SB 339 directs the California Department of Health Care Services (DHCS) to develop a new rate methodology that sets Medi‑Cal reimbursement for clinical laboratory services comparable to amounts paid by other payers. The statute requires labs to submit payment data, authorizes DHCS to contract with a vendor to calculate proposed rates, and allows publication of a deidentified dataset for providers reporting more than 10 tests.
The bill matters because it replaces the prior payment standard with a lowest‑of methodology tied to billed charges, public charges, Medicare maximum allowances, or an average of the lowest amounts other payers pay. That creates a formal mechanism for downward rate pressure, new compliance obligations for labs, and a transparency trade‑off between confidential submissions and a limited public dataset.
At a Glance
What It Does
The bill requires DHCS to set Medi‑Cal lab rates at the lowest of four benchmarks: amount billed, public charge, 100% of the lowest Medicare maximum allowance, or an average of the lowest amounts paid by other payers. It mandates periodic data reporting from laboratories and permits DHCS to use vendors to collect and analyze payment data.
Who It Affects
All clinical laboratory providers reimbursed by Medi‑Cal must submit certified payment data on a prescribed schedule and face suspension standards for late reporting; DHCS and any contracted vendors handle data collection, rate calculations, and public dataset publication for higher‑volume reporters.
Why It Matters
This law creates a mechanic for aligning Medi‑Cal lab payments with the lowest payer rates, institutionalizing downward benchmarking while building in federal‑approval and confidentiality safeguards. Compliance officers at labs, DHCS contractors, and policy teams tracking Medi‑Cal costs need to understand the new data obligations and how the department may implement rates.
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What This Bill Actually Does
SB 339 replaces the department’s previous lab rate approach with a statutorily required methodology that focuses on comparability to other payers. Under the bill DHCS must develop reimbursement rates that do not exceed the lowest of (1) the amount billed, (2) the charge to the general public, (3) 100% of the lowest Medicare maximum allowance for comparable services, or (4) a rate derived from an average of the lowest amounts other payers and state Medicaid programs pay for similar services.
The bill carves out laboratory services related to sexually transmitted infections (STIs) from the fourth benchmark until specified future dates or appropriation of funding.
To operationalize the fourth benchmark, SB 339 requires clinical labs to submit certified data reports showing the lowest amounts they receive from other payers, net of discounts and rebates. The initial data point is the 2018 calendar year; thereafter DHCS will use a reporting structure tied to “reporting years,” defined as 2019 and then every third year.
The department determines the precise data elements and format after stakeholder input and may hire a vendor to collect, analyze, and calculate proposed rates by procedure code.The bill treats submitted data as confidential under the California Public Records Act but obliges DHCS to publish a deidentified raw dataset for any reporting provider that furnished more than 10 tests in the collection period; that public dataset will include HCPCS codes, third‑party payer rates, and test volumes and be released alongside updated reimbursement rates. DHCS can implement the statute via provider bulletins or policy letters without formal rulemaking and must seek necessary federal Medicaid approvals; the director retains discretion to withhold or revise rates that would jeopardize federal financial participation and must notify the Joint Legislative Budget Committee ten days before revising rates for federal compliance reasons.SB 339 also includes compliance levers: providers that fail to submit requested data within 30 working days become subject to suspension standards under existing code, and the department can exclude significant cost or volume outliers when calculating the “lowest average” amount.
The statute sets effective dates for the new methodology (July 1, 2020, and every third year thereafter) and provides a transitional provision requiring DHCS to use rates approved in the Medi‑Cal State Plan as of December 31, 2019, for services provided between July 1, 2021 and June 30, 2022.
The Five Things You Need to Know
DHCS must set lab reimbursements at the lowest of: billed amount, public charge, 100% of the lowest Medicare maximum allowance, or an average of the lowest amounts other payers pay.
Clinical labs must submit certified payment reports (initially covering 2018), with reporting years defined as 2019 and every third year thereafter.
Data submissions are confidential under the California Public Records Act, but DHCS will publish a deidentified dataset (HCPCS, payer rates, volumes) for providers reporting more than 10 tests.
Providers that fail to deliver requested data within 30 working days are subject to suspension under the standards in Section 14123(a) and (c).
DHCS may implement the new rates via provider bulletins or policy letters and must obtain necessary federal Medicaid approvals; the director may revise or withhold rates that would jeopardize federal financial participation and must notify the Joint Legislative Budget Committee 10 days before such revisions.
Section-by-Section Breakdown
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Legislative intent and temporary regulatory exemptions
Subsections (a)(1)–(2) set legislative intent: DHCS must develop rates comparable to other payers so Medi‑Cal reimbursements comply with state and federal law. The provision also suspends the application of subdivision (a) of CCR Section 51501 to labs reimbursed under the new methodology, and—by text—contains an historical carveout reference tied to July 1, 2015. Practically, this creates a statutory permission to depart from prior CCR pricing rules for providers moved onto the new schedule.
Lowest‑of reimbursement formula and STI carve‑out
Paragraph (3) sets the core pricing rule: reimbursement shall not exceed the lowest of four benchmarks—amount billed, public charge, 100% of the lowest Medicare maximum allowance, or an average of the lowest payer amounts. The subsection separately treats STI‑related lab services, excluding the fourth benchmark for those services until July 1, 2027 (or earlier if funding is appropriated), meaning STI tests initially face the same lowest‑of caps but without the payer‑average limiter until the carve‑in date.
Data reporting schedule and methodology controls
Paragraph (4) lays out reporting mechanics: providers must submit lowest‑payer payment data (net of discounts and rebates), with the initial submission covering 2018 and subsequent submissions based on the defined reporting years (2019 and every third year thereafter). DHCS will specify exact data elements and formats after stakeholder input, may exclude significant cost or volume outliers, and can contract with a vendor to collect and compute proposed rates by procedure code. These clauses give DHCS broad technical discretion over how the ‘lowest average’ is calculated.
Confidentiality, public dataset and stakeholder input
Paragraph (5) designates submitted reports confidential under the CPRA but requires DHCS to publish a deidentified raw dataset for any provider that reported more than 10 tests in the collection period; the dataset must include HCPCS codes, payer rates, and test volumes. Paragraph (6) obligates DHCS to seek stakeholder input on the ratesetting methodology, which will shape report formats and vendor specifications.
Administrative implementation and federal‑approval guardrails
DHCS may implement the section by provider bulletins or policy letters without formal rulemaking, accelerating operational rollout. The department must implement the law consistent with federal Medicaid rules, seek necessary federal approvals, and may decline or revise any rate that would jeopardize federal financial participation; the director must notify the Joint Legislative Budget Committee 10 days before revising rates to comply with federal requirements.
Effective dates and transitional rate control
Subdivision (b) fixes the cadence: rates developed under the payer‑average clause become effective July 1, 2020, and on July 1 every third year thereafter. Subdivision (c) supplies a transitional rule requiring DHCS to use Medi‑Cal State Plan rates as of December 31, 2019, for services from July 1, 2021 through June 30, 2022, which limits immediate retroactive application of new methodology over that interval.
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Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- California Medi‑Cal program and state budget officers — The lowest‑of methodology and ability to benchmark against other payers create a statutory mechanism for downward rate pressure and greater control over lab spending.
- DHCS and contracted analytics vendors — DHCS gains explicit statutory authority and flexibility to implement rates via bulletins and to hire vendors for data collection and rate calculation; analytics firms stand to capture implementation contracts.
- Policy and procurement teams — The deidentified public dataset (HCPCS, payer rates, volumes) provides researchers and procurement analysts with standardized data to assess price variation and inform rate negotiations.
Who Bears the Cost
- Clinical laboratory providers (especially smaller or higher‑cost labs) — The law ties Medi‑Cal payments to the lowest payer rates and requires certified data submissions; labs face potential lower reimbursements, reporting burdens, and suspension risk for late data.
- DHCS operational units — The department must design reporting formats, manage vendor procurement or oversight, and handle confidentiality and dataset publication tasks, creating administrative and contracting workload.
- Patients and providers of low‑margin tests — If rates compress to the lowest payer levels, some labs may limit service lines or site locations, potentially affecting access to certain tests or timely specimen processing for Medi‑Cal beneficiaries.
Key Issues
The Core Tension
The central dilemma is straightforward: the state wants to lower and standardize Medi‑Cal lab payments by benchmarking to the lowest payer rates and increasing price transparency, but doing so risks undercutting labs that provide higher‑cost or low‑volume services and imposes data and compliance burdens whose costs may offset anticipated savings; federal Medicaid constraints further limit how aggressively the state can pursue lower rates.
The bill delegates significant technical judgment to DHCS—how to define the ‘lowest average’ payer amount, which cost and volume outliers to exclude, and what data elements count as net of discounts and rebates. Those choices determine whether the methodology yields administrable, defensible rates or produces volatile, litigation‑prone outcomes.
The statutory confidentiality carve protects submitted data but the required public dataset for reporters with over 10 tests creates a narrow window where commercially sensitive payer rates and volumes become visible in deidentified form, raising questions about re‑identification risk and competitive harm.
Another practical tension lies in federal compliance: the department must obtain federal approvals and may need to revise or withhold rates that contravene Medicaid requirements. That safety valve preserves federal financial participation but also risks producing a state methodology that cannot be fully implemented without concessions—creating implementation uncertainty for stakeholders.
The reporting cadence (initial 2018 baseline, then reporting years set to 2019 and every third year) and transitional rate rules introduce timing complexities that could produce gaps between rate determinations and the fiscal realities labs face today.
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