State, Hospitals Settle Lawsuit Over Medi-Cal Reimbursement Rates

Gov. Gray Davis (D) announced yesterday that California has agreed to settle an 11-year-old lawsuit by the state's hospitals over Medi-Cal reimbursement rates for outpatient care, the San Francisco Chronicle reports. The settlement will result in the hospitals receiving $335 million over the next year -- $175 million in a "one-time lump sum payment" and an immediate 30% reimbursement rate increase that will provide another $160 million for the fiscal year ending in June (Russell, San Francisco Chronicle, 1/11). The rate increase will be effective retroactively to July 1, 2001. In addition, the new rate will be increased by 3.3% each year for the next three years (Office of the Governor release, 1/10). In 2003, the rate increase will mean an additional $183 million for the hospitals. According to the Chronicle, half of the money will come from the state, with the federal government paying for the remaining amount. The settlement comes as a result of a 1990 lawsuit filed by the state's hospitals, after being "frustrated" by the state's method of calculating reimbursements and waiting nearly five years since the state's "last significant increase" in reimbursement rates for outpatient care. After several unsuccessful appeals from the state, the U.S. Supreme Court refused to hear the case in 1998, deferring to a federal district court ruling in favor of the hospitals. The settlement, however, is "tempered" by Davis' budget proposal that includes some Medi-Cal cuts (see story #1). "We appreciate the increase, but it's not sufficient. It's giving with one hand and taking with the other," California Association of Public Hospitals spokesperson Karen Butler said (San Francisco Chronicle, 1/11).