Think Tank

Managing Medi-Cal With Enrollment Up, Spending Down

A report from the National Center for Policy Analysis shows California at or near the extremes in two Medicaid categories:

  • California has the second-highest percentage of Medicaid beneficiaries compared with the state’s population;
  • California’s average Medicaid spending per enrollee is the lowest among the states.

The report — “The State of Health Care Spending,” released last month with detailed accounts of Medicare and Medicaid spending for all 50 states — arrives at a time of change and controversy for Medi-Cal, California’s Medicaid program.

Millions of newly insured Californians will join the Medi-Cal ranks next year as part of the Affordable Care Act.

The state Legislature authorized a 10% reduction in Medi-Cal reimbursements two years ago. The cuts are in limbo awaiting a ruling from federal court in response to a lawsuit challenging the reduction. A couple new bills — AB 900, by Assembly member Luis Alejo (D-Salinas), and SB 640, by Sen. Ricardo Lara (D-Long Beach), — aim to reduce the effect of Medi-Cal cuts.

Although the federal government initially will cover costs for many new Medi-Cal beneficiaries, the size and cost of the program are growing. Even if federal courts deny the state’s proposal to reduce reimbursement by 10%, pressure will be applied to reduce program spending.

With enrollment going up and already-low reimbursements going down, we asked legislators, state officials and consumer advocates how policymakers should steer California’s Medi-Cal course.

We got responses from:

Medi-Cal Needs Adequate Funding

Advocates and providers agree that Obamacare’s Medicaid expansion is a huge positive step for the state. We also understand the challenges of a program that’s been stripped by budget deficits. In spite of those problems, numerous studies show that participation in Medicaid is good for people’s health and leads to decreased mortality, not to mention the peace of mind low-income Californians will have with health coverage.

It is true: the rates paid to Medi-Cal providers, among the lowest in the nation, are a barrier to access for beneficiaries because not enough providers take Medi-Cal. SB 640 and AB 900, supported by Western Center, would help beneficiaries considerably. California’s per capita Medicaid spending is among the lowest of the 50 states, which stems from the low provider rates as well as cuts to benefits like dental and psychology services for adults. In addition to those problems, the state needs to improve its oversight of Medi-Cal health plans and ensure that there are enough providers and specialists to take care of the state’s vulnerable low-income residents.

Low provider rates are not the only barrier to adequate access to care. Medi-Cal has moved more and more beneficiaries into Medi-Cal managed care plans, including approximately 375,000 seniors and persons with disabilities (SPDs). In the case of SPDs, many beneficiaries reported being cut off from their existing Medi-Cal fee-for-service providers with disastrous consequences and having ongoing treatment plans cut short. It’s also become clear that health plans weren’t ready with the right kinds of providers in their networks and the state hasn’t adequately enforced protections for consumers.

The SPD and Healthy Families transitions have shone a bright light on the need to maintain a strong network of providers around the state. The Department of Managed Health Care, which regulates Medi-Cal plans, has increased its monitoring of plans but still can’t penalize or terminate plan participation; that has to come from the Department of Health Care Services, which is still seeking to cut Medi-Cal spending in spite of the state’s economic recovery.

We need to adequately fund our Medi-Cal program and the federal government will help more under Obamacare – paying for 100% of the costs of covering expansion adults for the first three years, decreasing to a still-high 90% by 2020 and funding other initiatives such as increasing the rates for primary care and targeted, increased investments for high-cost populations like frequent emergency room users. In the long run, these investments will create a healthier group of people in Medi-Cal, and in turn, create a healthier fiscal picture for the state.

State Should Adopt Patient-Centered Medical Home Model

Decreasing physicians’ payments by 10% in the Medi-Cal program is an attempt to solve a problem by “fixing” something completely unrelated to the problem. It doesn’t make sense and would only make matters worse. California already is at the bottom in terms of paying for Medi-Cal patients’ health care, while near the top in terms of need. For that reason, the California Academy of Family Physicians is co-sponsoring SB 640 to block the pending 10% cuts.

Instead of cutting payments, the state should reconfigure care into primary care physician-led, patient-centered medical homes, a proven method of bringing costs down. Numerous studies show that placing a health care system on a strong primary care foundation improves quality while reducing costs.

Because the evidence is so strong, 25 states — but not California — are structuring care delivery in their Medicaid programs around patient-centered medical homes. CAFP is cosponsoring AB 1208, by Richard Pan (D-Sacramento), to help define the medical home as a way of moving in this direction.

Vermont’s Medicaid program, for example, saw 31% fewer emergency department visits and 22% lower per-member per-month costs between 2008 and 2010.  

Expanding Medi-Cal is a cornerstone of implementing national health care reform. Millions more people will gain coverage and be able to afford care. Decreasing physicians’ payments would cause more physicians to flee the program at the very time we need them the most. Because of already-low payments, caring for Medi-Cal patients threatens many physicians’ ability to keep their practices open. Gaining coverage will mean nothing to patients who can’t find physicians to see them.

Solving the primary care physician shortage also will be essential. With innovative delivery models like the medical home and increased understanding of the importance of primary care, medical student interest in primary care careers has increased in recent years after a long decline. In California, because all of the family medicine residency program slots are full again this year, hundreds of qualified new physicians were turned away to other states. CAFP is cosponsoring AB 1176 by Raul Bocanegra (D-Pacoima) and Rob Bonta (D-Oakland) to create new funding sources for increasing these training slots.

To refuse or delay moving toward patient-centered medical homes in our Medi-Cal program is to continue undervaluing primary care, which then limits its effectiveness in decreasing costs and increasing quality. Cutting payments by 10% is quicker, but it’s not a solution: It will not deliver cost savings in the long run.

State's Fiscal Health Improved; Cuts No Longer Needed

Despite the state’s improved budget outlook, Gov. Jerry Brown’s (D) recent budget includes roughly $1 billion per year in Medi-Cal provider rate cuts. These cuts would prove disastrous as millions of new patients will enter the program under the Affordable Care Act in less than one year. California’s Medicaid rates are already the lowest in the nation.

SB 640 and AB 900 aim to stop implementation of those cuts, as they would seriously impact access to care for California’s poorest and most vulnerable patient base. 

Focusing on these bills, a new coalition of health care stakeholders called We Care for California has joined together to ensure successful implementation of the ACA in California — and that starts with SB 640 and AB 900. Dozens of health care stakeholder groups including physicians, hospitals, health care workers, caregivers, seniors, community clinics, health plans and dentists joined together to launch a new, first of its kind coalition to make the ACA successful in California. 

If the state moves forward with the 10% cut to Medi-Cal, access to care will be severely impacted, not only for existing patients, but also for the almost 900,000 children moving from the Healthy Families program into Medi-Cal in 2013 and the millions of patients that will be newly eligible for Medi-Cal under the ACA in 2014. These rate cuts will have devastating consequences for patients, communities and access to essential medical care.

For some Medi-Cal providers, the cuts amount to a reduction of nearly 27% — that’s more than one-fourth of their total Medi-Cal funding for patients with medical complexities, many in rural areas of the state (distinct-care skilled nursing facilities of acute care hospitals). Some facilities have already closed and many more will be forced to close as financial pressures increase. Closed facilities will result in displaced patients, laid off health care workers and overcrowded emergency rooms. 

One in five Californians currently receive health insurance through the Medi-Cal program, making it a foundational part of California’s health care system. Cutting payments to Medi-Cal providers will have a huge impact on access to essential medical services and will undermine the success of federal health reform. 

California was facing a dire fiscal future when the 10% cut was proposed in June 2011. However, that is no longer the case, which is why SB 640 and AB 900 are so critical as health reform implementation is right around the corner.

'Fair, Reasonable Compromise' With Counties Needed

California has been and will continue to be a leader in health care reform. We are taking advantage of the benefits offered by the Affordable Care Act and moving to implement the law in a fiscally sustainable manner. However, there are many complicated issues that must be resolved in order to be ready to launch this ambitious project next year.

 Under the federal law, we have the option to expand Medi-Cal, our state’s Medicaid program, and to provide a significant number of uninsured individuals with health care coverage. For states that expand Medicaid to newly eligible adults between the ages of 19 and 64 and increase the income threshold up to 138% of the federal poverty level, the federal government has promised to pay 100% for the first three years (reducing to 90% by 2020).  Additionally, California will experience an increase in enrollment due to the requirement to implement simpler eligibility rules; the state estimates that this cost will begin in 2014 and will be $700 million a year. The state will share this cost equally with the federal government.

In addition to these costs, health care providers will seek reimbursement increases due to increased demand for their services from the Medi-Cal expansion, and the state will face increased demand from those who buy subsidized health insurance through Covered California, California’s health insurance exchange.

Gov. Brown has proposed two alternatives for implementing the optional Medicaid expansion: either expand the existing state-administered Medi-Cal program or build upon the counties’ Low Income Health Programs. Under either alternative, we must change how these programs are managed and funded. California currently dedicates about $1.5 billion annually to counties for health care, including services for low-income indigent adults, many of the same people who will transition to Medi-Cal under the new federal law.

The need for county indigent care will continue, and preserving a strong safety net is a priority. However, California should not pay twice for the same services. Medi-Cal expansion will shift risks and responsibilities from the counties to the state. To maximize the opportunities created by the law to enhance the health of Californians without jeopardizing our long-term financial stability, we must renegotiate the spending formulas between the state and counties.

If we were to move forward with full Medi-Cal expansion without first coming to a new funding agreement with the counties, we could be faced with an even greater share of our budget being committed to the Medi-Cal program, which could threaten our hard-won fiscal solvency.

California’s budget is balanced, and our economy is recovering. Exposing the state to new costs and risks without a plan to mitigate them could put these important gains in jeopardy. Moving forward, we must reach a fair and reasonable compromise with our county partners on future funding. We must continue to work together to implement the Affordable Care Act in the most responsible and sustainable way possible.

Cuts Threaten Access To Care for Sick, Elderly

In the past couple of years, I had to make tough budget decisions.

Many of the cuts we’ve been forced to make are still being implemented and have devastating impacts on the most sick, the elderly and the poor. And the situation is going to get worse as California is preparing for a dramatic new wave of Medi-Cal patients as part of the Affordable Care Act.

 With voters approving new revenue last November and the news of the state’s tax revenue being higher than expected, California finances are beginning to recover. It is time to take a second look at those cuts and reverse those that pose a serious risk to our communities.   

That’s why I’ve authored AB 900. This measure seeks to reverse the devastating cuts facing Medi-Cal providers across the state, including hospital-based skilled nursing facilities that care for the most vulnerable seniors. It makes no sense to talk of the need to expand Medi-Cal coverage, but then cut rates to providers at the same time. California’s reimbursement rate is already ranked 47th among the 50 states, while it has one of the highest levels of Medi-Cal beneficiaries in the nation. This would create a genuine problem of access to needed care.

Skilled nursing facilities, in particular, are facing catastrophic results if these cuts go forward. In my Assembly district, Hazel Hawkins Memorial Hospital in Hollister is one example. The hospital’s CEO, Ken Underwood, has warned that to absorb the equivalent of a 25% reduction, they would likely have to close their 70-bed facility and lay off some 60 full-time employees.

In San Francisco, the 142-year-old Jewish Home is facing similar dire consequences. It is facing a $12 million dollar annual reduction, and $19 million in retroactive cuts. Its board is considering bankruptcy proceedings and 300 layoff notices have been issued to its staff.

Closures would carry a painful consequence for families, who would be forced to relocate their loved ones in another facility, perhaps hundreds of miles away. That’s because the choices are limited for these patients, who are fragile and require specialized care.

Ironically, California could save money by reversing these cuts, since it would keep patients out of costly acute-care units.  But ultimately, this issue is about human cost.  Protecting society’s most vulnerable citizens and preserving families is the right thing to do.