California reverses course, adopts 10% physician Medicaid pay cut

Washington -- California physicians, who recently were poised to get a Medicaid pay increase, instead will receive a cut of about $50 million when the 2008-09 fiscal year starts on July 1.

The reduction is included in a 10%, $544 million package of Medicaid pay cuts passed last month.

The California Medical Assn., the nonpartisan California Legislative Analyst's Office and some lawmakers said the reductions were ill-advised because they would result in the loss of more than $500 million in federal Medicaid matching funds and encourage physicians to stop accepting Medicaid patients. This, in turn, would delay needed primary care for low-income Californians.

"Cutting funding for health services, particularly when it costs California valuable federal matching funds, is neither humane nor financially sound," said CMA President Richard Frankenstein, MD. Medicaid physician pay before the cuts averaged 61% of Medicare rates. The cuts reduce that to 57%, according to the legislative analyst's office. The state last increased Medicaid rates in 2001.

Dr. Frankenstein said the CMA will fight the cuts. "We absolutely do not think this is set in stone, and we are exploring our options about what we can do to turn it around."

The Medicaid cuts are a reversal from the hundreds of millions in increases for doctors and hospitals included in state health system reform legislation passed on Dec. 17, 2007, by the General Assembly and supported by Calif. Gov. Arnold Schwarzenegger. The bill died after losing support among lawmakers once it became clear that the state was facing a major deficit.

Schwarzenegger and lawmakers quickly turned their attention to cutting the deficit, expected to hit $16 billion by June 30, 2009. The Medicaid pay cuts are part of state spending reductions included in six bills quickly adopted by the Legislature in mid-February. Together the measures would shave an estimated $1 billion from the deficit.

The governor signed the bills Feb. 16. "The Legislature should be commended for working together -- both Republicans and Democrats -- to make difficult decisions and take this first step toward fixing our state budget," he said.

Doctors fear access problems

The Medicaid cuts mean that more program enrollees will wind up in the emergency department because they could not get primary care, said Rodney Borger, MD, chair of the department of emergency medicine at the Arrowhead Regional Medical Center in San Bernardino County. People who could have avoided strokes and heart attacks are going to have them. "They're going to end up going to the hospital at the last minute and getting very expensive care," he said.

Physician participation in California's Medicaid program, Medi-Cal, is already low. The most recent estimate, from a 2001 California HealthCare Foundation survey, found that 55% of primary care doctors and 50% of specialists accept Medicaid patients. The new Medicaid cuts mean these numbers will decline further, Dr. Borger said. Some patients already must drive two to three hours to reach a county hospital for specialist care, he said.

The legislative analyst's office, charged with advising lawmakers, agreed with physicians' assessment of the impact of cutting their pay. Reducing Medicaid reimbursement likely would hurt physician participation and patient access to care.

In its alternative to the governor's overall budget request, the legislative office said it is generally a better idea to prioritize cuts rather than reduce spending across all departments.

So the office's proposed budget, announced Feb. 20, does not include a 10% physician pay cut. But like the governor's budget, it would save $69 million by reinstituting quarterly eligibility reporting for children and parents on Medicaid and $66 million by ending state premium assistance for Medicare Part B enrollees, for example. Neither has been adopted yet. Schwarzenegger said he is open-minded about other budget proposals -- unless they would raise taxes.

Los Angeles could privatize clinics

Meanwhile, the state's Medicaid cuts put urban governments, such as Los Angeles County, in particularly tough positions, officials said.

The county is considering privatizing its 11 primary care health clinics, which are not federally qualified or exempt from the state cuts, to help address a 2008-09 L.A. County Dept. of Health Services budget deficit of $195 million. But even if that happens, it would save the county only $29 million, said spokesman Michael Wilson. In February the county board of supervisors asked the department for additional cost-saving proposals.

"The safety net is kind of at a breaking point," Wilson said. "You try to maintain services ... but there will probably be cuts."

Dr. Frankenstein said the county's network of clinics provides a great deal of care to Medicaid enrollees. "L.A. is going to be severely challenged if this isn't turned around. ... They have a huge number of uninsured. They have a large number of people who depend on [Medicaid]."

The state Medicaid cuts, along with pending federal Medicaid rules that include their own cuts and ever-increasing health care costs, threaten to bring more patients to L.A. County's 75 emergency departments, Wilson said. Ten of the EDs have closed since 2003.

"Altogether, it's just a toxic match of factors. Certainly it's not going to get any better," he said.