(a)

1. (1) The department shall establish and operate the Public Hospital Redesign and Incentives in Medi-Cal (PRIME) program to build upon the foundational delivery system transformation work, expansion of coverage, and increased access to coordinated primary care achieved through the prior California’s “Bridge to Reform” Medicaid demonstration project. The activities supported by the PRIME program are designed to accelerate efforts by participating PRIME entities to change care delivery to maximize health care value and strengthen their ability to successfully perform under risk-based alternative payment models in the long term and consistent with the demonstration’s goals. Participating PRIME entities consist of two types of entities: designated public hospital systems and district and municipal public hospitals.
2. (2) Participating PRIME entities shall be eligible to earn incentive payments by undertaking projects set forth in the Special Terms and Conditions, for which there are required project metrics and targets. Additionally, a minimum number of required projects is specified for each designated public hospital system.
3. (3) The department shall provide participating PRIME entities the opportunity to earn the maximum amount of funds authorized for the PRIME program under the demonstration project. Under the demonstration project, funding is available for the designated public hospital systems and the district and municipal public hospitals through two separate pools. Subject to the Special Terms and Conditions, up to one billion four hundred million dollars ($1,400,000,000) is authorized annually for the designated public hospital systems pool, and up to two hundred million dollars ($200,000,000) is authorized annually for the district and municipal public hospitals pool, during the first three years of the demonstration project, with reductions to these amounts in the fourth and fifth years. Except in those limited instances specifically authorized by the Special Terms and Conditions, the funding that is authorized for each respective pool shall only be available to participating PRIME entities within that pool.
4. (4) PRIME payments shall be incentive payments, and are not payments for services otherwise reimbursable under the Medi-Cal program, nor direct reimbursement for expenditures incurred by participating PRIME entities in implementing reforms. PRIME incentive payments shall not offset payment amounts otherwise payable by the Medi-Cal program, or to and by Medi-Cal managed care plans for services provided to Medi-Cal beneficiaries, or otherwise supplant provider payments payable to PRIME entities.

(b) For purposes of this article, the following definitions apply:

1. (1) “Alternative payment methodology” or “APM” means a payment made from a Medi-Cal managed care plan to a designated public hospital system for services covered for a beneficiary assigned to a designated public hospital system that meets the conditions set forth in the Special Terms and Conditions and approved by the department, as applicable.
2. (2) “Designated public hospital system” means a designated public hospital, as listed in the Special Terms and Conditions, and its affiliated governmental providers and contracted governmental and nongovernmental entities that constitute a system with an approved project plan under the PRIME program. A single designated public hospital system may include multiple designated public hospitals under common government ownership.
3. (3) “District and municipal public hospitals” means those nondesignated public hospitals, as listed in the Special Terms and Conditions, that have an approved project plan under the PRIME program.
4. (4) “Participating PRIME entity” means a designated public hospital system or district and municipal public hospital participating in the PRIME program.
5. (5) “PRIME program year” means the state fiscal year beginning on July 1 and ending on June 30 during which the PRIME program is authorized, except that the first PRIME program year shall commence on January 1, 2016, and, as applicable, means each state fiscal year thereafter through the 2019–20 state fiscal year, and any years or partial years during which the PRIME program is authorized under an extension or successor to the demonstration project.

(c)

1. (1) Within 30 days following federal approval of the protocols setting forth the PRIME projects, metrics, and funding mechanics, each participating PRIME entity shall submit a five-year PRIME project plan containing the specific elements required in the Special Terms and Conditions. The department shall review all five-year PRIME project plans and take action within 60 days to approve or disapprove each five-year PRIME project plan.
2. (2) Participating PRIME entities may modify projects or metrics in their five-year PRIME project plan, to the extent authorized under the demonstration project and approved by the department.

(d)

1. (1) Each participating PRIME entity shall submit reports to the department twice a year demonstrating progress toward required metric targets. A standardized report form shall be developed jointly by the department and participating PRIME entities for this purpose. The mid-year report shall be due March 31 of each PRIME program year, except that, for the 2015–16 project year only, the submission of an acceptable five-year PRIME project plan in accordance with the Special Terms and Conditions shall constitute the submission of the mid-year report. The yearend report shall be due September 30 following each PRIME program year.
2. (2) The submission of the project reports pursuant to paragraph (1) shall constitute a request for payment. Amounts payable to the participating PRIME entity shall be determined based on the achievement of the metric targets included in the mid-year report and yearend report, as applicable.

3. (3) Within 14 days following the submission of the mid-year and yearend reports, the department shall confirm the amounts payable to participating PRIME entities and shall issue requests to each participating PRIME entity for the intergovernmental transfer amounts necessary to draw down the federal funding for the applicable PRIME incentive payment to that entity.

   1. (A) Any intergovernmental transfers provided for purposes of this section shall be deposited in the Public Hospital Investment, Improvement, and Incentive Fund established pursuant to Section 14182.4 and retained pursuant to paragraph (1) of subdivision (f).
   2. (B) Participating PRIME entities or their affiliated governmental agencies or entities shall make the intergovernmental transfer to the department within seven days of receiving the department’s request. In the event federal approval for a payment is not obtained, the department shall return the intergovernmental transfer funds to the transferring entity within 14 days.
   3. (C) PRIME payments to a participating PRIME entity shall be conditioned upon the department’s receipt of the intergovernmental transfer amount from the applicable entity. If the intergovernmental transfer is made within the appropriate timeframe, the incentive payment shall be disbursed in accordance with paragraph (4), otherwise the payment shall be disbursed within 14 days of when the intergovernmental transfer is provided.
4. (4) Subject to paragraph (3), and except with respect to the 2015–16 project year, amounts payable based on the mid-year reports shall be paid no later than April 30, and amounts payable based on the yearend report shall be paid no later than October 31. In the event of insufficient or misreported data, these payment deadlines may be extended up to 60 days to allow time for the reports to be adequately corrected for approval for payment. If corrected data is not submitted to enable payment to be made within the extended timeframe, the participating entity shall not receive PRIME payment for the period in question. For the 2015–16 project year only, 25 percent of the annual allocation for the participating PRIME entity shall be payable within 14 days following the approval of the five-year PRIME project plan. The remaining 75 percent of the participating PRIME entity’s annual allocation shall be available following the 2015–16 yearend report, subject to the requirements in paragraph (2) of subdivision (e).
5. (5) The department shall draw down the federal funding and pay both the nonfederal and federal shares of the incentive payment to the participating PRIME entity, to the extent federal financial participation is available.

(e) The amount of PRIME incentive payments payable to a participating PRIME entity shall be determined as follows:

1. (1) The department shall allocate the full amount of annual funding authorized under the PRIME project pools across all domains, projects, and metrics undertaken in the manner set forth in the Special Terms and Conditions. Separate allocations shall be determined for the designated public hospital system pool and the district and municipal hospital pool. The allocations shall determine the aggregate annual amount of funding that may be earned for each domain, project, and metric for all participating PRIME entities within the appropriate pool.

   1. (A) The department shall allocate the aggregate annual amounts determined for each project and metric under the designated public hospital system pool among participating designated public hospital systems through an allocation methodology that takes into account available system-specific data, primarily based on the unique number of Medi-Cal beneficiaries treated, consistent with the Special Terms and Conditions. For the 2015−16 project year only, the approval of the five-year PRIME project plans for designated public hospital systems will be considered an appropriate metric target and will equal up to 25 percent of a designated public hospital system’s annual allocation for that year.
   2. (B) The department shall allocate the aggregate annual amounts determined for each project and metric under the district and municipal public hospital system pool among participating district and municipal public hospital systems through an allocation methodology that takes into account available system-specific data that includes Medi-Cal and uninsured care, the number of projects being undertaken, and a baseline floor funding amount, consistent with the Special Terms and Conditions. For the 2015–16 project year only, the approval of the five-year PRIME project plans for district and municipal public hospital systems will be considered an appropriate metric target and will equal up to 25 percent of a district and municipal public hospital system’s annual allocation for that year.

2. (2) Amounts payable to each participating PRIME entity shall be determined using the methodology described in the Special Terms and Conditions, based on the participating PRIME entity’s progress toward and achievement of the established metrics and targets, as reflected in the mid-year and yearend reports submitted pursuant to paragraph (1) of subdivision (d).

   1. (A) Each participating PRIME entity shall be individually responsible for progress toward and achievement of project specific metric targets during the reporting period.
   2. (B) The amounts allocated pursuant to subparagraphs (A) and (B) of paragraph (1) shall represent the amounts the designated public hospital system or district and municipal public hospital, as applicable, may earn through achievement of a designated project metric target for the applicable year, before any redistribution.
   3. (C) Participating PRIME entities shall earn reduced payment for partial achievement at both the mid-year and yearend reports, as described in the Special Terms and Conditions.
3. (3) If, at the end of a project year, a project metric target is not fully met by a participating PRIME entity and that entity is not able to fully claim funds that otherwise would have been earned for meeting the metric target, participating PRIME entities shall have the opportunity to earn unclaimed funds under the redistribution methodology established under the Special Terms and Conditions. Amounts earned by a participating PRIME entity through redistribution shall be payable in addition to the amounts earned pursuant to paragraph (2).

(f) The nonfederal share of payments under the PRIME program shall consist of voluntary intergovernmental transfers of funds provided by designated public hospitals or affiliated governmental agencies or entities, or district and municipal public hospitals or affiliated governmental agencies or entities, in accordance with this section.

1. (1) The Public Hospital Investment, Improvement, and Incentive Fund, established in the State Treasury pursuant to Section 14182.4, shall be retained during the demonstration term for purposes of making PRIME payments to participating PRIME entities. Notwithstanding Section 13340 of the Government Code, moneys deposited in the Public Hospital Investment, Improvement, and Incentive Fund shall be continuously appropriated, without regard to fiscal years, to the department for the purposes specified in this section. All funds derived pursuant to this section shall be deposited in the State Treasury to the credit of the Public Hospital Investment, Improvement, and Incentive Fund.
2. (2) The Public Hospital Investment, Improvement, and Incentive Fund shall consist of moneys that a designated public hospital or affiliated governmental agency or entity, or a district and municipal public hospital-affiliated governmental agency or entity, elects to transfer to the department for deposit into the fund as a condition of participation in the PRIME program, to the extent permitted under Section 433.51 of Title 42 of the Code of Federal Regulations, the Special Terms and Conditions, and any other applicable federal Medicaid laws. Except as provided in paragraph (3), moneys derived from these intergovernmental transfers in the Public Hospital Investment, Improvement, and Incentive Fund shall be used as the nonfederal share of PRIME program payments authorized under the demonstration project. Any intergovernmental transfer of funds provided for purposes of the PRIME program shall be made as specified in this section. Upon providing any intergovernmental transfer of funds, each transferring entity shall certify that the transferred funds qualify for federal financial participation pursuant to applicable federal Medicaid laws and the Special Terms and Conditions, and in the form and manner as required by the department.
3. (3) The department shall claim federal financial participation for PRIME incentive payments using moneys derived from intergovernmental transfers made pursuant to this section and deposited in the Public Hospital Investment, Improvement, and Incentive Fund to the full extent permitted by law. The moneys disbursed from the fund, and all associated federal financial participation, shall be distributed only to participating PRIME entities and the governmental agencies or entities to which they are affiliated, as applicable. No moneys derived from intergovernmental transfers on behalf of district and municipal public hospitals, including any associated federal financial participation, shall be used to fund PRIME payments to designated public hospital systems, and likewise, no moneys derived from intergovernmental transfers provided by designated public hospitals or their affiliated governmental agencies or entities, including any associated federal financial participation, shall be used to fund PRIME payments to district and municipal public hospitals. In the event federal financial participation is not available with respect to a payment under this section that results in a recoupment of funds from one or more participating PRIME entities, the department shall return any intergovernmental transfer fund amounts associated with the payment for which federal financial participation is not available to the applicable transferring entities within 14 days from the date of the associated recoupment or other determination, as applicable.
4. (4) This section shall not be construed to require a designated public hospital, a district and municipal public hospital, or any affiliated governmental agency or entity to participate in the PRIME program. As a condition of participation in the PRIME program, each designated public hospital or affiliated governmental agency or entity, and each district and municipal public hospital-affiliated governmental agency or entity agrees to provide intergovernmental transfers of funds necessary to meet the nonfederal share obligation for any PRIME payments made pursuant to this section and the Special Terms and Conditions. Any intergovernmental transfers made pursuant to this section shall be considered voluntary for purposes of all federal laws.

(g)

1. (1) PRIME incentive payments are intended to support designated public hospital systems in their efforts to change care delivery and strengthen those systems’ ability to participate under an alternate payment methodology (APM). APMs shift some level of risk to participating designated public hospital systems through capitation and other risk-sharing agreements. Contracts entered into, issued, or renewed between managed care plans and participating designated public hospital systems shall include language requiring the designated public hospital system to report on metrics to meet quality benchmark goals and to ensure improved patient outcomes, consistent with the Special Terms and Conditions.
2. (2) In order to promote and increase the level of value-based payments made to designated public hospital systems during the course of the demonstration term, the department shall issue an all-plan letter to Medi-Cal managed care plans that shall promote and encourage positive system transformation. The department shall issue an activities plan supporting designated public hospital system efforts to meet those aggregate APM targets and requirements as provided in the Special Terms and Conditions.

3. (3)

   1. (A) Designated public hospital systems shall contract with at least one Medi-Cal managed care plan in the service area where they operate using an APM methodology by January 1, 2018. If a designated public hospital system is unable to meet this requirement and can demonstrate that it has made a good faith effort to contract with a Medi-Cal managed care plan in the service area that it operates in or a gap in contracting period occurs, the department has the discretion to waive this requirement.
   2. (B) Each designated public hospital system shall report to the department, in a format determined by the department in consultation with the designated public hospital systems and Medi-Cal managed care plans, a summary of the contracting arrangement the designated public hospital system has with Medi-Cal managed care plans and the scope of services covered under the contract.
   3. (C) It is the intent of the Legislature to encourage contracting between designated public hospital systems and multiple Medi-Cal managed care plans so that Medi-Cal members have access to medically necessary and appropriate covered services.
4. (4) Designated public hospital systems and Medi-Cal managed care plans shall seek to strengthen their data and information sharing for purposes of identifying and treating applicable beneficiaries, including the timely sharing and reporting of beneficiary data, assessment, and treatment information. Consistent with the Special Terms and Conditions and the goals of the demonstration project, and notwithstanding any other state law, the department shall provide guidelines, state-level infrastructure, and other mechanisms to support this data and information sharing.