Federal Ruling, State Law May Conflict

by David Gorn

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In 2011, the Legislature went along with the governor's plan to cut Medi-Cal provider rates by 10%. Provider groups immediately went to the courts to stop it, saying that patient access to care would be threatened by such a severe reduction. Now the final decision rests with a federal judge. A ruling is expected soon.

If a federal judge signs off on the law, Medi-Cal providers in California will have rates cut by 10% and also will need to pay back two years' worth of that 10% reduction. The effect would be a 15% rate cut for the next four years and a 10% cut thereafter.

The 10% cut represents about $600 million a year to the California budget.

Meanwhile, now that the California economy is a little better off than it was two years ago, legislators may be changing their minds about the wisdom of that plan.

Two bills are sailing through the Legislature that would reverse those cuts. So far, they've enjoyed unanimous, bipartisan support. The governor has publicly declared he would veto that legislation, but a two-thirds override vote by the Legislature is a real possibility.

So, if the judge approves the cut, retroactive to 2011, and the Legislature rescinds the cut at the same time, what happens?

That could complicate things, according to Norman Williams, deputy director of communications at the Department of Health Care Services.

CMS has already approved a state plan amendment (SPA) for the cut, and if a judge upholds that cut, it will be made. California would need a new amendment in the event of a rate increase, but the Legislature can't retroactively change the cut for the past two years, according to Williams.

"It is … not possible to retroactively amend the state plan to increase the payment rates to the levels paid during the periods the various injunctions were in effect," Williams said.

The timing is a little tricky, Williams said. "The effective date of a SPA that increases payment amounts for services covered by a state plan can be no earlier than the first day of the quarter in which an approvable plan is submitted to the federal agency," Williams said.

If the legislation is passed, the state would submit a new state plan to CMS, and if that increase is approved (two years or so after the state decided to cut the same rate), the rate increase could be effective as early as next month, according to Williams.

All of that, of course, depends on the federal court ruling.

If the cut is upheld, providers may still owe $600 million a year in reductions for at least two years -- a total of $1.2 billion -- even if legislation reversing the cut is passed and an override is successful.


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