Lawmakers Rethinking Recent Cut to Medi-Cal Provider Payments

With California facing a substantial budget gap in 2011, state lawmakers and Governor Brown approved a 10 percent cut to payments for doctors, dentists, pharmacists, and a range of other providers who participate in Medi-Cal, California’s Medicaid program. This reduction has yet to take effect because health provider associations filed several lawsuits, and the issue remains tied up in federal court.

With the cut in legal limbo, lawmakers are now considering two bills that would prevent the reduction from taking effect: SB 640 by Senator Ricardo Lara (D-Long Beach) and AB 900 by Assemblymember Luis Alejo (D-Salinas). SB 640 will be taken up in the Senate Health Committee this afternoon; AB 900 is scheduled to be heard in the Assembly Health Committee next Tuesday, April 30.

These bills would help to strengthen Medi-Cal by addressing at least three major concerns:

  • First, Medi-Cal provider rates are already exceptionally low. California’s Medicaid payments to doctors for primary care and other services were the third-lowest in the US in 2012 when measured as a percentage of federal Medicare payments for similar services (see chart). Given these low reimbursement rates, it’s not surprising that just 57 percent of California physicians accepted new Medicaid patients in 2011, the second-lowest rate in the nation. Moreover, Medi-Cal enrollees report having greater difficulty accessing primary care providers and specialists compared to Californians with other types of health care coverage.

  • Second, the provider payment reduction — if ultimately upheld by the courts — would apply not only going forward, but also retroactively to June 1, 2011. In other words, Medi-Cal providers would have to give back a portion of the payments they’ve received over the past couple of years. Administration officials indicate that the state would retroactively “recoup” payments from providers by imposing an additional 5 percent cut, for a total reduction of 15 percent, until the full amount owed by providers is repaid.
  • Third, California is on the verge of a major expansion of the Medi-Cal Program as part of the state’s implementation of federal health care reform, as we describe in a report released earlier this month. More than 1 million low-income adults will be newly eligible for Medi-Cal beginning in 2014 under a program expansion that state policymakers have said they will adopt (although the expansion appears to be on the slow track). This means that Medi-Cal enrollment, which is already around 8 million, will increase significantly in 2014 and beyond, raising concerns about whether there will be enough providers willing to accept these newly covered Californians.

Perhaps the biggest challenge in reversing the provider payment reduction is the cost. Recent estimates suggest that the cut would reduce state spending on Medi-Cal by $573 million in 2013-14. But with a significant expansion of Medi-Cal on the horizon, cutting provider payments — and retroactively recouping payments already made — may not be the best way forward for California. Rolling back the 10 percent cut would be a sensible step that would create greater fiscal certainty for providers and would represent a critical state investment in the success of health care reform.

— Scott Graves

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