Federal health officials wrongly approved a 10 percent reduction in California's already-low Medi-Cal rates for hospital outpatient services without considering the impact on access to care for more than 13 million low-income residents, a federal appeals court ruled Monday.
The court case concerned rates for treatment of Medi-Cal patients who do not require an overnight hospital stay. In July 2008, the state reduced Medi-Cal rates for those outpatient services by 10 percent for a specific eight-month period in 2008-09, then raised them back to their earlier levels eight months later after the federal government withheld approval.
In 2011, California lowered all of its Medi-Cal rates by 10 percent to balance its budget, and also sought and received approval from President Barack Obama's health care agency for the earlier eight-month reduction. The agency said a study showed that Medi-Cal patients' use of hospital outpatient services while the rates were lowered had remained relatively unchanged.
The Ninth U.S. Circuit Court of Appeals in San Francisco rejected that approval, saying the federal agency had ignored the law's requirement to set rates high enough so that Medicaid patients have access to care at least at the levels "available to the general population in the geographic area." Medi-Cal is Calfornia's Medicaid program.
The federal government "failed to include any consideration regarding Medi-Cal beneficiaries' access to care relative to the general population" and thus reached an "arbitrary" conclusion that the rates were adequate, Judge Milan Smith said in the 3-0 ruling.
The ruling means the state will have to reimburse health care providers for the rates that were lowered, unless state officials provide a new justification for the rate reduction that wins acceptance from the federal agency and the courts.
Although the case involved only the previous eight-month rate reduction, a lawyer for 57 California hospitals that challenged the government's decision said the ruling would affect later Medi-Cal rates as well.
"This case sets a standard for what has to be taken into account" in payment levels for the program, said the attorney, Robert Leventhal.
The state Department of Health Care Services, which administers Medi-Cal, said it was reviewing the ruling, and declined to comment further.
Medi-Cal paid for health services for 13.475 million low-income state residents, according to the latest state report in February. Its reimbursement rates for doctors and hospitals are among the lowest of any state, though doctors are getting a modest rate increase, negotiated by lawmakers and Gov. Jerry Brown, from the proceeds of a $2-per-pack cigarette tax boost approved by the voters in November.
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