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Possible Effects of Medi-Cal Redesign, California Performance Review Overshadow Budget Issues

Health care sidestepped major cutbacks in California’s $105 billion budget adopted last month, but two larger issues on the financial horizon carry more potential for long-term change in the fabric of health care than any one-year budget cut.

On its own, either the proposed restructuring of Medi-Cal or health-related proposals included in the California Performance Review commissioned by Gov. Arnold Schwarzenegger (R) could fundamentally change the way health care is delivered in California. Together, they almost assure things will be different a year from now.

The Health and Human Services Agency planned to have its Medi-Cal overhaul blueprint ready by Aug. 2 after the governor in January asked the agency to develop a reorganization plan. The timetable has been pushed back about six months. The much-anticipated proposal will be unveiled in early 2005, about the same time substantive action begins on the CPR proposals, many of which address public health and Medi-Cal.

“These were never intended to be coupled together, and they still aren’t except perhaps by timing,” HHSA spokesperson Ken August said.

Whether they’re directly involved or not, health care leaders and budget analysts are watching the twin restructuring projects carefully.

Fiscal Year 2004-2005 Budget

“Both of these are potentially bigger deals than the budget just passed,” Jan Emerson, spokesperson for the California Healthcare Association, a trade group representing hospitals and health systems, said.

“The budget just signed really had no impacts whatever on hospitals and I think the impacts in other areas turned out really to be pretty minor compared to what they could have been,” Emerson said.

Jean Ross — executive director of the California Budget Project, which analyzes government impacts on low and moderate income Californians — agrees.

“It could have been a lot worse, but they ended up not cutting all that much from the budget,” Ross said. “And that’s basically good news for the people of California. The proposals up until May were very draconian but the cuts that were made — and there weren’t many, really — ended up being more reasonable.”

Until the summer budget negotiations, Schwarzenegger supported plans to reduce state funding for health care programs by more than $900 million, with about $880 million in state funding slated for elimination from Medi-Cal. The governor proposed reducing Medi-Cal reimbursement rates by 10% across the board, a plan opposed by hospitals and physicians.

Schwarzenegger also proposed capping enrollment in Healthy Families. The governor’s plan to essentially freeze the program at its current level of about 732,000 children and increase monthly premiums from $9 to $15 per child for some Healthy Families beneficiaries was dropped from the final budget.

Restructuring Medi-Cal To Reduce Costs

Although most health care players are breathing a little easier with this year’s budget battles behind them, some potential funding obstacles remain.

“Health care will be on the chopping block again in more ways than one,” Ruth Holton — director of public policy for The California Wellness Foundation, a private health organization — said. “There are certainly areas that need work and could be streamlined.”

August said, “Reshaping Medi-Cal is a very important undertaking affecting millions of lives. This is not something to be done hastily.”

In many respects, Medi-Cal is the engine driving California’s health care system.

“In our budget of about $32 billion,” August said, “all the things we do separate from Medi-Cal — dealing with West Nile Virus, hospital oversight, alcohol and drug programs, child support, mental health and more — all account for a relatively small part of the total. Medi-Cal is about $30 billion of our budget. Everything else together is about $2 billion.”

Holton said, “Medi-Cal is a program that needs to be fixed, there’s no question about that. But we have to go about it intelligently, not shooting from the hip.”

Response for CPR Proposals Mixed

Health care leaders say the same about some proposals in the governor’s 2,500-page restructuring plan for California. Some are delivering their thoughts in a series of public CPR meetings this fall. Others are publishing white papers and reports.

A report co-authored by the California Budget Project and the Center on Budget and Policy Priorities stated that proposals included in the review “pose substantial risks for Medi-Cal beneficiaries and could increase state costs.” Ross and her organization are concerned the proposals may make it more difficult for California residents to access health care.

CPR proposals addressing Medi-Cal include ending counties’ roles in determining beneficiaries’ eligibility, transferring responsibility for provider fraud cases to the Attorney General and establishing a smart card enrollment system to identify Medi-Cal beneficiaries. Other health-related CPR proposals include establishing a new Public Health Department, modifying the oversight structure for managed care organizations, reorganizing the state’s mental health department and changing the HIV reporting system from an alpha-numeric system to a name-based one.

Some health care stakeholders are greeting CPR with mixed emotions.

“There are some things we like and some things we find troubling,” Dan Roth — policy analyst with California Primary Care Association, which represents community clinics and health centers — said.

“We’re definitely in favor of establishing a single place for Medi-Cal applications and processing,” Roth said. “The way it’s done now with counties having different systems and criteria creates a lot of confusion. We also like the idea of central licensing for clinics,” Roth said.

“We have some concerns about name-based reporting of HIV and AIDS and we’re absolutely opposed to the smart card identification plan that would involve fingerprinting and scanning,” Roth said. “It would be a huge impediment for clinics to set up that kind of technology and then to have to deal with people who lost their card or never got one in the first place. It would create more problems than it would solve.”

Some Support Systemic Reforms

Despite differences of opinion over details, many health care leaders and budget analysts say the reform process is welcome and long overdue.

“Up until now, we have not had a governor or an administration that was willing to entertain the idea of fundamental reform,” Steven Mayer, executive director of the Little Hoover Commission, said. LHC is a bipartisan, independent body established by the Legislature in 1962 to promote efficiency, effectiveness and economy in state programs.

“Having a leader with the will to change is such a critical first step,” Mayer said. “There’s no question that changes are needed, especially in health care. Improving the quality of health care and health care delivery is critical to the state’s future prosperity,” Mayer said.

While the public chews on the governor’s proposals in a series of public hearings up and down the state, Medi-Cal officials are keeping their proposals under wraps for the time being.

Roth said, “We really haven’t heard many specifics yet” from the Department of Health Services, the HHSA division in charge of Medi-Cal reform. “A lot of people are waiting to hear those details,” he said.

Steve Levy of the Center for Continuing Study of the California Economy –one of those waiting for “the big-dollar items” to be dealt with in Medi-Cal reform and in a final draft of CPR’s recommendations — urges decision makers to strive for balance.

“As in most budget items, I think the answer is reform plus resources rather than either one alone,” Levy said.

More on the Web provides information about HHSA’s work to restructure Medi-Cal.

The California Performance Review is available online.

The report by the California Budget Project and the Center on Budget and Policy Priorities addressing some health-related CPR proposals is available online. Note: You must have Adobe Acrobat Reader to access the report.

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