Obama administration approves massive Medicaid cuts requested by California

The Obama administration on Thursday approved hundreds of millions of dollars in cuts to Californias Medicaid program that the state had requested to shore up its dismal finances.

The state’s Democratic governor, Jerry Brown, this summer requested the authority to slash Medicaid payments to providers by 10 percent to save $623 million this year and next. Cindy Mann, director of the federal Center for Medicaid and State Operations, said Thursday that the Centers for Medicare and Medicaid Services has partially approved the request while rejecting cuts that would have affected beneficiaries access to care.

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Many of Californias original rate-cut proposals are now off the table, as California voluntarily withdrew a number of its proposed cuts, Mann said in a call with California media outlets. At the same time, we know that the reductions that are being approved today will have significant impact on affected providers, and we regret the very difficult budget circumstances that have led to their implementation.

According to the California Department of Health Care Services, the approved cuts include: 

• A 10 percent provider-payment reduction on a number of outpatient services, including physicians, clinics, optometry, therapy, laboratories, dental, durable medical equipment and pharmacy; 

• A new 10 percent provider-payment reduction for freestanding nursing and adult subacute facilities; and 

• A 10 percent provider-payment reduction and rate freeze for distinct part/nursing facility-B services.

We are pleased that CMS has determined that these painful but necessary reductions comply with all federal access requirements, DHCS Director Toby Douglas said in a news releaseWe value our provider partners and look forward to continuing our service to our most vulnerable populations. We will conduct ongoing monitoring and assessment of beneficiary access, thus ensuring they continue to receive essential health care services.

Brown put the administration in a tight spot with his request to slash the state’s Medicaid budget by $1.4 billion to help plug a $26.6 billion budget gap, the worst of the 50 states. 

In addition to the $623 million cut to provider payments, the governor wants the authority to require Medicaid beneficiaries to make $5 copays for physician visits and $50 copays for emergency department visits (measures that would save $511 million) and limit most beneficiaries to seven doctors visits per year (which would save $41 million). 

CMS is expected to rule on those requests shortly.

Mann said cuts were only approved if they did not make it harder for people on Medicaid to get access to care than the general population, as required by federal law.

Some of the proposed cuts did impact access negatively, and those cuts were taken off the table … voluntarily by the state, Mann said. We have concluded that the remaining proposed reductions did not create an access issue.

Cuts taken off the table include physician services and clinic services for children, outpatient hospital care, home health services and sub-acute nursing facility services for adults. 

Approved cuts are retroactive to June 1 and vary between 5 percent and 10 percent.

Mann said CMS would put in a monitoring plan with public involvement to make sure the approved cuts would not affect access. 

The White House has been wary of antagonizing Brown, who has been a close ally on healthcare reform. On the other hand, such deep cuts could jeopardize the federal healthcare reform law, which relies in part on expanding Medicaid to more than 15 million more low-income people.

The request has sparked opposition from Californias Democratic congressional delegation. More than a dozen members met with Centers for Medicare and Medicaid Services Administrator Donald Berwick last month to share their concerns.

The proposed cuts are untenable, Rep. Lois Capps (D-Calif.) told The Hill recently, and thats what we told Dr. Berwick.

Even with Thursdays announcement, the fight over Californias cuts is only getting started.

Many healthcare advocates — including close Democratic allies — have already taken their cause all the way to the Supreme Court. The court is expected to rule in the spring whether patients and doctors have the right to sue over cuts to Medicaid payments.

This post was updated at 7:30 p.m. with comment from the California Department of Health Care Services.