Cuts in Medi-Cal Payments Blocked

In a decision that makes balancing California’s troubled state budget more difficult, a federal judge in Sacramento on Tuesday blocked the state from cutting payments to doctors and other Medi-Cal providers who treat poor, aged, blind and disabled patients.

Chief U.S. District Judge David F. Levi ruled that the 5% cut in provider payments due to take effect Jan. 1 would violate federal law, because it would make it harder for Medi-Cal patients to get quality medical care. The pending rate reduction, Levi wrote, “is arbitrary and cannot stand.”

The preliminary injunction issued by Levi bars the state from imposing the across-the-board cut, thus preventing the state Department of Health Services from saving hundreds of millions of dollars.

The decision was a victory for professional organizations that represent doctors, dentists and pharmacists, and for patient advocates who argued in a court hearing last week that doctors would drop out of the Medi-Cal program if the cut were to take effect.

“The court’s decision ... will prevent further erosion of access to care for our most vulnerable patients,” said Dr. Jack Lewin, a Sacramento physician and chief executive of the California Medical Assn.

In his ruling, Levi agreed with the plaintiffs that “at least some Medi-Cal providers will cease participating in the Medi-Cal program altogether or will refuse to take on new Medi-Cal patients if rates are reduced by 5%.... This reduction in the number of providers in the program will adversely affect beneficiaries’ equal access to medical care and, quite possibly, its quality.”

Spokesmen for Gov. Arnold Schwarzenegger’s administration had no immediate comment on the 42-page ruling.

“We’re still digesting it,” said Robert Miller, a spokesman for Health Services. “Medi-Cal is a very complex program and this is a complex ruling.”

The decision is a setback for the administration’s efforts to cut state spending and comes just as the new governor is putting the finishing touches on his first budget, to be released next month.

“We will want to take time to carefully review the ruling and consult with our counsel and the attorney general’s office before making any specific comment,” said H.D. Palmer, deputy director of the state Department of Finance.

The reduction that is the centerpiece of the court case was passed by the Legislature and signed into law in August by then-Gov. Gray Davis. It was expected to save $115 million in the last half of the current fiscal year, which ends next June 30.

After taking office, Schwarzenegger asked lawmakers to approve an additional 10% cut in payments to Medi-Cal providers to help close a multibillion-dollar gap in the state budget. The administration estimated that the further 10% cut would save $623 million over the next year and a half.

But the judge ruled the across-the-board 5% cut “violates the quality and equal access requirements” of the federal Medicaid Act.

He said that a previous case in the 9th Circuit, which includes California, established that federal law grants Medi-Cal patients certain rights. Among them: a rate-setting process that is not arbitrary and takes into account provider costs, quality of services and equal access to medical services. In that case, Levi said, “there is no record of considered decision making.”

Levi cited in his ruling a statement from Legislative Analyst Elizabeth Hill that the Department of Health Services has “no rational basis” for its provider rate system.

The injunction does not apply to a reduction in payments to managed care plans. Medi-Cal operates both as a traditional fee-for-service program, in which patients deal directly with doctors, and as a managed care program, in which patients see designated providers.

At the end of June, there were 6.4 million Medi-Cal recipients in the state. Los Angeles County, with just under 2.5 million recipients, had about 40% of all those patients.

Statewide, slightly more than half of the Medi-Cal patients are in managed care plans. The percentage in Los Angeles County approaches 55%.

Levi said “there are undoubtedly many ways” in which the state may reduce overall Medi-Cal costs, including the elimination of so-called optional services -- such as dental care, eyeglasses, acupuncture and hearing aids -- that are not required by federal law. Davis tried that approach early this year, but lawmakers balked at the cuts.