner shall not participate in making or in any way

attempt to use his or her official position to influence a

governmental decision in which he or she knows or has reason to know

that he or she or a family or a business partner or colleague has a

financial interest.

   (l) The commissioner, in pursuit of his or her duties, shall have

unlimited access to all nonconfidential and all nonprivileged

documents in the custody and control of the agency.

   (m) The Attorney General shall render to the commissioner opinions

upon all questions of law, relating to the construction or

interpretation of any law under the commissioner's jurisdiction or

arising in the administration thereof, that may be submitted to the

Attorney General by the commissioner and upon the commissioner's

request shall act as the attorney for the commissioner in actions and

proceedings brought by or against the commissioner or under or

pursuant to any provision of any law under the commissioner's

jurisdiction.

   140102.  The commissioner shall do all of the following:

   (a) Oversee the establishment as part of the administration of the

agency all of the following:

   (1) The Health Insurance Policy Board, pursuant to Section 140103.

   (2) The Office of Patient Advocacy, pursuant to Section 140105.

   (3) The Office of Health Planning, pursuant to Section 140602.

   (4) The Office of Health Care Quality pursuant to Section 140605.

   (5) The Health Insurance Fund, pursuant to Section 140200.

   (6) The Payments Board, pursuant to Section 140208.

   (7) The Public Advisory Committee pursuant to Section 140104.

   (8) Partnerships for Health.

   (b) Determine California Health Insurance System goals, standards,

guidelines, and priorities.

   (c) Establish health care regions, pursuant to Section 140112.

   (d) Oversee the establishment of real and virtual locally-based

integrated service networks that include physicians in

fee-for-service, solo and group practice, essential community, and

ancillary care providers and facilities in order to pool and align

resources and form interdisciplinary teams that share responsibility

and accountability for patient care and provide a continuum of

coordinated high quality primary to tertiary care to all California

residents. This shall be accomplished in collaboration with the chief

medical officer, the Director of Health Planning, the regional

medical officers, the regional planning boards, and the patient

advocate.

   (e) Establish standards based on clinical efficacy to guide

delivery of care and ensure a smooth transition to clinical

decisionmaking under statewide standards.

   (f) Implement policies to ensure that all Californians receive

culturally and linguistically sensitive care, pursuant to Section

140604, and develop mechanisms and incentives to achieve this purpose

and means to monitor the effectiveness of efforts to achieve this

purpose.

   (g) Create a systematic approach to the measurement, management,

and accountability for care quality that assures the delivery of high

quality care to all California residents, including a system of

performance contracts that contain measurable goals and outcomes.

   (h) Develop methods and a framework to measure the performance of

health insurance and health delivery system upper level managers,

including a system of performance contracts that contain measurable

goals and outcomes.

   (i) Establish a capital management plan for the California Health

Insurance System, including, but not limited to, a standardized

process and format for the development and submission of regional

operating and regional capital budget requests.

   (j) Ensure the establishment of policies that support the public

health.

   (k) Ensure that health insurance system policies and providers

support all Californians in achieving and maintaining maximum

physical and mental functionality.

   (l) Establish and maintain appropriate statewide and regional

health care databases.

   (m) Establish a means to identify areas of medical practice where

standards of care do not exist and establish priorities and a

timetable for their development.

   (n) Establish standards for mandatory reporting by health care

providers and penalties for failure to report.

   (o) Implement policies to ensure that all residents of this state

have access to medically appropriate, coordinated mental health

services.

   (p) Establish a comprehensive budget that ensures adequate funding

to meet the health care needs of the population and the compensation

for providers for care provided pursuant to this division.

   (q) Establish standards and criteria for allocation of operating

and capital funds from the Health Insurance Fund as described in

Chapter 3 (commencing with Section 140200).

   (r) Establish standards and criteria for development and

submission of provider operating and capital budget requests.

   (s) Determine the level of funding to be allocated to each health

care region.

   (t) Annually assess projected revenues and expenditures to assure

financial solvency of the system.

   (u) During transition and annually thereafter, determine the

appropriate level for a health insurance system reserve fund and

implement policies needed to establish the appropriate reserve.

   (v) Institute necessary cost controls pursuant to Section 140203

to assure financial solvency of the system.

   (w) Develop separate formulae for budget allocations and review

the formulae annually to ensure they address disparities in service

availability and health care outcomes and for sufficiency of rates,

fees and prices.

   (x) Meet regularly with the chief medical officer, the patient

advocate, the Public Advisory Committee, the Director of Health

Planning, the Director of the Payments Board, the Director of the

Partnerships for Health, the Technical Advisory Committee, regional

planning directors, and regional medical officers to review the

impact of the agency and its policies on the health of the population

and on satisfaction with the California Health Insurance System.

   (y) Negotiate for or set rates, fees, and prices involving any

aspect of the California Health Insurance System and establish

procedures thereto.

   (z) Establish a capital management framework for the California

Health Insurance System pursuant to Section 140216 to ensure that the

needs for capital health care infrastructure are met, pursuant to

the goals of the system.

   (aa) Ensure a smooth transition to California Health Insurance

System oversight of capital health care planning.

   (bb) Establish a formulary based on clinical efficacy for all

prescription drugs and durable and nondurable medical equipment for

use by the California Health Insurance System.

      (cc) Establish guidelines for prescribing medications,

nutritional supplements, and durable medical equipment that are not

included in the health system formularies.

   (dd) Utilize the purchasing power of the state to negotiate price

discounts for prescription drugs and durable and nondurable medical

equipment for use by the California Health Insurance System.

   (ee) Ensure that use of state purchasing power achieves the lowest

possible prices for the California Health Insurance System without

adversely affecting needed pharmaceutical research.

   (ff) Create incentives and guidelines for research needed to meet

the goals of the system and disincentives for research that does not

achieve California Health Insurance System goals.

   (gg) Implement eligibility standards for the system, including

guidelines to prevent an influx of persons to the state for the

purpose of obtaining medical care.

   (hh)  Determine an appropriate level of, and provide support

during the transition for training and job placement for persons who

are displaced from employment as a result of the initiation of the

new California Health Insurance System.

   (ii) Establish an enrollment system that ensures all eligible

California residents, including those who travel frequently; those

who have disabilities that limit their mobility, hearing, or vision;

those who cannot read; and those who do not speak or write English

are aware of their right to health care and are formally enrolled.

   (jj) Oversee the establishment of the system for resolution of

disputes pursuant to Sections 140608 and 140609.

   (kk) Establish an electronic claims and payments system for the

California Health Insurance System, to which all claims shall be

filed and from which all payments shall be made, and implement, to

the extent permitted by federal law, standardized claims and

reporting methods.

   (ll) Establish a system of secure electronic medical records that

comply with state and federal privacy laws and that are compatible

across the system.

   (mm) Establish an electronic referral system that is accessible to

providers and to patients.

   (nn) Establish guidelines for mandatory reporting by health care

providers.

   (oo) Establish a Technology Advisory Committee to evaluate the

cost and effectiveness of new medical technology, including

electronic medical technology, and to make recommendations about the

financial and health impact of their inclusion in the benefit

package.

   (pp) Investigate the costs and benefits to the health of the

population of advances in information technology, including those

that support data collection, analysis, and distribution.

   (qq) Ensure that consumers of health care have access to

information needed to support choice of physician.

   (rr) Collaborate with the boards that license health facilities to

ensure that facility performance is monitored and that deficient

practices are recognized and corrected in a timely fashion and that

consumers and providers of health care have access to information

needed to support choice of facility.

   (ss) Establish a Health Insurance System Internet Web site that

provides information to the public about the California Health

Insurance System that includes, but is not limited to, information

that supports choice of provider and facilities, informs the public

about state and regional health insurance policy board meetings and

activities of the Partnerships for Health.

   (tt) Procure funds, including loans, lease or purchase of

insurance for the system, its employees and agents.

   (uu) Collaborate with state and local authorities, including

regional health directors, to plan for needed earthquake retrofits in

a manner that does not disrupt patient care.

   (vv) Establish a process for the system to receive the concerns,

opinions, ideas, and recommendation of the public regarding all

aspects of the system.

   (ww) Annually report to the Legislature and the Governor, on or

before October of each year and at other times pursuant to this

division, on the performance of the California Health Insurance

System, its fiscal condition and need for rate adjustments, consumer

copayments or consumer deductible payments, recommendations for

statutory changes, receipt of payments from the federal government

and other sources, whether current year goals and priorities are met,

future goals, and priorities, and major new technology or

prescription drugs or other circumstances that may affect the cost of

health care.

   140103.  (a) The commissioner shall establish a Health Insurance

Policy Board and shall serve as the president of the board.

   (b) The board shall do all of the following:

   (1) Establish health insurance system goals and priorities,

including research and capital investment priorities.

   (2) Establish the scope of services to be provided to the

population.

   (3) Establish guidelines for evaluating the performance of the

health insurance system, health insurance system officers, health

care regions, and health care providers.

   (4) Establish guidelines for ensuring public input on health

insurance system policy, standards, and goals.

   (c) The board shall consist of the following members:

   (1) The commissioner.

   (2) The deputy commissioner.

   (3) The Health Insurance Fund Director.

   (4) The patient advocate.

   (5) The chief medical officer.

   (6) The Director of Health Planning.

   (7) The Director of the Partnerships for Health.

   (8) The Director of the Payments Board.

   (9) The state public health officer.

   (10) One member of the Public Advisory Committee who shall serve

on a rotating basis to be determined by the Public Advisory

Committee.

   (11) Two representatives from regional planning boards.

   (A) A regional representative shall serve a term of one year and

terms shall be rotated in order to allow every region to be

represented within a five-year period.

   (B) A regional planning director shall appoint the regional

representative to serve on the board.

   (d) It is unlawful for the board members or any of their

assistants, clerks, or deputies to use for personal benefit any

information that is filed with or obtained by the board and that is

not then generally available to the public.

   140104.  (a) The commissioner shall establish a public advisory

committee to advise the Health Insurance Policy Board on all matters

of health insurance system policy.

   (b) Members of the Public Advisory Committee shall include all of

the following:

   (1) Four physicians all of whom shall be board certified in their

field and at least one of whom shall be a psychiatrist. The Senate

Committee on Rules and the Governor shall each appoint one member.

The Speaker of the Assembly shall appoint two of these members, both

of whom shall be primary care providers.

   (2) One registered nurse, to be appointed by the Senate Committee

on Rules.

   (3) One licensed vocational nurse, to be appointed by the Senate

Committee on Rules.

   (4) One licensed allied health practitioner, to be appointed by

the Speaker of the Assembly.

   (5) One mental health care provider, to be appointed by the Senate

Committee on Rules.

   (6) One dentist, to be appointed by the Governor.

   (7) One representative of private hospitals, to be appointed by

the Governor.

   (8) One representative of public hospitals, to be appointed by the

Governor.

   (9) Four consumers of health care. The Governor shall appoint two

of these members, one of whom shall be a member of the disability

community. The Senate Committee on Rules shall appoint a member who

is 65 years of age or older. The Speaker of the Assembly shall

appoint the fourth member.

   (10) One representative of organized labor, to be appointed by the

Speaker of the Assembly.

   (11) One representative of essential community providers, to be

appointed by the Senate Committee on Rules.

   (12) One union member, to be appointed by the Senate Committee on

Rules.

   (13) One representative of small business, to be appointed by the

Governor.

   (14) One representative of large business, to be appointed by the

Speaker of the Assembly.

   (15) One pharmacist, to be appointed by the Speaker of the

Assembly.

   (c) In making appointments pursuant to this section, the Governor,

the Senate Committee on Rules, and the Speaker of the Assembly shall

make good faith efforts to assure that their appointments, as a

whole, reflect, to the greatest extent feasible, the social and

geographic diversity of the state.

   (d) Any member appointed by the Governor, the Senate Committee on

Rules, or the Speaker of the Assembly shall serve for a four-year

term. These members may be reappointed for succeeding four-year

terms.

   (e) Vacancies that occur shall be filled within 30 days after the

occurrence of the vacancy, and shall be filled in the same manner in

which the vacating member was selected or appointed. The commissioner

shall notify the appropriate appointing authority of any expected

vacancies on the board.

   (f) Members of the advisory committee shall serve without

compensation, but shall be reimbursed for actual and necessary

expenses incurred in the performance of their duties to the extent

that reimbursement for those expenses is not otherwise provided or

payable by another public agency or agencies, and shall receive one

hundred dollars ($100) for each full day of attending meetings of the

board. For purposes of this section, "full day of attending a

meeting" means presence at, and participation in, not less than 75

percent of the total meeting time of the board during any particular

24-hour period.

   (g) The advisory committee shall meet at least six times a year in

a place convenient to the public. All meetings of the board shall be

open to the public, pursuant to the Bagley-Keene Open Meeting Act

(Article 9 (commencing with Section 11120) of Chapter 1 of Part 1 of

Division 3 of Title 2 of the Government Code).

   (h) The advisory committee shall elect a chair who shall serve for

two years and who may be reelected for an additional two years.

   (i) Appointed committee members shall have worked in the field

they represent on the committee for a period of at least two years

prior to being appointed to the committee.

   (j) The advisory committee shall elect a member to serve on the

Health Insurance Policy Board. The elected member shall serve for one

year, and may be recalled by the advisory committee for cause. In

that case a new member shall be elected to serve on that board. The

advisory committee representative shall represent the views of the

advisory committee members to the board.

   (k) It is unlawful for the committee members or any of their

assistants, clerks, or deputies to use for personal benefit any

information that is filed with or obtained by the committee and that

is not generally available to the public.

   140105.  (a) (1) There is within the agency an Office of Patient

Advocacy to represent the interests of the consumers of health care.

The goal of the office shall be to help residents of the state secure

the health care services and benefits to which they are entitled

under the laws administered by the agency and to advocate on behalf

of and represent the interests of consumers in governance bodies

created by this division and in other forums.

   (2) The office shall be headed by a patient advocate appointed by

the commissioner.

   (3) The patient advocate shall establish an office in the City of

Sacramento and other offices throughout the state that shall provide

convenient access to residents.

   (b) The patient advocate shall do all the following:

   (1) Administer all aspects of the Office of Patient Advocacy.

   (2) Assure that services of the Office of Patient Advocacy are

available to all California residents.

   (3) Serve on the Health Insurance Policy Board and participate in

the regional Partnerships for Health.

   (4) Oversee the establishment and maintenance of the grievance

process pursuant to Sections 140608, 140609, and 140610.

   (5) Participate in the grievance process and independent medical

review system on behalf of consumers pursuant to Sections 140608 and

140609.

   (6) Receive, evaluate, and respond to consumer complaints about

the health insurance system.

   (7) Provide a means to receive recommendations from the public

about ways to improve the health insurance system and hold public

hearings at least once annually to discuss problems and receive

recommendations from the public.

   (8) Develop educational and informational guides for consumers

describing their rights and responsibilities and informing them about

effective ways exercise their rights to secure health care services

and to participate in the health insurance system. The guides shall

be easy to read and understand, available in English and other

languages, including Braille and formats suitable for those with

hearing limitations, and shall be made available to the public by the

agency, including access on the agency's Internet Web site and

through public outreach and educational programs and displayed in

provider offices and health care facilities.

   (9) Establish a toll-free number to receive complaints regarding

the agency and its services. Those with hearing and speech

limitations may use the California Relay Service's toll-free

telephone numbers to contact the Office of Patient Advocacy. The

agency Internet Web site shall have complaint forms and instructions

on their use.

   (10) Report annually to the public, the commissioner, and the

Legislature about the consumer perspective on the performance of the

health insurance system, including recommendations for needed

improvements.

   (c) Nothing in this division shall prohibit a consumer or class of

consumers or the patient advocate from seeking relief through the

judicial system.

   (d) The patient advocate in pursuit of his or her duties shall

have unlimited access to all nonconfidential and all nonprivileged

documents in the custody and control of the agency.

   (e) It is unlawful for the patient advocate or any of his or her

assistants, clerks, or deputies to use for personal benefit any

information that is filed with, or obtained by, the agency and that

is not then generally available to the public.

   140106.  (a) There is within the Office of the Attorney General an

Office of the Inspector General for the California Health Insurance

System. The Inspector General shall be appointed by the Governor and

subject to Senate confirmation.

   (b) The Inspector General shall have broad powers to investigate,

audit, and review the financial and business records of individuals,

public and private agencies and institutions, and private

corporations that provide services or products to the system, the

costs of which are reimbursed by the system.

   (c) The Inspector General shall investigate allegations of

misconduct on the part of an employee or appointee of the agency and

on the part of any health care provider of services that are

reimbursed by the system and shall report any findings of misconduct

to the Attorney General.

   (d) The Inspector General shall investigate patterns of medical

practice that may indicate fraud and abuse related to over or under

utilization or other inappropriate utilization of medical products

and services.

   (e) The Inspector General shall arrange for the collection and

analysis of data needed to investigate the inappropriate utilization

of these products and services.

   (f) The Inspector General shall conduct additional reviews or

investigations of financial and business records when requested by

the Governor or by any Member of the Legislature and shall report

findings of the review or investigation to the Governor and the

Legislature.

   (g) The Inspector General shall establish a telephone hotline for

anonymous reporting of allegations of failure to make health

insurance premium payments established by this division. The

Inspector General shall investigate information provided to the

hotline and shall report any findings of misconduct to the Attorney

General.

   (h) The Inspector General shall annually report recommendations

for improvements to the system or the agency to the Governor, the

Legislature, and the commissioner.

   140107.  The provisions of the Insurance Fraud Prevention Act

(Chapter 12 (commencing with Section 1871) of Part 2 of Division 1 of

the Insurance Code), and the provisions of Article 6 (commencing

with Section 650) of Chapter 1 of Division 2 of the Business and

Professions Code, shall be applicable to health care providers who

receive payments for services through the system under this division.

   140108.  (a) Nothing contained in this division is intended to

repeal any legislation or regulation governing the professional

conduct of any person licensed by the State of California or any

legislation governing the licensure of any facility licensed by the

State of California.

   (b) All federal legislation and regulations governing referral

fees and fee-splitting, including, but not limited to, Sections

1320a-7b and 1395nn of Title 42 of the United States Code shall be

applicable to all health care providers of services reimbursed under

this division, whether or not the health care provider is paid with

funds coming from the federal government.

   140110.  (a) The health insurance system shall be operational no

later than two years after the date this division, other than Article

2 (commencing with Section 140230) of Chapter 3, becomes operative,

as described in Section 140700.

   (b) The transition shall be funded from a loan from the General

Fund and from other sources, including private sources identified by

the commissioner.

   (c) The commissioner shall assess health plans and insurers for

care provided by the system in those cases in which a person's health

care coverage extends into the time period in which the new system

is operative.

   (d) The commissioner shall implement means to assist persons who

are displaced from employment as a result of the initiation of the

new health insurance system, including determination of the period of

time during which assistance shall be provided and possible sources

of funds, including health insurance funds, to support retraining and

job placement. That support shall be provided for a period of five

years from the date that this division becomes operative.

   140111.  (a) The commissioner shall appoint a transition advisory

group to assist with the transition to the system. The transition

advisory group shall include, but not be limited to, the following

members:

   (1) The commissioner.

   (2) The patient advocate.

   (3) The chief medical officer.

   (4) The Director of Health Planning.

   (5) The Director of the Health Insurance Fund.

   (6) The State Public Health Officer.

   (7) Experts in health care financing and health care

administration.

   (8) Direct care providers.

   (9) Representatives of retirement boards.

   (10) Employer and employee representatives.

   (11) Hospital, essential community provider, and long-term care

facility representatives.

   (12) Representatives from state departments and regulatory bodies

that shall or may relinquish some or all parts of their delivery of

health service to the system.

   (13) Representatives of counties.

   (14) Consumers of health care.

   (b)  The transition advisory group shall advise the commissioner

on all aspects of the implementation of this division.

   (c) The transition advisory group shall make recommendations to

the commissioner, the Governor, and the Legislature on how to

integrate health care delivery services and responsibilities relating

to the delivery of the services of the following departments and

agencies into the system:

   (1) The State Department of Health Services.

   (2) The Department of Managed Health Care.

   (3) The Department of Aging.

   (4) The Department of Developmental Services.

   (5) The Health and Welfare Data Center.

   (6) The Department of Mental Health.

   (7) The Department of Alcohol and Drugs.

   (8) The Department of Rehabilitation.

   (9) The Emergency Medical Services Authority.

   (10) The Managed Risk Medical Insurance Board.

   (11) The Office of Statewide Health Planning and Development.

   (12) The Department of Insurance.

   (d) The transition advisory group shall make recommendations to

the Governor, the Legislature, and the commissioner regarding

research needed to support transition to the new health insurance

system.

   140112.  (a)  The transition advisory group shall make

recommendations to the commissioner relative to how the health

insurance system shall be regionalized for the purposes of local and

community-based planning for the delivery of high quality

cost-effective care and efficient service delivery.

   (b) The commissioner, in consultation with the Director of Health

Planning, shall establish up to 10 health planning regions composed

of geographically contiguous counties grouped on the basis of the

following considerations:

   (1) Patterns of utilization of health care services.

   (2) Health care resources, including workforce resources.

   (3) Health needs of the population, including public health needs.

   (4) Geography.

   (5) Population and demographic characteristics.

   (6) Other considerations as determined by the commissioner,

Director of Health Planning, or chief medical officer.

   (c) The commissioner shall appoint a director for each region.

Regional planning directors shall serve at the will of the

commissioner and may serve up to two eight-year terms to coincide

with the terms of the commissioner.

   (d) Each regional planning director shall appoint a regional

medical officer.

   (e) Compensation for health system officers and appointees who are

exempt from the civil service shall be established by the California

Citizens Commission in accordance with Section 8 of Article III of

the California Constitution, and shall take into consideration

regional differences in the cost of living.

   (f) The regional planning director and the regional medical

officer shall be subject to Title 9 (commencing with Section 81000)

of the Government Code and shall comply with the qualifications for

office described in subdivisions (c), (d), and (e) of Section 140100

and subdivisions (j) and (k) of Section 140101.

   140113.  (a) Regional planning directors shall administer the

health planning region. The regional planning director shall be

responsible for all duties, the exercise of all powers and

jurisdiction, and the assumptions and discharge of all

responsibilities vested by law in the regional agency. The regional

planning director shall perform all duties imposed upon him or her by

this division and by other laws related to health care, and shall

enforce execution of those provisions and laws to promote their

underlying aims and purposes.

   (b) The regional planning director shall reside in the region in

which he or she serves.

   (c) The regional planning director shall do all of the following:

   (1) Establish and administer a regional office of the state

agency. Each regional office shall include, at minimum, an office of

each of the following: Patient Advocacy, Health Care Quality, Health

Planning, and Partnerships for Health.

   (2) Establish regional goals and priorities pursuant to standards,

goals, priorities, and guidelines established by the commissioner.

   (3) Assure that regional administrative costs meet standards

established by the division.

   (4) Seek innovative means to lower the costs of administration of

the regional planning office and those of regional providers.

   (5) Plan for the delivery of, and equal access to, high quality

and culturally and linguistically sensitive care that meets the needs

of all regional residents pursuant to standards established by the

commissioner.

   (6) Seek innovative and systemic means to improve care quality and

efficiency of care delivery.

   (7) Appoint regional planning board members and serve as president

of the board.

   (8)  Recommend means to and implement policies established by the

commissioner to provide support to persons displaced from employment

as a result of the initiation of the new system.

   (9) Make needed revenue sharing arrangements so that

regionalization does not limit a patient's choice of provider.

   (10) Implement procedures established by the commissioner for the

resolution of disputes.

   (11) Implement processes established by the commissioner and

recommend needed changes to permit the public to share concerns,

provide ideas, opinions, and recommendations regarding all aspects of

the system policy.

   (12) Report regularly to the public and, at intervals determined

by the commissioner, and pursuant to this division, to the

commissioner, on the status of the regional planning system,

including evaluating access to care, quality of care delivered, and

provider performance, and other issues related to regional health

care needs, and recommending needed improvements.

   (13) Identify and prioritize regional health care needs and goals,

in collaboration with the regional medical officer, regional health

care providers, the regional planning board, and regional director of

Partnerships for Health.

   (14) Identify or establish guidelines for providers to identify,

maintain, and provide to the regional director inventories of

regional health care assets.

   (15) Establish and maintain regional health care databases.

   (16) In collaboration with the regional medical officer, enforce

reporting requirements established by the California Health Insurance

System and make recommendations to the commissioner, the Director of

Health Planning, and the chief medical officer for needed changes in

reporting requirements.

   (17) Convene meetings of regional health care providers to

facilitate coordinated regional health care planning.

   (18) Establish and implement a regional capital management plan

pursuant to the capital management plan established by the

commissioner for the system.

   (19) Implement standards and formats established by the

commissioner for the development and submission of operating and

capital budget requests and make recommendations to the commissioner

and the Director of Health Planning for needed changes.

   (20) Support regional providers in developing operating and

capital budget requests.

   (21) Receive, evaluate, and prioritize provider operating and

capital budget requests pursuant to standards and criteria

established by the commissioner.

                                       (22) Prepare a three-year

regional operating and capital budget request that meets the health

care needs of the region pursuant to this division, for submission to

the commissioner.

   (23) Establish a comprehensive three-year regional planning budget

using funds allocated to the region by the commissioner.

   (24) Regularly assess projected revenues and expenditures to

ensure fiscal solvency of the regional planning system and advise the

commissioner of potential revenue shortfalls and the possible need

for cost controls.

   140114.  (a) The regional medical officers shall do all of the

following:

   (1) Administer all aspects of the regional office of health care

quality.

   (2) Serve as a member of the Regional Planning Board.

   (3) Support the delivery of high quality care to all residents of

the region pursuant to this division.

   (4) Ensure a smooth transition to care delivery by regional

providers under standards based on clinical efficacy that guide

clinical decisionmaking.

   (5) Support the development and distribution of user-friendly

software for use by providers in order to support the delivery of

high quality care.

   (6) In collaboration with the chief medical officer and regional

providers, evaluate standards of care in use at the time the

California Health Insurance System becomes operative.

   (7) Ensure the implementation of needed improvements so that a

single standard of high quality care is delivered to all residents

under standards that guide clinical decisionmaking.

   (8) In collaboration with the commissioner, the chief medical

officer, the regional medical officer, regional planning boards, the

patient advocate, regional providers, and patients, oversee the

establishment of real and virtual integrated service networks of

fee-for-service, solo and group practice, essential community, and

ancillary care providers and facilities that pool and align resources

and form interdisciplinary teams that share responsibility and

accountability for patient care and provide a continuum of

coordinated high quality primary to tertiary care to all residents of

the region.

   (9) Assure the evaluation and measurement of the quality of care

delivered in the region, including assessment of the performance of

individual providers, pursuant to standards and methods established

by the chief medical officer.

   (10) Provide feedback to, and support and supervision of, medical

providers to ensure the delivery of high quality care pursuant to

standards established by the health insurance system.

   (11) Assure the provision of information to assist consumers in

evaluating the performance of health care providers and facilities.

   (12) Identify areas of medical practice where standards have not

been established and collaborate with the chief medical officer and

health care providers, to establish priorities in developing needed

standards.

   (13) Collaborate with regional public health officers to establish

regional health policies that support the public health.

   (14) Establish a regional program to monitor and decrease medical

errors and their causes pursuant to standards and methods established

by the chief medical officer.

   (15) Support the development and implementation of innovative

means to provide high quality care and assist providers in securing

funds for innovative demonstration projects that seek to improve care

quality.

   (16) Establish means to assess the impact of health insurance

system policies intended to assure the delivery of high quality care.

   (17) Collaborate with the chief medical officer and the Director

of Health Planning and health care providers in the development and

maintenance of regional health care databases.

   (18) Ensure the enforcement of, and recommend needed changes in,

health insurance system reporting requirements.

   (19) Support providers in developing regional budget requests.

   (20) Collaborate with the regional director of the Partnerships

for Health to develop patient education on appropriate utilization of

health care services.

   (21) Annually report to the commissioner, the public, the regional

planning board, and the chief medical officer on the status of

regional health care programs, needed improvements and plans to

implement and evaluate delivery of care improvements.

   140115.  (a) Each region shall have a regional planning board

consisting of 13 members who shall be appointed by the regional

planning director. Members shall serve eight-year terms that coincide

with the term of the regional planning director and may be

reappointed for a second term.

   (b) Regional planning board members shall have resided for a

minimum of two years in the region in which they serve prior to

appointment to the board.

   (c) Regional planning board members shall reside in the region

they serve while on the board.

   (d) The board shall consist of the following members:

   (1) The regional planning director, the regional medical officer

and the regional director of the Partnerships for Health and a public

health officer from one of the regional counties.

   (2) When there is more than one county in a region, the public

health officer board position shall rotate among the public health

county officers on a timetable to be established by each regional

planning board.

   (3) A representative from the Office of Patient Advocacy.

   (4) One expert in health care financing.

   (5) One expert in health care planning.

   (6) Two members who are direct patient care providers in the

region, one of whom shall be a registered nurse.

   (7) One member who represents ancillary health care workers in the

region.

   (8) One member representing hospitals in the region.

   (9) One member representing essential community providers in the

region.

   (10) One member representing the public.

   (e) The regional planning director shall serve as chair of the

board.

   (f) The purpose of the regional planning boards is to advise and

make recommendations to the regional planning director on all aspects

of regional health policy.

   (g) Meetings of the board shall be open to the public pursuant to

the Bagley-Keene Open Meeting Act (Article 9 (commencing with Section

11120) of Chapter 1 of Part 1 of Division 3 of Title 2 of the

Government Code).

   140116.  The following conflict of interest prohibitions shall

apply to all appointees of the commissioner or transition commission,

including, but not limited to, the patient advocate, the health

insurance fund director, the purchasing director, the Director of

Health Planning, the Director of the Payments Board, the chief

medical officer, the Director of Partnerships for Health, regional

directors, and the inspector general:

   (a) The appointee shall not have been employed in any capacity by

a for-profit insurance, pharmaceutical, or medical equipment company

that sells products to the system for a period of two years prior to

appointment.

   (b) For two years after completing service in the system, the

appointee may not receive payments of any kind from, or be employed

in any capacity or act as a paid consultant to, a for-profit

insurance, pharmaceutical, or medical equipment company that sells

products to the system.

   (c) The appointee shall avoid political activity that may create

the appearance of political bias or impropriety.  Prohibited

activities shall include, but not be limited to, leadership of, or

employment by, a political party or a political organization; public

endorsement of a political candidate; contribution of more than five

hundred dollars ($500) to any one candidate in a calendar year or a

contribution in excess of an aggregate of one thousand dollars

($1,000) in a calendar year for all political parties or

organizations; and attempting to avoid compliance with this

prohibition by making contributions through a spouse or other family

member.

   (d) The appointee shall not participate in making or in any way

attempt to use his or her official position to influence a

governmental decision in which he or she or a family or a business

partner or colleague has a financial interest.

      CHAPTER 3.  Funding

      Article 1.  General Provisions

   140200.  (a) In order to support the agency effectively in the

administration of this division, there is hereby established in the

State Treasury the Health Insurance Fund. The fund shall be

administered by a director appointed by the commissioner.

   (b) All moneys collected, received, and transferred pursuant to

this division shall be transmitted to the State Treasury to be

deposited to the credit of the Health Insurance Fund for the purpose

of financing the California Health Insurance System.

   (c) Moneys deposited in the Health Insurance Fund shall be used

exclusively to support this division.

   (d) All claims for health care services rendered shall be made to

the Health Insurance Fund through an electronic claims and payment

system. The commissioner shall investigate the costs, benefits, and

means of supporting providers in obtaining electronic systems for

claims and payments transactions; however, alternative provisions

shall be made for providers without electronic systems.

   (e) All payments made for health care services shall be disbursed

from the Health Insurance Fund through an electronic claims and

payments system; however, alternative provisions shall be made for

providers without electronic systems.

   (f) The director of the fund shall serve on the Health Insurance

Policy Board.

   140201.  (a) The Director of the Health Insurance Fund shall

establish the following accounts within the Health Insurance Fund:

   (1) A system account to provide for all annual state expenditures

for health care.

   (2) A reserve account.

   (b) Premiums collected each year shall be roughly sufficient to

cover that year's projected costs.

   (c) The health insurance system shall at all times hold in reserve

an amount estimated in the aggregate to provide for the payment of

all losses and claims for which the system may be liable, and to

provide for the expense of adjustment or settlement of losses and

claims.

   (d) During the transition, the commissioner shall work with the

Department of Insurance and other experts to determine an appropriate

level of health system reserves for the first year and for future

years of health insurance system operation.

   (e) Moneys currently held in reserve by state, city, and county

health programs and federal moneys for health care held in reserve in

federal trust accounts shall be transferred to the state health care

reserve account when the state assumes financial responsibility for

health care under this division that are currently provided by those

programs.

   (f) The commissioner may implement arrangements to self-insure the

system against unforeseen expenditures or revenue shortfalls not

covered by reserves and may borrow funds to cover temporary revenue

shortfalls not covered by system reserves, including the issuance of

bonds for this purpose, whichever is the more cost effective.

   (g) Funds held in the reserve account and other Health Insurance

Fund accounts may be prudently invested to increase their value

according to the Department of Insurance's standards for liquidity

and asset management.

   140203.  (a) The Director of the Health Insurance Fund shall

immediately notify the commissioner when regional or statewide

revenue and expenditure trends indicate that expenditures may exceed

revenues.

   (b) If the commissioner determines that statewide revenue trends

indicate the need for statewide cost control measures, the

commissioner shall convene the Health Insurance Policy Board to

discuss the need for cost control measures and shall immediately

report to the Legislature and the public regarding the possible need

for cost control measures.

   (c) Cost control measures include any or all of the following:

   (1) Changes in the health insurance system or health facility

administration that improve efficiency.

   (2) Changes in the delivery of health care services that improve

efficiency and care quality.

   (3) Postponement of introduction of new benefits or benefit

improvements.

   (4) Seeking statutory authority for a temporary decrease in

benefits.

   (5) Postponement of planned capital expenditures.

   (6) Adjustments of health care provider payments to correct for

deficiencies in care quality and failure to meet compensation

contract performance goals, pursuant to subdivisions (a) to (f),

inclusive, of Section 140106, paragraph (4) of subdivision (a) of

Section 140204, subdivision (a) of Section 140213, and subdivisions

(c) and (d) of Section 140606.

   (7) Adjustments on the reimbursement of health insurance system

managerial employees and upper level health system managers to

correct for deficiencies in management and failure to meet contract

performance goals.

   (8) Limitations on the reimbursement budgets of health system

providers and upper level managers whose compensation is determined

by the Health Insurance System Payment Board.

   (9) Limitations on aggregate reimbursements to manufacturers of

pharmaceutical and durable and nondurable medical equipment.

   (10) Deferred funding of the reserve account.

   (11) Imposition of copayments or deductible payments. Any

copayment or deductible payments imposed shall be subject to all of

the following requirements:

   (A) No copayment or deductible may be established when prohibited

by federal law.

   (B) All copayments and deductibles shall meet federal guidelines

for copayments and deductible payments that may lawfully be imposed

on persons with low income.

   (C) The commissioner shall establish standards and procedures for

waiving copayments or deductible payments and a waiver card which

shall be issued to a patient or to a family to indicate the waiver.

Procedures for copayment waiver may include a determination by a

patient's primary care provider that imposition of a copayment would

be a financial hardship. Copayment and deductible waivers shall be

reviewed annually by the regional planning director.

   (D) Waivers shall not affect the reimbursement of health care

providers.

   (E) Any copayments or deductible payments established pursuant to

this section shall be transmitted to the Treasurer to be deposited to

the credit of the Health Insurance Fund.

   (12) Imposition of an eligibility waiting period and other means

if the commissioner determines that large numbers of people are

emigrating to the state for the purpose of obtaining health care

through the California Health Insurance System.

   (d) Nothing in this division shall be construed to diminish the

benefits that an individual has under a collective bargaining

agreement.

   (e) Nothing in this division shall preclude employees from

receiving benefits available to them under a collective bargaining

agreement or other employee-employer agreement that are superior to

benefits under this division.

   (f) Cost control measures implemented by the commissioner and the

health insurance policy board shall remain in place in the state

until the commissioner and the Health Insurance Policy Board

determine that the cause of a revenue shortfall has been corrected.

   (g) If the Health Insurance Policy Board determines that cost

control measures described in subdivision (c) will not be sufficient

to meet a revenue shortfall, the commissioner shall report to the

Legislature and to the public on the causes of the shortfall and the

reasons for the failure of cost controls and shall recommend measures

to correct the shortfall, including an increase in health insurance

system premium payments.

   140204.  (a) If the commissioner or a regional planning director

determines that regional revenue and expenditure trends indicate a

need for regional cost control measures, the regional planning

director shall convene the regional planning board to discuss the

possible need for cost control measures and to make a recommendation

about appropriate measures to control costs. These may include any of

the following:

   (1) Changes in health insurance system or health facility

administration that improve efficiency.

   (2) Changes in the delivery of health services and health system

management that improve efficiency or care quality.

   (3) Postponement of planned regional capital expenditures.

   (4) Adjustment of payments to health care providers to reflect

deficiencies in care quality and failure to meet compensation

contract performance goals and payments to upper level managers to

reflect deficiencies in management and failure to meet compensation

contract performance goals.

   (5) Adjustment of payments to health care providers and upper

level managers above a specified amount of aggregate billing.

   (6) Adjustment of payments to pharmaceutical and medical equipment

manufacturers and others selling goods and services to the health

insurance system above a specified amount of aggregate billing.

   (b) In the event a regional planning board is convened to

implement cost control measures, the commissioner shall participate

in the regional planning board meeting.

   (c) The regional planning director, in consultation with the

commissioner, shall determine if cost control measures are warranted

and those measures that shall be implemented.

   (d) Imposition of copayments or deductibles, postponement of new

benefits or benefit improvements, deferred funding of the reserve

account, establishment of eligibility waiting periods and increases

in health insurance premium payments may occur on a statewide basis

only and with the concurrence of the commissioner and the Health

Insurance Policy Board.

   (e) If a regional planning director and regional planning board

are considering imposition of cost control measures, the regional

planning director shall immediately report to the residents of the

region regarding the possible need for cost control measures.

   (f) Cost control measures shall remain in place in a region until

the regional planning director and the commissioner determine that

the cause of a revenue shortfall has been corrected.

   140205.  (a) If, on June 30 of any year, the Budget Act for the

fiscal year beginning on July 1 has not been enacted, all moneys in

the reserve account of the Health Insurance Fund shall be used to

implement this division until funds are available through the Budget

Act.

   (b) Notwithstanding any other provision of law and without regard

to fiscal year, if the annual Budget is not enacted by June 30 of any

fiscal year preceding the fiscal year to which the Budget would

apply and if the commissioner determines that funds in the reserve

account are depleted, the following shall occur:

   (1) The Controller shall annually transfer from the General Fund,

in the form of one or more loans, an amount to the Health Insurance

Fund for the purpose of making payments to health care providers and

to persons and businesses under contract with the health insurance

system or with health providers to provide services, medical

equipment, and pharmaceuticals to the California Health Insurance

System.

   (2) Upon enactment of the Budget Act in any fiscal year to which

paragraph (1) applies, the Controller shall transfer all expenditures

and unexpected funds loaned to the Health Insurance Fund to the

appropriate Budget Act item.

   (3) The amount of any loan made pursuant to paragraph (1) for

which moneys were expended from the Health Insurance Fund shall be

repaid by debiting the appropriate Budget Act item in accordance with

procedures prescribed by the Department of Finance.

   140206.  (a) The commissioner annually shall prepare a health

insurance system budget that includes all expenditures, specifies a

limit on total annual state expenditures, and establishes allocations

for each health care region that shall cover a three-year period and

that shall be disbursed on a quarterly basis.

   (b) The commissioner shall limit the growth of spending on a

statewide and on a regional basis, by reference to average growth in

state domestic product across multiple years; population growth,

actuarial demographics and other demographic indicators; differences

in regional costs of living, advances in technology and their

anticipated adoption into the benefit plan; improvements in

efficiency of administration and care delivery, improvements in the

quality of care and to projected future state domestic product growth

rates.

   (c) The commissioner shall adjust the health insurance system

budget so that aggregate spending in the state on health care outside

of the system shall not exceed spending under this division by more

than 5 percent.

   (d) The commissioner shall project health insurance system

revenues and expenditures for 3, 6, 9, and 12 years pursuant to

parameters prescribed in subdivision (g).

   (e) The commissioner shall annually convene a Health Insurance

System Revenue and Expenditure Conference to discuss revenue and

expenditure projections and future health insurance system policy

directions and initiatives, including means to lower the cost of

administration, improve management of and investment in capital

assets, and improve the quality of care and health system management.

Participants shall include regional health directors and medical

officers, directors of the Health Insurance Fund and Payments Board,

the patient advocate, state and regional directors of the

Partnerships for Health, and representatives of the health insurance

system facility upper level managers.

   (f) The California Health Insurance System budget shall include

all of the following:

   (1) Transition budget.

   (2) Providers and managers budget.

   (3) Capitated operating budgets.

   (4) Noncapitated operating budgets.

   (5) Capital investment budget.

   (6) Purchasing budget.

   (7) Research and innovation budget.

   (8) Workforce training and development budget.

   (9) Reserve account.

   (10) System administration system.

   (11) Regional budgets.

   (g)  In establishing budgets, the commissioner shall make

adjustments based on all of the following:

   (1) Costs of transition to the new system.

   (2) Projections regarding the health services anticipated to be

used by California residents.

   (3) Differences in cost of living between the regions, including

the overhead costs of maintaining medical practices.

   (4) Health risk of enrollees.

   (5) Scope of services provided.

   (6) Innovative programs that improve care quality, administrative

efficiency, and workplace safety.

   (7) Unrecovered cost of providing care to persons who are not

members of the California Health Insurance System.  The commissioner

shall seek to recover the costs of care provided to nonhealth

insurance system members.

   (8) Costs of workforce training and development.

   (9) Costs of correcting health outcome disparities and the unmet

needs of previously uninsured and underinsured enrollees.

   (10) Relative usage of different health care providers.

   (11) Needed improvements in access to care.

   (12) Projected savings in administrative costs.

   (13) Projected savings due to provision of primary and preventive

care to the population, including savings from decreases in

preventable emergency room visits and hospitalizations.

   (14) Projected savings from improvements in care quality.

   (15) Projected savings from decreases in medical errors.

   (16) Projected savings from systemwide management of capital

expenditures.

   (17) Cost of incentives and bonuses to support the delivery of

high quality care, including incentives and bonuses needed to recruit

and retain an adequate supply of needed providers and managers and

to attract providers to medically underserved areas.

   (18) Costs of treating complex illnesses, including disease

management programs.

   (19) Cost of implementing standards of care, care coordination,

electronic medical records, and other electronic initiatives.

   (20) Costs of new technology.

   (21) Technology research and development costs and costs related

to health insurance system use of new technologies.

   (h) Moneys in the Reserve Account shall not be considered as

available revenues for the purposes of preparing the system budget,

except when the State Budget has not been enacted by June 30 of any

fiscal year.

   140207.  The commissioner shall annually establish the total funds

to be allocated for provider and manager compensation pursuant to

this section. In establishing the provider and manager budgets, the

commissioner shall allot sufficient funds to assure that California

can attract and retain those providers and managers needed to meet

the health needs of the population. In establishing provider and

manager budgets, the commissioner shall allocate funds for both

salaries, incentives, bonuses, and benefits to be provided to health

insurance system officers and upper level managers who are exempt

from state civil service statutes.

   140208.  (a) The commissioner shall establish the Payments Board

and shall appoint a director and members of the board.

   (b) The commissioner shall retain the authority to review,

approve, reject, and modify all payment contracts and compensation

plans established pursuant to this section.

   (c) The Payments Board shall be composed of experts in health care

finance and insurance systems, a designated representative of the

commissioner, a designated representative the Health Insurance Fund,

and a representative of the regional planning directors. The position

of regional representative shall rotate among the directors of the

regional planning boards every two years.

   (d) The board shall establish and supervise a uniform payments

system for providers and managers and shall maintain a compensation

plan for all of the following providers and managers pursuant to the

provider and manager budget established by the commissioner:

   (1) Upper level managers employed in private health care

facilities, including, but not limited to, hospitals, integrated

health care systems, group and solo medical practices, and essential

community facilities.

   (2)  Appointed California health insurance system managers and

officers who are exempt from statutes governing civil service

employment.

   (3) Health care providers including, but not limited to,

physicians, osteopathic physicians, dentists, podiatrists, nurse

practitioners, physician assistants, chiropractors, acupuncturists,

psychologists, social workers, marriage, family and child counselors,

and other professional health care providers who are required by law

to be licensed to practice in California and who provide

                                      services pursuant to the act.

   (4) Health care providers licensed and accredited to provide

services in California may choose, on a case-by-case or on an

aggregate basis, to be compensated for their services either by the

California Health Insurance System or by a person to whom they

provide services.

   (5) Compensation for health system employees that is determined

through employer-union negotiations before implementation of this

division shall be determined by health insurance system-uni