Court preserves Medi-Cal payouts

California’s budget crisis isn’t reason enough to cut $1.1 billion a year in payments to doctors, dentists, pharmacists and other healthcare providers to the needy, a federal appeals court ruled Thursday.

A bill passed by the Legislature last year reduced Medi-Cal compensation by 10%, driving away even more providers from the shrinking ranks still taking state patients and endangering their ability to get treatment, a three-judge panel of the U.S. 9th Circuit Court of Appeals said in unanimously upholding an injunction against the cuts.

Healthcare providers for the nearly 7 million Californians dependent on state-funded treatment sued the state Department of Health Care Services after the law took effect July 1, 2008. They persuaded a federal judge in Los Angeles to halt the reductions on Aug. 18, on the grounds that the cuts violated federal law requiring states that receive Medicaid funds to meet certain standards of efficiency, economy, quality of care and access.

The state will now have to pay providers the $55.8 million withheld during the few weeks before the court injunction halted the reductions, said H.D. Palmer, deputy director of the state Department of Finance. But the ruling shouldn’t affect the $26.3-billion state budget deficit, he said, because the state hadn’t counted on the 10% savings from the Medi-Cal reimbursement changes.

Stanley L. Friedman, attorney for Independent Living, a nonprofit agency that assists 7,000 disabled patients and is lead plaintiff in the lawsuit, said he understood the amount due to the plaintiffs to be closer to $70 million.

Medi-Cal, jointly funded by the state and federal governments, is California’s biggest annual expenditure after education, with $38 billion budgeted this year for care of the indigent and other state dependents. State officials said at the time of the legislation that the 10% cut to providers, excluding hospitals, would save the state more than $500 million a year.

The state’s legislative analyst had advised against the cut because of its potential to discourage doctors from taking Medi-Cal patients, who would then either go without care or seek more costly treatment at emergency rooms.

The unanimous opinion was written by Judge Milan D. Smith Jr., an appointment of President George W. Bush. Judge Stephen Reinhardt, named to the court by President Carter, and Judge William A. Fletcher, an appointee of President Clinton, joined in the opinion.

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Times staff writer Evan Halper in Sacramento contributed to this report.