State Reaches Agreement With HHS To Increase Medi-Cal Managed Care Enrollment

Gov. Arnold Schwarzenegger's (R) administration on Wednesday announced an agreement with the federal government that would increase federal matching funds for Medi-Cal by as much as $3.3 billion over five years and enroll about 500,000 beneficiaries in managed care plans, the Los Angeles Times reports (Rau/Ornstein, Los Angeles Times, 6/23).

Under the plan, California would receive a five-year waiver from federal rules regarding hospital payments for Medi-Cal. The waiver would allow the state to continue contracting with 230 hospitals for Medi-Cal services, rather than pay the 600 hospitals statewide. State officials say the agreement would save California money and help it to comply with federal accounting requirements.

The federal government would provide the state with an additional $671 million annually for the program over five years. Of that money, $360 million has been earmarked to shift low-income beneficiaries to managed care plans (Lawrence, AP/Contra Costa Times, 6/23). According to state officials, 554,000 elderly, blind and disabled state residents would be moved to managed care plans between January 2007 and mid-2008 under the plan (Los Angeles Times, 6/23).

Lawmakers must approve legislation to implement the agreement before the end of the legislative session in September, and the basic terms of the agreement must remain intact. If the plan is not approved, the state could lose $360 million in Medicaid funding over two years (Gledhill, San Francisco Chronicle, 6/23).

According to the Sacramento Bee, the plan to shift beneficiaries to managed care plans is similar to a Schwarzenegger proposal that the Legislature rejected in May, saying that HMOs in some areas are not prepared to accept additional members (Benson, Sacramento Bee, 6/23).

Health and Human Services Agency Secretary Kim Belshe called the plan "the best financing agreement in the nation. No other state has been able to secure an agreement with terms as favorable as California's" (San Francisco Chronicle, 6/23). She added, "Our state's approach to hospital financing has to change. If we want to secure federal funds, we have to play by the rules of the federal government" (Los Angeles Times, 6/23).

Stan Rosenstein, deputy director of the Department of Health Services, said the state would reduce costs by using managed care plans through emphasizing illness prevention programs (AP/Contra Costa Times, 6/23).

Michael Chee, a spokesperson for Blue Cross of California, said managed care plans provide Medi-Cal beneficiaries with "a much better array of services" than traditional Medi-Cal, such as disease management and transportation in some cases. He said, "It's a much better environment for them."

Critics of the plan -- including hospitals, Democratic lawmakers and patient advocates -- voiced concerns that it would draw funding away from hospitals that serve as safety nets for the state's low-income and uninsured residents (Los Angeles Times, 6/23).

James Keene, executive director of the California State Association of Counties, said, "While we appreciate the fact that the state feels this is the best deal offered by the federal government, it still could potentially result in less money to county hospitals over time. Some of those hospitals will be pushed even more to the margin and put even more at risk."

San Francisco Department of Public Health CFO Gregg Sass said, "The idea of freezing the funding for five years will put some counties out of the business of public health hospitals" (San Francisco Chronicle, 6/23).

Denise Martin, president and CEO of the California Association of Public Hospitals and Health Systems, said, "Managed care is an important public policy issue, but it is not a mechanism for financing safety-net hospitals and does not belong in this waiver. It should be debated at the state level and not prescribed by a federal funding plan."

Rachael Kagan, a spokesperson for CAPH, said, "There's a significant shortfall in the source of the matching funds that would be needed to draw down the federal money. We would value to deal at about a third of the claim of $3.3 billion. We don't believe $3.3 billion is achievable" (AP/Contra Costa Times, 6/23).

Critics also question whether "the state could move as quickly as the Schwarzenegger administration had committed to, given the complications in setting payment rates, enticing doctors into managed care plans and helping reluctant and often confused patients shift to potentially unfamiliar caregivers," the Los Angeles Times reports.

Angela Gillard, a legislative advocate at the Western Center on Law and Poverty, said, "One size fits all does not fit for the disabled community. Some folks have very delicate conditions, and they're nervous about going into the managed care system."

In addition, some critics voiced concerns about whether managed care plans -- which emphasize prevention and discourage unnecessary care -- would save the state money because many Medi-Cal beneficiaries who would be enrolled already have serious illnesses or disabilities and might need expensive care (Los Angeles Times, 6/23).

CPR's "KXJZ News" on Thursday reported on the agreement. The segment includes comments from Belshe and Anthonty Wright, head of the consumer group Health Access California (Montgomery, "KXJZ News," CPR, 6/23). The complete segment is available online in RealPlayer.