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Access Denied? Implications of Medi-Cal Pay Cut

In 2014, about 1.5 million adults in California are expected to gain access to Medi-Cal under the Affordable Care Act. However, insurance coverage could be all they get, as some observers say there might not be enough doctors willing to treat them.

The fiscal year 2013-2014 budget proposal that Gov. Jerry Brown (D) released this month could be read as contradictory. On one hand, he makes it clear that California will pursue a full expansion of Medi-Cal, offering coverage to individuals with incomes up to 138% of the federal poverty level. At the same time, however, the governor’s budget plan also counts on $488.4 million in savings from a 10% cut to Medi-Cal reimbursements. Medi-Cal is California’s Medicaid program.

State officials maintain that the provider pay cut should not hurt access to care during the expansion, but others fear the reduction could be implemented at the worst possible time.

To Cut and Gain

The 10% reduction has had a fraught history since its inception.

Brown approved the cut, originally passed by the Legislature, in 2011. That same year, CMS approved the plan, permitting the state to reduce Medi-Cal reimbursements for a number of providers and outpatient services — including clinics, dentists, laboratories, optometrists and pharmacists.

Federal officials also approved the reimbursement cut for freestanding nursing and adult subacute care facilities, as well as other nursing facilities, according to DHCS.

Ever since, the cuts have been mired in a series of legal challenges.

In January 2012, U.S. District Court Judge Christina Snyder tentatively blocked the cut, agreeing with the California Medical Association, the California Dental Association and other groups that it could cause irreparable harm to patients. The federal government appealed.

Appeals Court Allows Cut

In December 2012, a three-judge panel of the 9th Circuit Court of Appeals ruled that HHS Secretary Kathleen Sebelius has the authority to decide whether California and other states can reduce Medicaid rates and still adhere to program regulations.

The judges wrote, “Congress explicitly granted the Secretary authority to determine whether a state’s Medicaid plan complies with federal law.” And, as far as the panel was concerned, she did.

Access to Care In Doubt

For years, access to care for Medi-Cal beneficiaries has been called into question.

A study released in 2010 by the California HealthCare Foundation, which publishes California Healthline, found that California physicians were much less likely to treat Medi-Cal patients than patients with private insurance or Medicare coverage, with widely varying participation rates among specialists.

Findings also showed that while 90% of California physicians were accepting new patients and 73% were accepting new Medicare patients, only 57% reported accepting new Medi-Cal patients.

And researchers also determined that Medi-Cal beneficiaries are concentrated among a small share of the state’s physicians, with 25% of doctors providing care to 80% of Medi-Cal patients.

CMA, CDA and the other plaintiffs intend to keep fighting the reimbursement cut in court, arguing that it could further “devastate” access to care during the Medi-Cal expansion.

In a conversation with California Healthline, Molly Weedn — spokesperson for CMA — said that “in some cases, physicians absolutely will not provide care to new beneficiaries” once the payment cut takes effect.

The cut is retroactive to June 2011, she noted, and no one knows how state officials would implement the reduction, meaning that they could seek all the money at once. “Instead of a 10% cut, physicians could face a 20% cut in order for the state to get all of the money necessary since 2011,” Weedn said.

Gerald Kominski — director of the UCLA Center for Health Policy Research — told California Healthline that the cut “is a cause for concern because Medi-Cal payments are already among the lowest [Medicaid reimbursements] in the nation.” He noted, “These proposed cuts are likely to damage access at a time when the state is poised to substantially increase enrollment in Medi-Cal as a result of the ACA.”

According to Kominski, Brown could have eliminated the cut from his budget proposal, considering the state’s “favorable budget outlook.” He said that Brown might have kept the reduction because the Affordable Care Act provides a payment bump for doctors so that their reimbursements match that of Medicare. But that increase lasts only two years and will benefit only certain primary care physicians.

Kominski said, “[P]olitically, the Governor may be sticking to his proposal to cut payments under Medi-Cal because some of these cuts will be mitigated by federal funds for the next two years. Of course, [this] creates a different sort of fiscal cliff when the federal funding ends for primary care services in 2015.”

State Defends Cut

Norman Williams of the state Department of Health Care Services told California Healthline that the agency conducted “an extensive access analysis” when it sought federal approval for the 10% cut. Williams said, “The department’s analysis showed that the reductions would not impact our ability to provide adequate access to services for Medi-Cal beneficiaries.”

He added that the state has developed a “comprehensive monitoring program approved by CMS” that will “alert us if access issues arise.” If such issues arise, “DHCS will take immediate action,” Williams said.

He noted that the ACA’s temporary payment bump for certain primary care physicians “is a valuable incentive that should encourage participation in the Medi-Cal provider network.”

Regardless of observer criticism or how long the 10% cut is stalled in court, the state will not delay the Medi-Cal expansion, Williams insisted.

Implications for Other States

What happens if other states also seek to both expand their Medicaid programs and try to curb rising costs by cutting provider payments? James Eiseman — an attorney with the Public Interest Law Center of Philadelphia — said that the California lawsuit could push other judges to give federal officials more deference in similar payment disputes.

He said the 9th Circuit judges’ ruling “is one more roadblock that’s been put in the way of private enforcement of the Medicaid law,” adding, “It doesn’t completely bar the way, but it’s a trend that’s been going on for about 10 years.”

The Legal Battle Will Continue

CHA and CMA have filed a re-hearing request, which staves off the cut until the full 9th Circuit court makes a decision in the case.

Weedn said CMA is acting out of concern for the millions of patients who are expecting to finally have excess to health care services in 2014. “Some of these people have chronic conditions, and they need more than a false promise of care,” she said.

CHA spokesperson Jan Emerson-Shea said, “We’re looking at months, if not years, of litigation — this is a long way from being resolved.”

Here’s a look at what else is happening in health reform.

Administration Actions

  • The Department of Labor has delayed the March 1 deadline for employers to notify workers about their cost-sharing plans and the existence of the insurance exchanges, according to a CMS announcement. CMS said the deadline would be delayed until “late summer or fall of 2013, which will coordinate with the open enrollment period” for the exchanges (Pittman, MedPage Today, 1/27).

Effects on Industry

  • Last week, Sen. Chuck Grassley (R-Iowa) sent a letter to White House Chief of Staff Jack Lew pressing the Obama administration to issue a final rule on the Physician Payment Sunshine Act that was established under the ACA. Grassley — who authored the Sunshine Act with former Sen. Herb Kohl (D-Wis.) — wrote that Congress designed the law so that the payment data would be accessible by Sept. 30, 2013, and noted that final regulations now are more than 15 months overdue (Viebeck, “Healthwatch,” The Hill, 1/22).

Eye on the Exchanges

  • Limited network health insurance plans — which are similar to HMOs from the 1980s and 1990s — will likely play a prominent role in health insurance exchanges. The Obama administration has stated that insurance networks must include a “sufficient number and type of providers” but stopped short of more specific standards. Officials have said individual exchanges are free to create their own stricter standards (Appleby, USA Today/Kaiser Health News, 1/22).

Expanding Medicaid

  • A majority of registered voters in seven states want their state to participate in the Medicaid expansion, according to a survey by the American Cancer Society Cancer Action Network. The survey queried between 800 and 1,000 voters in Florida, Iowa, Kentucky, Michigan, New Jersey, New Mexico and Texas (Pittman, MedPage Today, 1/23). The smallest majority supporting the expansion was Texas, where 58% of voters favored a program expansion. By contrast, 70% of New Jersey voters voiced support for the expansion (Baker, “Healthwatch,” The Hill, 1/23).

Inside the Industry

  • Some U.S. medical device manufacturers are hoping to pass on the cost of a new medical device tax under the ACA to their hospital customers. Under the law, makers of specific types of devices must start paying the bimonthly tax beginning on Jan. 29. A review of letters and invoices from nine manufacturers that were sent to hospitals in recent weeks revealed that some companies discreetly added new surcharges or warned hospitals of price increases (Weaver, Wall Street Journal, 1/25).
    In the States
  • Arizona Gov. Jan Brewer (R) has proposed enacting a provider tax to fund her state’s expansion of its Medicaid program. Under the current arrangement of the state’s Medicaid program, the state would immediately incur large costs to participate in the expansion. Brewer proposed that hospitals in the state pay 6% of their revenues to help offset those costs. A similar tax already is used to fund Medicaid in 39 states, but Arizona is the first state to consider using such a tax to pay for the Medicaid expansion (Christie, AP/USA Today, 1/20).
  • In court papers filed in federal court last week, Oklahoma Attorney General E. Scott Pruitt (R) argued that the ACA does not allow for the distribution of subsidies to help U.S. residents purchase health coverage in states that opt for a federally run health insurance exchange, on Friday. The documents are part of a lawsuit Pruitt filed in 2011 against the ACA (Howell, Washington Times, 1/26). Federal lawyers have asked that the suit be dismissed (Talley, AP/Columbus Republic, 1/25).

On the Hill

  • Last week, Sens. Lamar Alexander (R-Tenn.) and Orrin Hatch (R-Utah) introduced a bill (S 40) that would repeal the ACA’s individual mandate. The bill is unlikely to advance further since the U.S. Supreme Court already has ruled that the ACA and the mandate are constitutional, and President Obama‘s re-election — along with Democrats’ expanded presence in the Senate — essentially blocks any legislative repeals of the law (Baker, “Healthwatch,” The Hill, 1/22).

Rolling Out Reform

  • Health insurance might become prohibitively costly for millions of smokers in 2014 because of a provision in the ACA that allows insurers to charge smokers who are seeking to purchase an individual policy up to 50% higher premiums. Under the ACA, insurers on Jan. 1, 2014, will be permitted to levy the 50% penalty on older smokers, while younger smokers would face a lower penalty (Alonso-Zaldivar, AP/Atlanta Journal-Constitution, 1/24).
  • Last week, a coalition of business groups, insurers and health care providers urged HHS to adopt a set of recommendations for essential health benefits under the ACA that are intended to make the cost of coverage affordable for small businesses. The Essential Health Benefits Coalition‘s recommendations include reducing requirements for pediatric dental and vision care benefits and ensuring that required benefits are consistent with evidence-based clinical guideline (Zigmond, Modern Healthcare, 1/23).
  • As states prepare for the ACA to fully take effect in 2014, many are looking to Massachusetts’ 2006 health insurance law as an early example of the ACA’s potential successes and challenges. Since the state laws took effect, about 400,000 more residents have gained coverage, raising the state’s insured rate to 98%. The number of people assessed a penalty for failing to obtain coverage under the law’s insurance mandate has fallen steadily since 2007, when it took effect (LeBlanc, AP/San Francisco Chronicle, 1/23).

Studying Its Effects

  • An unintended consequence of the ACA provides subsidized private health coverage for documented immigrants while denying such subsidies for low-income U.S. citizens in states that reject the law’s Medicaid expansion. The issue could have important implications in Texas and Florida, both of which have large uninsured and immigrant populations (Alonso-Zaldivar, AP/Miami Herald, 1/23).

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