AB 2036 sets out how California will reimburse federally qualified health centers (FQHCs) and rural health clinics (RHCs) under Medi‑Cal. It declares FQHC and RHC services covered Medi‑Cal benefits and requires reimbursement on a per‑visit prospective payment (PPS) basis tied to a statutory definition of “visit,” while preserving mechanisms to adjust rates when the scope of services changes.
Beyond base PPS payments, the bill creates discrete processes for supplemental payments in extraordinary circumstances and for carving out Drug Medi‑Cal and specialty mental health services to be reimbursed outside the PPS via county or department contracts. It also expressly folds multiple telehealth modalities into the visit definition (subject to federal approvals) and authorizes the department to implement detailed rules through provider guidance instead of formal rulemaking—shifting both provider revenues and state administrative workstreams.
At a Glance
What It Does
Requires Medi‑Cal coverage and per‑visit PPS reimbursement for federally qualified health center and rural health clinic services, defines which encounters count as a reimbursable “visit,” and creates formal processes for annual rate adjustments, scope‑of‑service rate reviews, and discretionary supplemental payments.
Who It Affects
Directly affects California FQHCs and RHCs, counties that administer or contract for Drug Medi‑Cal and specialty mental health services, Medi‑Cal managed care entities for reconciliation purposes, and the clinicians (including dental hygienists and marriage and family therapists) whose encounters may now qualify as reimbursable visits.
Why It Matters
The bill clarifies reimbursement mechanics that determine clinic cash flow, brings telehealth modalities into PPS treatment (subject to federal sign‑off), and creates backstop payment routes for behavioral health and substance use services—each of which can materially change clinic revenue, payer relationships, and departmental implementation priorities.
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What This Bill Actually Does
The bill makes FQHC and RHC services explicit covered benefits under California’s Medi‑Cal program and ties reimbursement to a per‑visit PPS system. It does not leave rate setting to ad hoc processes: the statute frames what counts as a visit, directs the department to reimburse visits consistent with federal participation rules, and establishes defined paths for changing reimbursement when a clinic’s services change.
Rate adjustments fall into two categories: scope‑of‑service adjustments and discretionary supplemental payments. Scope‑of‑service adjustments are meant for structural changes in services—adding or removing service lines, remodeling, changing provider mix, or adopting new technology or teaching costs—and must be evaluated under Medicare reasonable cost principles.
Supplemental payments are available only when true extraordinary circumstances make PPS payments insufficient; the department retains discretion and requires documentation to substantiate material cost impacts.Telehealth is integrated into the visit definition. The bill contemplates synchronous video, audio‑only, and asynchronous store‑and‑forward encounters as visits when they meet standards of care and federal participation rules.
It limits establishment of new patient relationships via audio‑only encounters except in narrowly defined circumstances and requires clinics that rely on audio‑only care to offer video options and preserve in‑person access or facilitated referrals. The department must produce model language for beneficiary notice and may implement telehealth and billing details through provider guidance issued after stakeholder consultation.For Drug Medi‑Cal and specialty mental health services, the bill provides a path to remove those costs from the clinic base PPS rate and instead reimburse them through separate contracts with counties or the department.
That process includes interim rate mechanisms, audits, and retroactive adjustments when an FQHC or RHC shifts service delivery outside the PPS. The statute also preserves appeal rights on ratesetting and audit disputes and conditions implementation on obtaining any necessary federal approvals, leaving the department with both authority and obligations to finalize operational rules.
The Five Things You Need to Know
The statute requires annual increases to FQHC and RHC per‑visit rates tied to the Medicare Economic Index (MEI) applicable to primary care, effective each October 1 in the manner described in federal law.
Scope‑of‑service rate changes are actionable only when the net per‑visit rate change meets a 1.75% threshold (applied to site or consolidated averages), and clinics may submit scope‑of‑service requests once per fiscal year within 90 days after their fiscal year begins.
The bill allows discretionary supplemental payments for extraordinary circumstances but requires documentation showing a material, significant cost impact equal to $200,000 or 1% of the facility’s total costs, whichever is less; supplemental amounts are paid as lump sums and must be repaid if not expended for the specified purpose.
Telehealth visits (video synchronous, audio‑only synchronous, and asynchronous store‑and‑forward) may be reimbursed at the PPS visit rate if they meet standards of care and federal approval; audio‑only cannot establish a new patient relationship except for limited exceptions (sensitive services, patient lack of video access, or department‑defined exceptions), and clinics offering audio‑only must also offer video by a department date no sooner than January 1, 2024.
When clinics elect to bill Drug Medi‑Cal or specialty mental health services outside the PPS via county or department contracts, the department must issue an interim rate within 90 days equal to 90% of projected allowable cost and perform an audit to set the final rate; retroactivity is available but not earlier than January 1, 2018 for those adjustments.
Section-by-Section Breakdown
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Covered benefits and per‑visit PPS reimbursement
These paragraphs declare FQHC and RHC services to be covered Medi‑Cal benefits and require reimbursement on a per‑visit prospective payment basis when federal financial participation applies. Practically, this centralizes payment treatment: clinics must operate under per‑visit accounting for covered encounters rather than inconsistent local fee arrangements when federal match is claimed.
Annual adjustment mechanism (Medicare Economic Index)
The bill directs that per‑visit rates be increased annually by the Medicare Economic Index for primary care services in the same fashion prescribed by federal statute. That locks in an indexed uplift instead of ad hoc percentage changes, aligning state increases with a federal cost index and reducing year‑to‑year negotiation friction—while also importing federal measurement idiosyncrasies into state budgeting.
Scope‑of‑service adjustments: what qualifies and how to request them
Subdivision (e) lists the specific events that can trigger a scope‑of‑service rate review—adding or removing services, regulatory changes, relocation, technology shifts, changes in patient mix, provider mix changes, capital expenditures, and approved HRSA project changes—and requires evaluation under Medicare reasonable cost principles. It sets process limits: clinics can file one request per fiscal year within a 90‑day window, approvals are retroactive to the fiscal year start, and the department must apply specified thresholds to determine materiality. This provision defines eligibility and process but leaves the department responsible for applying federal cost principles and conducting audits.
Discretionary supplemental payments for extraordinary circumstances
The department may grant supplemental payments when truly extraordinary events make PPS insufficient. The statute reserves these payments to department discretion, requires written requests with supporting documentation, ties eligibility to specified kinds of events (natural disasters, regulatory changes, licensure shifts), and prohibits mere inflation from qualifying. Because payments are lump sums and repayable if misused, the clause is meant to be narrow and documentary‑intensive rather than a routine revenue stream.
Definition of a “visit” and telehealth modalities
Subdivision (g) gives a broad, operational definition of reimbursable visits, explicitly naming clinicians whose face‑to‑face encounters qualify and expanding the definition to include certain dental hygienists, marriage and family therapists, perinatal practitioners, adult day health attendance, and others identified in the state plan. Importantly, it folds telehealth into the visit definition—video, audio‑only, and asynchronous modalities are eligible where they meet standards of care and federal participation rules, but the statute limits establishment of new patient relationships via audio‑only encounters except for specified exceptions. The department is charged with producing billing forms, model beneficiary communications, and implementation guidance, subject to obtaining any necessary federal approvals.
Carve‑outs for Drug Medi‑Cal and specialty mental health and contracting pathways
These provisions let clinics elect to have Drug Medi‑Cal and specialty mental health costs reimbursed outside the PPS by contracting with counties or the department. If carved out, the bill requires documentation, interim rates, and subsequent audits to settle final costs and prevents double reimbursement under the PPS. The statute also provides routes when counties won’t contract—allowing a clinic to seek a department contract or be reimbursed at fee‑for‑service rates—creating a formal mechanism to shift certain high‑cost behavioral health and SUD services out of the base PPS calculation.
Appeals, federal approvals, department implementation authority, and operative date
The bill preserves appeal rights for rate and audit disputes, directs the department to seek all required federal approvals before implementing elements that rely on federal match, and authorizes the director to use provider bulletins and similar instructions (with stakeholder notice and meetings) in lieu of formal rulemaking. The statute sets procedural requirements for stakeholder consultation and notification and becomes operative on July 1, 2026, which creates a discrete timeline for the department to secure approvals and prepare guidance.
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Explore Healthcare in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Federally qualified health centers and rural health clinics — Gain clearer, statutory rules for per‑visit PPS reimbursement, an indexed annual increase mechanism, and explicit paths to recover costs when services change or when behavioral health/SUD services are carved out, which can stabilize revenue streams.
- Clinicians within FQHCs/RHCs (including MFTs and dental hygienists) — Receive an explicit statutory basis to have certain encounters counted as reimbursable visits (including some telehealth modalities), which can expand billable activity and clarify supervision/billing arrangements for associates.
- Medi‑Cal beneficiaries served by FQHCs/RHCs — Benefit from expanded modalities (video, audio‑only in some cases, and asynchronous options) and mandated patient communications about telehealth options, potentially improving access to primary and behavioral health care.
- Behavioral health and substance use disorder programs — Clinics can contract directly with counties or the department to bill Drug Medi‑Cal or specialty mental health services outside the PPS, creating a predictable contracting pathway for higher‑intensity services.
- Newly qualifying clinics and new locations — Receive statutory methods for initial rate setting (comparable clinic averages, cost projections, or consolidated rate elections), easing the onboarding payment process.
Who Bears the Cost
- California Department of Health Care Services — Must secure federal approvals, design forms and guidance, conduct audits and interim rate calculations, and manage stakeholder consultation, imposing staff time and project management burdens.
- State budget / taxpayers — Expanded coverage definitions, telehealth parity, retroactive rate adjustments, and discretionary supplemental payments increase the risk of higher Medi‑Cal outlays, especially if federal match is limited or if retroactive payments accumulate.
- Counties (for Drug Medi‑Cal/Specialty MH contracting) — Face new contracting decisions and potential fiscal exposure if they elect to include FQHCs/RHCs in DMC‑ODS or negotiate specialty mental health contracts.
- FQHCs/RHCs with limited administrative capacity — Must compile detailed cost documentation, manage one‑time scope‑of‑service filings within narrow windows, and comply with audit requirements, raising compliance costs that may disproportionately affect smaller clinics.
- Managed care plans and third‑party payers — Will be subject to reconciliation rules and department determinations about what portion of payment counts toward clinic receipts, potentially increasing their administrative settlement workload.
Key Issues
The Core Tension
The bill attempts to stabilize and modernize revenue for safety‑net clinics and expand access (especially via telehealth), while imposing tighter administrative processes and creating significant contingent fiscal exposure; the central dilemma is whether California should prioritize rapid provider payment parity and access—accepting federal approval risks and higher short‑term fiscal volatility—or constrain implementation to maintain budgetary predictability at the expense of revenue stability and expanded telehealth access for clinics and patients.
AB 2036 ties ambitious provider protections and payment pathways to several implementation preconditions that create real uncertainty. Many telehealth expansions, the inclusion of certain provider encounters, and elements of per‑visit reimbursement are operative only to the extent federal approvals are obtained; if CMS withholds approvals or conditions them, California may need to modify its approach or forgo federal financial participation for some elements.
Retroactive adjustments and interim rates create immediate fiscal exposure during implementation: backdating payments to prior fiscal years or the 2018 baseline for certain carve‑outs can generate large one‑time claims against state and county budgets.
Operationally, the statute leans on Medicare reasonable cost principles and audit settlements to finalize rates—an administratively intensive route that favors clinics with robust cost accounting. The 90‑day filing windows, one‑request‑per‑year rule, and audit‑driven reconciliations create timing and cash‑flow risks.
Telehealth parity increases access but risks higher utilization and cost growth; the audio‑only exception framework tries to balance access with clinical standards but raises enforcement and verification challenges (e.g., patient attestation of no video access). Finally, the department’s authority to implement many provisions via provider bulletins expedites rollout but concentrates discretion and may limit formal public rulemaking inputs.
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