State Implements Deep Cut to Medi-Cal Provider Payments

Two years ago, facing a substantial budget shortfall, state policymakers agreed to cut — by 10 percent — payments for doctors, dentists, and other providers who participate in Medi-Cal, California’s Medicaid program. Lawsuits filed by health care provider associations put this reduction on hold, but the state recently has won key federal court decisions. As a result, the Brown Administration began implementing the 10 percent cut earlier this month, starting with payments to dentists and medical transportation providers.

Incredibly, this reduction will apply not only going forward, but also retroactively to June 1, 2011, which means that providers will have to gradually pay back part of the payments they’ve received over the past couple of years. The retroactive portion of the cut is not yet in place, and the state’s recent guidance does not indicate how it will be implemented. However, earlier this year, the Administration suggested that the state would retroactively recoup payments from providers by temporarily imposing an additional 5 percent cut, for a total reduction of 15 percent. This additional 5 percent cut would remain in effect until the full amount owed retroactively is repaid.

In a classic case of bad timing, this cut is taking effect as California prepares for a major expansion of Medi-Cal — the cornerstone of the state’s full-speed-ahead implementation of federal health care reform. Enrollment in Medi-Cal, which already exceeds 8 million, will increase significantly beginning in 2014 as more low-income Californians become eligible for coverage. California’s payments to Medi-Cal providers are already exceptionally low, and the rate cut adds to concerns about whether enough providers will be willing to accept the newly covered Californians. Efforts to fully repeal the cut failed in the Legislature this year. However, lawmakers did pass Senate Bill 239, which — if signed by the Governor as expected — would repeal the rate cut for certain nursing facilities effective October 1. (These facilities would still be subject to the retroactive reduction.)

Health provider associations have at least one more legal avenue: an appeal to the US Supreme Court. An appeal has been filed, although it will likely be months before the Court decides whether to take the case and, even if it does (a long shot), a ruling would not be handed down until 2014.

In the meantime, the rate reduction will move ahead. State policymakers should revisit this issue as part of next year’s budget debate and decide whether a deep cut to the state’s main health care program for low-income families — a cut made during the dark days of a budget crisis — is really the best way forward for California. Repealing this reduction is a sensible step that would both create greater fiscal certainty for providers and represent a critical state investment in the success of health care reform.

— Scott Graves