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(a) The department shall determine, by actuarial methods, prospective per capita rates of payment for services provided under this chapter for Medi-Cal beneficiaries enrolled in a prepaid health plan. The rates of payment shall be determined annually, shall be effective no later than either the first day of July each year, or another date chosen by the department, and shall not exceed the total per capita amount (including cost of administration) which the department estimates (with appropriate adjustments to provide actuarial equivalence) would be payable for all services and requirements covered under the prepaid health plan contract if all such services and requirements were to be furnished to Medi-Cal beneficiaries under the fee-for-service Medi-Cal program provided for by Chapter 7 (commencing with Section 14000). In the event that there is any delay in the payment of the new annual rates determined pursuant to this subdivision, continued payment to the prepaid health plan of the rate in effect at the time the delay occurred shall be interim payment only, and shall be subject to increase or decrease, as the case may be, to the level of the new annual rates effective as of either the first day of July or the date chosen by the department. Notwithstanding the foregoing provision, in the event that a contract amendment providing for the new annual rates has been executed by the department and a prepaid health plan, but has not yet received the approval of all required control agencies and departments by the end of the first month following the effective date of the new rate, payment of the new annual rates shall commence no later than the first day of the second month following the effective date of the new rate. Contract amendments providing for the new annual rates shall provide that the prepaid health plan contractor agrees that by accepting payment of the new annual rates prior to final approval, such contractor stipulates to a confession of judgment for any amounts received in excess of the final approved rate. If the final approved rates differ from the rates set forth in such amendments, any underpayment by the state shall be paid by the department to the prepaid health plan within 30 days after final approval of such rates. Any overpayment by the state shall be recaptured by the state withholding the amount due from the prepaid health plan’s next capitation check. If the amount to be withheld from subsequent capitation checks exceeds 25 percent of the appropriate capitation payment for that month, amounts up to 25 percent shall be withheld from each successive monthly capitation payment until such deficiencies are recovered by the state. The contract shall provide the specific per capita rates, to be determined by sound actuarial methods on the basis of age, sex, and aid categories, which the state shall pay the prepaid health plan each month for each beneficiary enrolled in the prepaid health plan, a detailed description of the specific actuarial method or methods and assumptions used in determining per capita rates, and a summary of the data base, including costs and inflation assumptions and utilization rates, which was used to determine per capita rates. In addition, the director shall engage and rely upon the services of an actuary or consulting actuary in determining prospective per capita rates.
(b) Any prepaid health plan with an operating experience and scale of operation deemed by the department to be insufficient to justify the application of an actuarially determined per capita rate, shall be reimbursed on a cost basis up to the fee-for-service maximum for services provided until such time as the director determines that a per capita method is reasonable, but not to exceed a period of one year. For purposes of this section, costs shall be net of intercompany profits in those circumstances where any of the following persons have a substantial financial interest, as defined by Section 14478, in any vendor to the prepaid health plan or any vendor to a subcontractor of the plan:
(1) Any person also having a substantial financial interest in the plan.
(2) Any director, officer, partner, trustee or employee of the plan.
(3) Any member of the immediate family of any person designated in paragraph (1) or (2).
(c) The obligations of a prepaid health plan shall be changed only by contract or contract amendment. Any such change may be made during a contract term or at the time of contract renewal, where there is a change in obligations required by federal or state law or regulation, or required by a change in the interpretation or implementation of any such law or regulation. If any such change in obligations occurs which affects the cost to a prepaid health plan of performing under the terms of its contract, then the per capita rates under the contract may be redetermined in the manner provided by subdivision (a) to reflect such change. During such period of time as is required to redetermine the per capita rates, payment to a prepaid health plan of the per capita rates in effect at the time such change occurred shall be considered interim payments and shall be subject to increase or decrease, as the case may be, effective as of the date on which such change is effective.
(d) The obligations of a prepaid health plan shall be changed only by contract or contract amendment wherein payment for the changes, whether payment results in an increase or decrease in the prior per capita rates paid to a prepaid health plan, shall be determined in accordance with this section and paid to affected prepaid health plans.
(e) Nothing contained in this section shall be construed as removing from a prepaid health plan the risk of beneficial or adverse effects, including inflation, which normally result from contracting to furnish health services.
(f) Per capita rates of payment for services provided to Medi-Cal beneficiaries enrolled in prepaid health plans or Medi-Cal managed care plans contracting in areas specified by the director for expansion of the Medi-Cal managed care program under Section 14087.3 or contracting under Sections 14018.7, 14087.31, 14087.35, 14087.36, 14087.38, 14087.96, 14089, and 14089.05 shall be paid by the state effective the date a beneficiary’s enrollment takes effect. A primary care provider or clinic contracting with a prepaid health plan or a Medi-Cal managed care plan on a capitation basis and whose assignment to or selection by a beneficiary has been confirmed by the plan shall be paid capitation payments effective the date of the beneficiary’s enrollment. However, a primary care provider whose assignment to or selection by a beneficiary was not confirmed by the plan on the date of the beneficiary’s enrollment, but is later confirmed by the plan, shall be paid capitation payments effective no later than 30 days after the beneficiary’s enrollment. The prepaid health plan or Medi-Cal managed care plan shall be financially responsible for all Medi-Cal services covered under the contract with the department for any newly enrolled beneficiary until that beneficiary has a confirmed assignment to a primary care provider or clinic. This subdivision shall not apply when a beneficiary requests a change in primary care provider after initial selection or assignment.