State Missteps on Several Fronts Led to Cutoff of Medi-Cal Funds

The cutoff in Medi-Cal payments to nursing homes and other health facilities this week resulted from a $1-billion deficit that was caused in part by the Legislature’s failure to adopt a spending plan on time or to make cuts when expenses spiraled.

The cost of health programs for the poor, such as Medi-Cal, as well as the number of people enrolled in such programs, has risen nationwide. But Medi-Cal’s woes were compounded by miscalculations and inaction, officials and experts say.

Lawmakers, for instance, overestimated by $100 million the amount the state expected to collect from anti-fraud efforts, despite warnings from top state officials and the Legislature’s own financial analysts that the figure was unrealistic.

“It wasn’t real,” said state health official Stan Rosenstein, whose office warned the Legislature last year not to count on the $100 million in savings. “It wasn’t achieved.”

The state also wasn’t able to obtain discounts worth an estimated $106 million on prescription drugs because it was slow to hire pharmacists to negotiate with drug makers.

Since then, as the problems worsened, the Legislature has failed to move on Gov. Gray Davis’ request in December to reduce payments by 10% to doctors, nursing homes and pharmacies, limit enrollment in Medi-Cal for some poor Californians, and cut off access to dentists and other optional benefits.

“The Legislature rejected that proposal,” Rosenstein said, and the administration could not go forward on its own.

Sen. Wes Chesbro (D-Arcata), chairman of the Senate Budget and Fiscal Review Committee, said it’s wrong to point fingers at the Legislature for inaction or miscalculation.

“You can argue all day about when something could have happened or should have happened,” he said. “I don’t think it does any good at this point in our budget crisis to point fingers.”

The budget-busting is starting to take a toll. Without legislative authority to spend more money, the state halted payments this week to hospitals, nursing homes and clinics for services they have already provided to the state’s 6.4 million Medi-Cal enrollees. Doctors and pharmacists continue to be paid.

For every $1 the state doesn’t pay providers, the federal government’s matching funds can’t be spent, doubling the impact.

But Davis’ budget director, Steve Peace, says eventually the providers will be paid.

“We are legally obligated to pay people when we owe people money,” he said. The only question is when that will be -- and some facilities say they operate so close to the margin that they may not last until the payments arrive.

“Our facilities are in a world of hurt anyway,” said Betsy Hite, spokeswoman for the California Assn. of Health Facilities, which represents nursing homes. “The vast majority of facilities are not going to be able to stay afloat for 30 days,” if it takes that long.

Peace said lawmakers will either make up for this year’s deficit as part of next year’s budget bill or in a separate piece of legislation.

To a significant degree, state officials insist, the state’s Medi-Cal problems are due to national trends of higher enrollment, greater use of medical services and the rising cost of prescription drugs within public health insurance programs.

“There’s factors that are affecting health care at all levels, not just Medi-Cal,” said Chesbro. “It’s happening to private insurers and the entire health-care system.”

In California, hospital payments topped projections by $105 million, the cost of additional beneficiaries exceeded estimates by $79.6 million, and existing enrollees needed more health care to the tune of $76 million. Also, a fast-growing program providing mental health services primarily to children cost an additional $75 million.

National experts say that many other states have taken steps to put Medicaid back on track, while California has not. Medi-Cal is California’s version of the federal Medicaid program.

“Most states make changes in the middle of the year,” said Victoria Wachino, associate director of the Kaiser Commission on Medicaid and the Uninsured in Washington, D.C. “California is clearly a unique situation where you look at a state that has a large budget shortfall and really hasn’t acted on it. It’s not just a Medicaid issue in this case; it’s a case of inaction on its overall budget.”

The $1-billion hole, which amounts to 10% of the state contribution to Medi-Cal from its financially strapped general fund, is the largest in at least five years. In 1998-99, the program actually had a year-end surplus of $604 million.

Davis’ cabinet secretary Daniel Zingale said he didn’t want to assign blame for the problem, but said the Legislature must act now or risk damaging the state’s already fragile health system.

“Every day that the governor’s budget is delayed in the Legislature, the problem gets worse and the threat to health care for seniors and others gets more real,” he said.

A delay in approving the budget a year ago and employee recruiting problems contributed to this year’s deficit. Because lawmakers didn’t meet their June 15 deadline for passing a budget, state agencies could not hire new staff for more than two months.

Once the budget was in place, the state’s salaries weren’t competitive enough to hire experienced pharmacists to reap an estimated $106 million in rebates from drug companies.

“The department ran into real difficulty hiring high-level pharmacists,” said Daniel Carson of the Legislative Analyst’s office.

The state received some relief when Congress passed legislation last month that provided additional federal Medicaid matching funds, retroactive to April. Officials estimate that will cut the state’s Medi-Cal shortfall to $727 million. Still, with the federal match, that amounts to more than $1.4 billion in lost revenue to health providers.

The freeze in Medi-Cal payments has particularly jolted the nursing-home industry, which already was battling a 15% cut in Medi-Cal payments that Davis has proposed in his budget for the next fiscal year, which begins Tuesday.

Of the 115,000 people who live in skilled nursing homes in California, about 75,000 rely on Medi-Cal to pay their bills.

“It’s a terrible thing for residents,” said Phil Sullivan, the administrator at Brentwood Skilled Nursing in Red Bluff, in Northern California.

“There isn’t a lot of money in the business to start with .... They stop payments to us and who are they hurting? The residents here.”

Owners of large nursing home chains may have access to cash reserves to keep them open, said Hite of the California Assn. of Health Facilities. But independent owners will either have to stop paying their vendors or borrow money from banks -- often difficult because nursing homes are not seen as good risks.

Many homes say there’s such a thin line between profit and loss that even a short-term loss of Medi-Cal dollars will wreak havoc.

One of those homes is the Country Villa Wilshire nursing home in the Fairfax District of Los Angeles, where there is little that reminds one of the country or a villa.

The one-story brick building is home to 76 residents, about 55 of them on Medi-Cal.

The facility is pleasant, but small. The hallways are tight and the physical therapy room is wedged into the basement. There is a small courtyard within the building, but it provides no views of the outside world.

Every patient lives in either a double or triple room, their living space measuring roughly 6 by 10 feet.

Maggie Montreys, an 84-year-old resident, had a seizure in the mid-1990s and had both her legs amputated as a result. She says she’s no expert on Medi-Cal, but “those of us who live here find [the freeze and possible cutbacks] frightening.... I hope we’re not left in the lurch.”

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Times staff writers Lisa Richardson and Olga Rodriguez contributed to this report.