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California Can Cut Medi-Cal Reimbursements, Court Rules

California can cut reimbursement rates for medical-care providers in Medi-Cal, the state health program for the poor, a federal appeals court ruled, overturning a lower-court judge who had blocked the reductions.

The U.S. Court of Appeals in San Francisco today said the California Department of Health Care Services and U.S. Health and Human Services secretary acted properly in reviewing and approving the cuts. U.S. District Judge Christina Snyder said last year that the hospital groups and service providers who sued to stop the reductions were likely to succeed.

“The secretary’s approval of California’s requested reimbursement rates, including her permissible view that prior to reducing rates states need not follow any specific procedural steps, such as considering providers’ costs, is entitled to deference,” the appellate panel said.

The U.S. Centers for Medicare and Medicaid Services last year approved the proposal to reduce Medi-Cal reimbursement rates. The cuts were part of the state’s 2011-12 budget and were expected to save $623 million, according to an Oct. 27, 2011, statement by the Department of Health Care Services.

The California Hospital Association said in its complaint that the cuts of more than 20 percent would mark a return to rates that courts have found violate the federal Medicaid Act. The reductions would threaten the ability of many hospitals to operate skilled nursing units, the group said.

‘Fiscal Crisis’

“The state’s fiscal crisis does not outweigh the serious irreparable injury the plaintiffs would suffer absent the issuance of an injunction,” Snyder said in her ruling last year.

In a separate decision, the lower-court judge had also blocked the state from cutting Medi-Cal reimbursement rates for pharmacies by 10 percent, saying that there was enough evidence pharmacies may have to reduce services or close, and that Medi- Cal beneficiaries would lose access to drugs. Both the hospital and pharmacy cuts were to be retroactive to June 1, 2011.

Jan Emerson-Shea, a spokeswoman for the California Hospital Association, said in a phone interview that the group is reviewing the ruling and hasn’t decided yet what its next step will be.

“We are certainly disappointed,” Emerson-Shea said. “We are very concerned about access to care.”

Hospitals that operate skilled nursing units that provide complex medical care for elderly patients won’t be able to absorb the lower rates as they’re already reimbursed by Medi-Cal below their costs, Emerson-Shea said. Some hospitals may be forced to close these units outright, she said.

The case is Managed Pharmacy Care v. Sebelius, 12-55067, U.S. Court of Appeals, Ninth Circuit (San Francisco.)

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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