California resumes Medicaid funding for health centers

Many clinics were forced to freeze hiring and wages before the state adopted its annual budget 100 days late.

By Doug Trapp — Posted Oct. 25, 2010

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With some California community health centers just weeks or days away from laying off staff or reducing their hours, the state adopted its latest-ever annual budget on Oct. 8. The 100-day overdue budget allowed the state to restart Medicaid pay to hundreds of community health centers that had not been reimbursed for several weeks.

Physicians who saw Medicaid patients continued to receive payments while the fiscal 2011 budget was in limbo because federal law requires states to reimburse 90% of valid physician and hospital Medicaid claims within 30 days of receiving them, even if a budget isn't in place. Health centers, however, don't have that protection, and the state cut off their funding when the fiscal 2010 budget ended on June 30. California is repaying the state's community health centers $857 million in Medicaid claims held since July 1. There are more than 1,000 federally funded centers in the state, according to the National Assn. of Community Health Centers.

With Medicaid fees accounting for 50% to 80% of health center budgets, many centers were forced to freeze hiring and raises, prohibit out-of-state travel, and delay equipment purchases and clinic renovations.

"It was just very anxiety-producing across the board," said Dean Germano, CEO of Shasta Community Health Centers, based in Redding, Calif.

The delay in payments put health centers in difficult financial positions, said Sean South, spokesman for the California Primary Care Assn., which represents more than 800 nonprofit health centers and community clinics in the state. While some centers remained on solid financial footing, others were within a week or two of cutting clinic hours and laying off staff, he said.

Federal and state loan programs of $1 billion each helped centers operate normally after June 30, but those funding sources ran out on Aug. 19, said Norman Williams, spokesman for the California Dept. of Health Care Services.

After Aug. 19, clinics and centers relied on their savings or lines of credit from banks or nonprofit associations. Clinics and centers that took on short-term loans will have to repay them.

"You're paying interest for the privilege of doing low-income, uninsured and Medicaid business," said Steve Schilling, CEO of Clinica Sierra Vista, a Bakersfield, Calif.-based chain of 24 clinics in three counties.

For example, Mountain Valleys Health Centers in rural northwest California will repay at least a few thousand dollars in interest, said CEO Dave Jones. The chain of six small clinics took loans of $350,000 and $400,000 from the California Primary Care Assn. at 3% to 5% interest rates.

Most health centers have few ways to reduce spending temporarily, because most of their budgets are for paying physicians, nurses and other staff, Germano said. "For most health centers, costs are directly related to access."

Cuts could have been worse

In the final budget, like last year, health centers received a funding cut after California Gov. Arnold Schwarzenegger line-item vetoed $10 million of the state's $12.4 billion Medicaid budget. The reduction was part of the $963 million he line-item vetoed in the $86.6 billion fiscal 2011 budget the Legislature approved.

The $10 million cut in funding to health centers and clinics comes on the heels of a veto of $20 million in similar funding from the fiscal 2010 budget. South said $10 million is enough to cover the care of more than 100,000 patients, assuming each patient visits a clinic three times annually.

Schwarzenegger also vetoed $52 million for HIV/AIDS programs after $85 million in vetoes in fiscal 2010.

"We have paid dearly for these cuts with more who are sick, along with increased health care costs." said Craig E. Thompson, executive director of AIDS Project Los Angeles.

Physicians also were affected by the budget, which saves $13.6 million by lowering Medicaid radiology rates to 80% of Medicare rates. In addition, the budget reduces reimbursement for physician-administered drugs to the lower of Medicare or Medicaid rates, saving $6.4 million, according to a California Medical Assn. analysis.

But the budget does not reduce eligibility for the Children's Health Insurance Program, nor does it implement co-pays for Medicaid services or expand the sales tax to physician services -- all of which were considered by state leaders, according to the CMA.

The state could not balance the budget without cutting some health spending, said H.D. Palmer, spokesman for the California Dept. of Finance.

The federal government is providing billions to community health centers through the economic stimulus package and other spending, according to the Dept. of Health and Human Services. Palmer said the state continues to fund health centers in a variety of ways.

But South said the state and new federal funding are apples and oranges. The billions in federal dollars are for renovating and expanding facilities to prepare for the 16 million more people who will enroll in Medicaid starting in 2014 when health reforms go into effect -- not for the existing Medicaid patient load.

"I don't think the governor's ever fully appreciated that reality," South said.

Gearing up for next year

The state's budget woes are not over. About two-thirds of the solutions for the $19 billion fiscal year 2011 deficit are either one-time, temporary fixes or deferrals, according to the nonpartisan California Legislative Analysts Office. Therefore, state lawmakers could face another deficit of $10 billion or more for fiscal 2012.

Some clinics and health centers are planning ahead to figure out how they can keep their doors open if there are state budget problems next year. Community Health Centers of the Central Coast did not rely on loans this year. However, the nonprofit group of 23 clinics, about 160 miles north of Los Angeles, plans to increase its reserve fund by cutting spending.

"It's very, very hard. Not that it cannot be done, but we all have to tighten our belts," said Bob Lotwala, the health center's chief financial officer.

The savings could come from reducing ancillary services, such as outside x-rays, pharmacy services and certain lab procedures, he said. The clinic's main goal will be to maintain access to primary care.

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