State Forfeits $90 Million for Delaying Health Plan

State leaders on Tuesday put off until next year highly controversial plans to move 554,000 elderly, blind and disabled Medi-Cal beneficiaries into managed care, costing California $90 million in federal incentives.

The decision was part of an overall agreement about how to divvy up $18 billion in new federal funding over the next five years in a way that would ensure no hospital loses money. The Legislature is expected to approve the deal by the end of this week.

In general, the pact between Gov. Arnold Schwarzenegger and Democratic leaders -- the object of contentious negotiations -- won tentative praise from state hospital officials and Democrats as the best California could obtain given new demands from the Bush administration.

But it left unsettled one of the most contentious issues -- the massive transfer of patients to HMOs -- and came with a costly penalty.

The $90 million would come out of $360 million in incentives the Bush administration had offered California if it met its timetables for moving the patients to managed care. Healthcare officials said Schwarzenegger might still be able to get the penalties waived. California stands to lose more of the money if it does not begin that process next year.

“This will be one milestone that the state will not meet, but we’ll see how far we can go in the New Year,” said S. Kimberly Belshe, secretary of Schwarzenegger’s health and human services agency. “The administration and the Legislature determined that our beneficiaries would be better served if we spent more time refining our strategies for access to care.”

Democrats had objected that the Schwarzenegger administration had not performed the necessary planning to prepare for such a dramatic shift.

Patient advocates had complained that the transfer would lead to substantial financial losses for hospitals that now treat those patients. In addition, they said, it would be unnerving for the patients, who are used to their own doctors and would find it tough to adjust to a new system. A third of those proposed for transfer live in Los Angeles County.

Despite intensive negotiations throughout Labor Day weekend, the administration and Democratic negotiators agreed Tuesday that they would not be able to come to a mutually acceptable compromise by Friday, when the Legislature is set to adjourn for the year.

Officials plan to work through the fall with hopes of presenting a plan to lawmakers when they return to Sacramento in January.

Among the issues they hope to resolve is how the state would ensure a smooth transition for patients, many of whom would be forced to find new doctors.

“We’re really relieved that they’re not doing mandatory managed care,” said Angela Gilliard, a legislative advocate at the Western Center on Law and Poverty, a Los Angeles-based group. “There are so many important, critical details in moving this medically fragile population into managed care that it didn’t make sense to do it at this point.”

Many advocates remain opposed to the entire idea, and it is likely to continue to face opposition in the Legislature, which rejected the concept when Schwarzenegger proposed it as part of his state budget earlier this year.

Hospital officials and advocates were somewhat more positive about the overall agreement, known as a waiver, which guarantees that no hospital will lose federal money over the next five years. Hospitals had raised concerns that some could be forced to close because of proposed changes in the way they are reimbursed for caring for Medicaid and uninsured patients.

Los Angeles County public hospitals in particular rely on the federal money because of the large number of uninsured and poor people they care for.

Under the arrangement, the state’s safety-net hospitals, including those run by the University of California, would receive $206.7 million in additional money. It was not clear Tuesday exactly how much of that money L.A. County would receive. Hospital officials there and in Sacramento expressed concern about whether hospitals, despite the guarantee they would not lose money, would receive what they needed in the latter years of the five-year plan.

“Los Angeles County believes this is a workable plan and supports this legislation to maintain this critical funding stream,” said John Wallace, spokesman for the Los Angeles County Department of Health Services. “However, the county has concerns about the ability of this funding mechanism to meet the needs of our hospitals in the last three years of the waiver.”

Officials said that adopting a plan was essential so California did not lose its eligibility for federal money.

“We feel that this reflects the best proposal,” said Sherreta Lane, a vice president of the California Hospital Assn. “We do have some concerns, but we feel we can work on those over the fall.”

The Schwarzenegger administration has maintained that its deal with the Bush administration was substantial given congressional efforts to cut Medicaid nationwide. Belshe said the plan for California includes $3 billion in money beyond what the state is entitled to under reductions approved by Congress.

That proposed arrangement blocked California hospitals from their long-standing practice of using the federal money to help pay for the costs of caring for uninsured adults who are not covered by Medicaid.

The new rules devised by the administration and state legislators do not eliminate those concerns. But they provide some assurances to safety-net hospitals and a plan for distributing $140.3 million to public hospitals and $66.4 million to private ones.

“The hospitals have done a lot of work to make sure they aren’t trying to eat each other” in fighting over the money, said Sen. Denise Ducheny (D-San Diego). “I was really concerned this new waiver would create a feeding frenzy.”

Belshe said the arrangement is what the administration had planned on all along.

Some critics said the result was nothing to cheer about.

“County hospitals don’t get enough medical funding, and then we’re capping it and freezing it, so the overall deal is not a good deal,” said Beth Capell, an advocate for the Service Employees International Union, which represents hospital workers and many low-wage workers who lack health insurance.

“This is at least for the next year the best we can do,” she said. “We hope to come back next year and rethink some of the elements of it and see if we can do better.”

California, which spends $33 billion a year on its Medi-Cal program, is expected to see that amount more than double over the next decade, according to a recent Public Policy Institute of California study.

There are 6.5 million people enrolled in Medicaid in California. Of the 1.6 million elderly, blind and disabled people on Medi-Cal, fewer than 300,000 are in HMOs. Eight counties require such participation.