Advocacy Alert: Legal Changes in California Behavioral Health and Addiction Treatment Industries: Key Takeaways

October 24, 2019


by Nelson Hardiman: see their Client Alert

The 2019 California legislative session came to a close with a flurry of vetoes and signing of bills on Governor Newsom’s desk impacting the addiction treatment and behavioral health community. Behavioral healthcare providers need to be paying attention to immediate compliance requirements coming into effect as a result of new laws, as well as several bills that didn’t quite make it into law, but remain on the horizon for next year.

What are the key takeaways for providers?

1. Goodbye, Florida Model? Clarity on Housing and Transportation Costs

Questions around what is and is not permissible in housing and patient travel have been a persistent source of confusion in the addiction treatment and behavioral health industries. Many outpatient programs continue to utilize the so-called “Florida model” of providing free housing while clients participate in their insurance-covered PHP or IOP programs. Concerns have risen that legitimate treatment program are inadvertently inducing patients to choose particular programs with offers of free housing and airfare, and that “bed vouchers” are being used to facilitate patient brokering.

With Governor Newsom’s signing into law of Orange County Assemblymember Cottie Petrie-Norris’ bill, AB 919, providers now have significantly more clarity as to what is and is not permitted when it comes to housing and travel, including how they are to be funded and managed responsibly. We are pleased to have played a role in shaping the language of the bill to ensure that the law was consistent with our longstanding guidance.

What is included in AB 919?

AB 919 includes new standards for legitimate financing or discounting of housing and travel that are critical for outpatient programs and recovery residence (sober living) operators to understand and implement. Under the new law, the good news is that outpatient programs may reserve beds for patients that have a financial need. The essential requirements are that clients (1) sign separate lease agreements accepting responsibility for the housing costs of recovery residences (i.e. sober living homes). The lease must include acceptance of financial responsibility and a statement that its payment does not depend on insurance coverage, as well as a repayment plan for discounts or subsidies. The residence must make good faith efforts to collect. The housing may not be contingent on agreeing to attend a particular outpatient program. In the coming weeks and months, we will be providing more guidance to support provider compliance.

2. No Licensing for Outpatient Programs (Yet)

As regulatory lawyers working across different states, perhaps the biggest oddity we see of California’s regulation of behavioral health is the absence of any mandatory licensing requirements and limited standards to operate an outpatient addiction or mental health treatment program. The overwhelming majority of states require operators to be licensed and to meet specific standards. In California, an optional IOP certification is available (only for adult alcohol and drug treatment programs). Other outpatient programs (mental health, adolescent SUD, etc.) do not even have that option available, forcing operators to look to accreditation bodies, such as the Joint Commission or CARF, for standards that are missing in state law.

The Veto of AB 920

Our view is that California’s failure to license outpatient programs is a legacy of a different era. Licensure is an important part of clarifying operating standards, improving patient safety, and bringing California into alignment in how the rest of the country operates. Assemblymember Cottie Petrie-Norris’ AB 920 bill would have required the Department of Health Care Services (DHCS) to license SUD outpatient programs as of 2021, standardizing rules and promoting safe and effective care. Among other things, outpatient programs would have had to follow American Society of Addiction Medicine (ASAM) criteria. AB 920 also would have opened the door to enabling DHCS to certify outpatient programs to provide incidental medical services (IMS), which current law does not permit.

Governor Newsom explained his veto on the basis that the licensing scheme was incomplete and needed further work to be more comprehensive. Our perspective is that, ultimately, outpatient licensure is inevitable, but, for now, it has been put off until at least 2020 (meaning implementation likely delayed until at least 2022). We can only hope that reaching a consensus on what outpatient licensing will look like will be a priority for the coming year. Governor Newsom, you know where to find us.

3. The Dialysis Law Has Implications for Behavioral Health and Funding Patient Insurance Coverage

With the enactment of Assemblymember Jim Wood’s AB 290, the insurance companies scored a huge victory in their longstanding battle with large dialysis providers (DaVita and Fresenius). These providers had funded nonprofit organizations (such as the American Kidney Fund) to cover the cost of premiums for patients for commercial health plans that reimbursed dialysis. AB 290 requires that any third-parties who subsidize health insurance premiums on behalf of patients disclose to commercial health plans the names of those patients. The law sets forth standards governing the reimbursement of financially interested providers and limits the ability of providers to direct patients to specific coverage options or health care service plans. While focused on dialysis, AB 290 has significant implications for behavioral health by criminalizing activity related to funding patient insurance coverage. The use of nonprofits to absorb insurance costs for people requiring addiction or other forms of behavioral health coverage has been a widespread practice that now requires attention to compliance.

4. Bills to Watch For Next Year

The other big surprise of the legislative session was the Governor’s veto of Orange County Senator Pat Bates’ SB 589, which would have prohibited unauthorized advertising and call center activity in addiction treatment. The problem of online marketers “trolling” addiction treatment program identities online has lingered, with many people fooled into thinking they are speaking with programs when in fact they are talking to call centers who redirect leads to programs that will pay for patients. Governor Newsome was expected to sign the bill, which received bipartisan support, but ultimately vetoed it on the ground that it would have exceeded the jurisdiction of the Department of Health Care Services. Irrespective of the jurisdictional issue, our perspective is that this issue will remain a problem compelling legislative attention.

Several other legislative efforts that were expected to reform addiction treatment ultimately failed in this legislative session, including AB 1779, which would have required counties receiving public funding for recovery residences (sober living facilities) to enforce standards of the National Association of Recovery Residences, and AB 1468, the “Penny A Pill” bill, that would established a fee on opioid manufacturers distributors to create a fund (est. $100M) for Opioid Use Disorder Prevention and Treatment. Expect these issues to be back next year.



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