California court halts some Medicaid cuts

Despite an expected influx of federal stimulus dollars, California physicians, hospitals and other health care professionals continue to battle in the courts over a series of moves by state officials to cut Medicaid payment rates.

Meanwhile, state lawmakers await voters' decisions on six propositions that would plug about $6 billion of a projected $42 billion gap in the state's fiscal 2009-10 budget. Voters will consider the measures May 19, but early polling indicated that most had only mixed support.

The U.S. District Court for the Central District of California blocked a portion of the latest round of fee reductions just days before they were to take effect March 1. The Feb. 27 decision halted a 5% cut to pharmacies enacted in September 2008 in an attempt to reverse the 2008-09 budget shortfall. Other reductions in the legislation ranged from 1% for physicians to 5% for some hospitals and other health care facilities.

While those cuts remain in effect, the recent decision may signal what's to come for a separate challenge pending in the same court and brought by a coalition of physicians, hospitals and others. The coalition, which includes the California Medical Assn., on Jan. 29 sued the California Dept. of Health Care Services. They alleged that the cuts violated state and federal laws requiring that Medicaid payments be sufficient to enlist enough physicians and other health care professionals to ensure access to care.

In the pharmacy case, Judge Christina A. Snyder said that when the state seeks to modify Medicaid payment rates, it must consider efficiency and quality of care "as well as the effect on providers' costs. ... Instead, it appears that the Legislature enacted the rate reduction purely for budgetary reasons." Snyder found that the pharmacy rate cuts could seriously limit the availability of prescription drugs and issued an injunction blocking the reductions until the case is litigated.

The Dept. of Health Care Services has asked the court to reconsider. Officials declined to comment on the lawsuits.

Hospitals were denied similar relief in a March 9 ruling by Snyder. She agreed that the state had failed to take access issues into account, but she found that the hospitals -- few of which were affected by the cuts -- were not threatened immediately.

Physicians, hospitals and pharmacies in August 2008 won an injunction in an earlier case to halt a proposed 10% across-the-board reduction in Medicaid fees slated for July 1, 2008. The state appealed that ruling to the 9th U.S. Circuit Court of Appeals. Oral arguments began Feb. 18, and a decision was pending at press time in early April.

"What is very clear is that the process cannot be what it has been -- namely a budget-plug process, where the state decides 'we need to save' and computes some arbitrary number across the board without analyzing the impact on beneficiary access and the cost to the provider," said Craig J. Cannizzo, an attorney representing the CMA and other organizations. "Even more striking now is why the state is continuing to cut, even though the federal stimulus bill expressly states the reasons they are passing it is to avoid cuts in Medicaid access and provider rates."

The rulings could set an example for other states considering similar reductions, said Stanley L. Friedman, a lawyer with the Medicaid Defense Fund, which filed the recent pharmacy action.

"States are required to take [access] into consideration. And to the extent the cuts violate federal law, it's more likely providers can bring these injunctive actions."

Deal not done

California lawmakers held all-night sessions in February to craft a solution to the $42 billion deficit, but their work might not be finished.

The California Legislative Analyst's Office, the nonpartisan research arm of the California Legislature, estimated in March that state revenues might run $8 billion short of the assumptions in the budget deal. California Gov. Arnold Schwarzenegger's office will provide an updated state budget forecast in May.

The budget deal also relies on $6 billion to be raised by the passage of six ballot propositions. Only one of the measures -- a proposal to limit state officials' salaries -- had a clear majority of public support, according to a March telephone poll by the nonpartisan Public Policy Institute of California. Half of voters polled opposed a key proposition that would raise $5 billion by borrowing against future state lottery revenues, with 37% supporting it and 11% undecided.

Court decisions and recent federal legislation so far have protected physicians from most state cuts, said CMA President Dev GnanaDev, MD. "In a bad time with the California economy, health care came out relatively unscathed, mainly because of the stimulus package." That federal legislation, which included $87 billion in supplemental Medicaid funding, requires states to maintain certain Medicaid eligibility and enrollment standards.