Healthcare Business News
 Dr. Steve Green, California Academy of Family Physicians

Calif. providers see long fight over Medicaid pay

By Andis Robeznieks
Posted: January 17, 2013 - 11:15 am ET

Some California healthcare providers first reacted positively to Gov. Jerry Brown's $98 billion budget proposal, which called for the state to contribute an additional $350 million to Medi-Cal, the state's Medicaid program. But a closer look also showed that Brown is going forward with a plan to cut healthcare provider payments by 10%.

The cuts—which apply to physicians, clinics, nursing facilities, optometrists, therapists, laboratories, dental care, durable mental equipment and pharmacies—were approved by the CMS in October 2011, but have been blocked by court injunctions. Last month, however, a three-judge panel from the Ninth Circuit Court of Appeals lifted the injunction. An e-mail from the California Department of Health Care Services said that, assuming “positive resolution in March,” this will result in savings of $431 million for the state.

The injunction was the result of lawsuits filed by the California Hospital Association, California Medical Association and several other organizations. CHA spokeswoman Jan Emerson-Shea vowed that her organization will continue to fight on.

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“We're looking at months, if not years, of litigation—this is a long way from being resolved,” Emerson-Shea said, adding that the CHA will be filing an appeal for the case to be reviewed before the entire court rather than just a three-judge panel.

For hospitals, Emerson-Shea said the issue is for rural and safety net facilities with skilled-nursing units. She said the Medi-Cal payment reduction could cause these hospitals to reduce their number of skilled-nursing beds or close entirely.

According to the budget document (PDF), Medi-Cal has almost 8.2 million enrollees and its caseload represents 21.7% of the state's population. It's also noted that, since the inception of Medicaid in 1965, the federal contribution to California's program has been at the lowest amount allowed by law: 50%. In contrast, the state's neighbors, Arizona, Nevada and Oregon, receive federal contributions of 66%, 60% and 62% respectively. Mississippi, the state with the highest federal contribution, gets 73%, and the national average is 57%, according to the document.

Brown puts more than $60.9 billion in Medi-Cal's budget for the 2013-14 fiscal year. While there is an additional $350 million in the budget to cover implementation costs of the Patient Protection and Affordable Care Act's Medicaid expansion, it's acknowledged that this number is merely a “placeholder” to be used “until a more refined estimate can be developed.”

“Given the outstanding federal guidance, the sheer number of changes, and the interactions between the various policies, developing a more refined estimate will take additional time,” the budget document stated.

On Jan. 10, the California Academy of Family Physicians issued a news release noting its support for Brown's “commitment to major Medi-Cal expansion,” but now Dr. Steve Green, CAFP president, is worried that the reimbursement cuts will negate any expansion of Medicaid coverage the federal healthcare reform law intended to provide.

“It's certainly a challenge—it's especially hard when rules are changing even after care is provided, it seems,” Green said. “Every six months, we hear something new about why we can't afford what we thought we could afford.”

If the cuts are enacted, Green said practices may not be able to afford taking on new Medi-Cal patients.

“The way Medi-Cal pays, there is no room for a 10% cut—practices are either not making anything or losing money,” Green said. “I think people need to realize there's a difference between saying a patient's insured and them actually having access to care.”

In the Ninth District's opinion lifting the injunction (PDF) against the pay cuts, Judge Stephen Trott offered no sympathy to providers over their inability to cover the costs of providing care under Medi-Cal.

“Moreover, the term 'cost' is not as free from ambiguity as the plaintiffs would have us believe,” Trott wrote. “The term 'cost' may also include items such as contract prices to suppliers and service providers, which may themselves be negotiated and reduced if reimbursement rates are reduced. Nowhere in this record have we been able to find a description by the plaintiffs of a useful definition of costs; and that term is anything but a talisman solving all problems or providing answers to complicated questions.”

Trott also disagreed with the CHA claim that reducing rates after providers agreed to participate in the program constituted a “taking” of property.

“Finally, we hold that none of the plaintiffs has a viable takings claim because Medicaid, as a voluntary program, does not create property rights,” he wrote. “But regardless of when providers decide to participate in Medi-Cal, they can hardly expect that reimbursement rates will never change.”

Chris Perrone, deputy director of the California Healthcare Foundation's Health Reform and Public Programs Initiative, said that—with increasing federal control of Medicaid programs—states “have a shrinking number of levers” to ease the burden on their budgets.

One lever is eligibility, another is provider payments, and a third is moving enrollees away from fee-for-service and into managed care, which California has expanded rapidly in the past two years, now covering 4.8 million beneficiaries under versions of that model. “The state is moving full-speed ahead on that,” Perrone said.

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