Health Net 2014 Annual Report Download - page 8

6
California Coordinated Care Initiative
In 2012, the California legislature enacted the Coordinated Care Initiative, or “CCI.” The stated purpose of the
CCI is to provide a more efficient health care delivery system and improved coordination of care to individuals that are
fully eligible for Medicare and Medi-Cal benefits, or "dual eligibles," as well as to all Medi-Cal only beneficiaries who
rely on long-term services and supports, or “LTSS,” which includes institutional long-term care and home and
community-based services and other support services.
In participating counties, the CCI established a voluntary “dual eligibles demonstration,” also referred to as the
“Cal MediConnect” program, to coordinate medical, behavioral health, long-term institutional, and home- and
community-based services for dual eligibles through a single health plan, and requires that all Medi-Cal beneficiaries in
participating counties join a Medi-Cal managed care health plan to receive their Medi-Cal benefits, including LTSS.
The DHCS selected eight counties to participate in the CCI, including Los Angeles and San Diego counties. On April 4,
2012, DHCS selected us to participate in the dual eligibles demonstration for both Los Angeles and San Diego counties.
In December 2013, HNCS entered into a three-way agreement with DHCS and CMS, which was subsequently amended
on January 13, 2014 (the “Cal MediConnect Contract”). Among other things, under the Cal MediConnect Contract we
have received and expect to continue to receive prospective blended capitated payments to provide coverage for dual
eligibles in Los Angeles and San Diego Counties.
In January 2014, CMS and DHCS informed us that based on its readiness assessments, we were able to enroll
members beginning April 1, 2014, and could begin marketing for the dual eligibles demonstration in accordance with
the guidelines and timeframes for Los Angeles and San Diego counties. Active enrollment in Los Angeles and San
Diego counties for the dual eligible demonstrations commenced on April 1, 2014, and is scheduled to conclude at the
end of 2017. During the active enrollment period, dual eligibles in Los Angeles County are able to either choose among
us, the local health plan initiative, or one of three other health plans for benefits under the dual eligibles demonstration.
On July 1, 2014, DHCS began automatically enrolling dual eligibles in Los Angeles County who have not selected a
health plan, which we refer to as “passive enrollment.” Dual eligibles also may choose to “opt out” of the demonstration
at any time. Such dual eligibles will then continue to receive Medicare services through either fee-for-service Medicare
or the Medicare Advantage program, but will receive Medi-Cal benefits through a managed care health plan as required
under the CCI. During the active enrollment period in San Diego County, dual eligibles are able to select to receive
benefits from any one of four health plan options, including us, or “opt out” of the demonstration. Passive enrollment in
San Diego County began on May 1, 2014. Based on our understanding of the passive enrollment methodology, we
estimate that Health Net will receive approximately 47% and 20–25% of the passively enrolled dual eligibles in Los
Angeles County and San Diego County, respectively. As of December 31, 2014, we had 16,426 dual eligibles members.
Health Net’s participation in the CCI, and the dual eligibles demonstration in particular, represents a significant
business opportunity for us, but is subject to a number of risks inherent in untested health care initiatives, particularly
those that involve new populations with limited cost experience. See “Item 1A. Risk Factors—Our participation in the
dual eligibles demonstration portion of the California Coordinated Care Initiative in Los Angeles and San Diego
Counties may prove to be unsuccessful for a number of reasons” for a discussion of some of the risks associated with
our participation in the CCI.
The managed care services provided by HNCS to enrollees under the Cal MediConnect Contract include
medical, prescription drug, LTSS, and behavioral health services. HNCS’s responsibilities under the Cal MediConnect
Contract also include providing traditional managed care services, including quality improvement, grievance and
appeals, provider network establishment, and utilization management functions. HNCS also performs care coordination,
case management services and health risk assessments, and develops individualized care plans for enrollees. We have
developed our model for managing LTSS, building on our internal expertise and utilizing expert vendor resources to
fulfill certain functions, including the risk stratification and health risk assessment (HRA) services required under the
program. We have also developed our provider network for LTSS, including contracting with and training a variety of
ancillary providers and capitated provider groups with a demonstrated capability for managing long-term care patients.
Compensation. Under the Cal MediConnect Contract, we are compensated on a capitated, prospective per-
member-per-month basis, subject to CMS and DHCS modification of the capitation rates, which are currently based on
the historical fee-for-service cost for providing care to dual eligibles. The Cal MediConnect Contract includes a risk
adjustment process that adjusts the capitation payment to HNCS based on the health characteristics of the enrollee
population, and includes risk corridor provisions that limit our upside financial gains and reduce our downside financial
risk. DHCS and CMS also withhold a portion of capitation payments pending and payable upon satisfaction of certain
pre-established quality standards. The financial performance of the Cal MediConnect Contract is included in the
calculation of the settlement account that was established pursuant to the terms of the Settlement Agreement entered