California budget includes Medicaid doctor pay cut and patient co-pays

California lawmakers adopted an annual budget by the June deadline for the first time in five years, but they will have to amend it if judges or federal officials reject a 10% Medicaid physician pay cut in the budget, among other policy changes that require federal approval.

California Gov. Jerry Brown, who signed the $88 billion fiscal 2012 budget on June 30, said the measure reduces the state's general fund spending to its lowest level as a percentage of state economic growth since 1973. "This is a huge step forward. But California's long-term stability depends on our willingness to continue to pay down debt and live within our means."

California physicians opposed the Medicaid rate and access reductions in the budget, according to the California Medical Assn. These include a double-digit Medicaid pay cut in a state that already has one of the five-lowest Medicaid pay rates in the country, according to Lisa Folberg, vice president of medical and regulatory policy for the association. The cut is expected to save $623 million, according to the California Legislative Analyst's Office, the state's nonpartisan legislative research organization.

Another Medicaid change in the budget -- new co-payments ranging from $5 for physician office visits to up to $200 for hospitalizations -- is expected to save the state another $511 million, according to the legislative analysts. This puts physicians in the awkward position of demanding these fees from patients or else forgoing full payment for their services. For example, an $18 fee for a Medicaid physician office visit could be reduced to $13 if the doctor does not collect the $5 co-pay, Folberg said.

The state also proposes limiting Medicaid enrollees to seven visits per year to physician offices and other outpatient facilities. Exempted from the limit are certain children and all enrollees in long-term-care facilities. This is expected to save the state $41 million, but physicians are waiting for clarification from the state's Medicaid agency on who will track each patient's number of visits, Folberg said. "I don't really honestly understand how they expect that to work," she said.

California physicians and others have used the courts successfully to block proposed pay cuts, including the 10% reduction incorporated in the new budget. But state officials hope that the U.S. Supreme Court, which is reviewing the case, will overturn the lower court decisions. In that event, both the Medicaid cut and the new co-pays still would require pre-implementation approval from the Centers for Medicare & Medicaid Services, a process that could take months.

Brown campaigned in part on ending the use of budget gimmicks, or savings proposals that are unlikely to materialize. Brown vetoed an earlier version of the budget because he said it was not realistic, but some uncertainty remains in the adopted budget. For example, the Medicaid pay cut would apply retroactively to June 1, but there's no guarantee that both the Supreme Court and CMS will allow it to go through.

"There are timing issues with a lot of the savings proposals that were adopted," said Shawn Martin, health director of the state's legislative analyst's office. "That's not uncommon."