(a) Except as otherwise provided in this chapter, each prepaid health plan shall be responsible for all of the costs of services rendered under the provisions of this chapter to any Medi-Cal beneficiary enrolled in the plan.

(b) The department shall bear the costs of providing to each Medi-Cal beneficiary enrolled in a prepaid health plan the services covered under the plan, to the extent that the aggregate of these costs, based on Medi-Cal reimbursement levels, and exclusive of third-party recoveries, exceeds the 12-month risk limit. The risk limit shall not exceed twenty-five thousand dollars ($25,000) based on Medi-Cal reimbursement levels, shall be specified in the contract between the department and the plan, and shall be determined concurrently with the annual determination of rates of payment.

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The department shall have the authority to adopt regulations to increase the risk limit, to an amount not to exceed thirty-five thousand dollars ($35,000). Regulations to increase the risk limit shall be based upon and supported by changes in prepaid health plan rates paid by the department and changes in the medical component of the Consumer Price Index (CPI) as actuarially determined by the department. It is the intent of the Legislature that these risk limit adjustments are not to exceed thirty-five thousand dollars ($35,000) until the 1986-87 fiscal year or beyond. For plans having contracts in existence on the effective date of this section, the risk limit shall be announced on or before the first day of each state fiscal year, to become effective concurrently with the effective date for the new rates of payment for the next succeeding state fiscal year.

The department may negotiate with a prepaid health plan a mutually agreed-to risk limit in an amount in excess of thirty-five thousand dollars ($35,000).

Within 90 days of the receipt of the documentation required under paragraph (2), the department shall pay the reimbursement provided for by this section to the extent that it determines that the services rendered were medically necessary, and that the amount of the payments sought for those services is reasonable. The department may, if a dispute exists as to whether the services rendered were medically necessary or if the amount of the payments for those services was reasonable, delay paying the reimbursement for such services until a final determination of the dispute is made.

(1) Each prepaid health plan shall arrange and provide initial payment, at Medi-Cal reimbursement levels, for medically necessary care for any Medi-Cal beneficiary enrolled in the plan when the cost for this care exceeds the 12-month risk limit. No person shall be disenrolled by any prepaid health plan for the sole reason that the cost of his or her care under the plan has exceeded the risk limit.

(2) As a condition of reimbursement for costs of care in excess of the risk limit as to a Medi-Cal beneficiary enrolled in a prepaid health plan, the plan must submit to the department, in a format to be designated by the department, documentation of all costs incurred for services to the beneficiary during the 12-month period.

(c) No prepaid health plan may enter into any subcontract that would in any way limit its obligation assumed under this chapter to retain the significant risk of the cost of services rendered under this chapter to any Medi-Cal beneficiary enrolled in the plan.

(d) As a condition of the department’s approval of any subcontract entered into by a prepaid health plan under this chapter, the plan shall specify its retention of significant risk by designating one of the options under subdivision (e) as its operating definition of significant risk, or by any other method approved by the department that would meet the requirement set forth in subdivision (c).

(e) “Significant risk” means financial responsibility for either of the following:

(1) All expenditures in excess of 115 percent of the specified total expenditures estimated under each subcontract.

(2) All inpatient hospitalization expenditures as determined by the department, including expenditures for services connected with hospitalization.

(Added by renumbering Section 14462 (as amended by Stats. 1985, Ch. 1579) by Stats. 1986, Ch. 248, Sec. 272.)