567 Hospitals Sue State, Alleging Serious Medi-Cal Underpayments

Accusing the state of neglecting the needy, California’s hospitals have joined together in a lawsuit against the state Department of Health Services to obtain bigger Medi-Cal payments and revive a health-care system that they say is edging toward collapse.

The unprecedented suit, announced Thursday, was brought on behalf of California’s 567 hospitals, which contend that the state has illegally underpaid them millions of dollars to treat indigent outpatients under the Medi-Cal program.

As a result, the hospitals say, the financial strain has forced them to scale back or stop providing poor adults and their children with a variety of non-emergency procedures, including neonatal care, rehabilitative therapy and diagnostic medical exams.

The hospitals also contend that the state’s failure to shoulder a greater percentage of the costs for indigent care has endangered patients who are not poor by prompting the closure of trauma centers and emergency rooms throughout the state.

At a press conference Thursday, hospital representatives blamed the shortfalls on Gov. George Deukmejian’s Administration, arguing that the governor traditionally has axed benefits for the disadvantaged to balance the state’s budget.

“It’s a sad day for hospitals that we have to sue the state to ensure adequate medical care for poor people in California. . . . Poor people should have access to the same kind of health care as the rest of us,” said C. Daune Dauner, president of the California Assn. of Hospitals and Health Systems, which filed the lawsuit in conjunction with Los Angeles’ Orthopaedic Hospital.

“We are in a vice and it is being squeezed to a point where our very existence is being threatened,” he said, adding that California hospitals are losing more than $575,000 a day treating Medi-Cal outpatients.

“We are at our wit’s end,” agreed Steve Gamble, president of the Hospital Council of Southern California. “We don’t want to sue the state (but) it has left us with no other choice.”

In recent months, Medi-Cal funding has emerged as a major issue in Sacramento and across the state as complaints have flooded in from nursing homes, doctors and AIDS activists, all of whom contend that the program is failing to meet the needs of its intended recipients. Patients dependent on Medi-Cal have begun crowding into public hospitals, straining resources from such programs as obstetrics.

On Thursday, hospital officials described their unusual lawsuit as “a last resort.” The suit was the first filed in the wake of a U.S. Supreme Court ruling involving a similar situation in Virginia. The court ruled that the medical association there could sue the state. Although the governor’s office had no immediate comment on the litigation, a Deukmejian spokeswoman said the governor has tried to justly distribute budget cuts.

“Every special interest that didn’t receive the amount they felt they were entitled to blames the governor,” spokeswoman Anita MacKenzie said. “The budget has been balanced on the backs of each and everyone of them, according to them.”

A spokesman for the Department of Health Services said his agency is also withholding comment until it reviews the legal papers filed Wednesday in federal District Court in Los Angeles, which name the agency’s director, Kenneth Kizer, as a plaintiff.

But the spokesman insisted that “California is doing the best it can, given the budget limitations that exist today and the growing number of indigent people who are availing themselves of Medi-Cal services. I suppose it is always going to be true that there is never going to be enough money.”

At the heart of the lawsuit is a contention by the hospitals that the state is violating federal Medicaid laws requiring reimbursement rates to be based on such “relevant factors” as the hospitals’ costs of providing services and the quality of care.

Instead, the lawsuit contends, the state has primarily based its repayment policy on “budgetary constraints,” ignoring other federally mandated factors. And for that reason, the lawsuit argues, the court should invalidate the current payment rates and compel the Department of Health Services to set new ones.

“California has violated the law far too long,” the hospital association’s Dauner said in a statement.

Among the 50 states, he said, California now ranks 47th in per-capita government spending for indigent patients. Since 1982, he said, the state has hiked overall payment rates to hospitals by only 2%, while hospital costs have soared 50% during the same period. He said hospitals today receive 55 cents on every dollar they spend for providing care under the Medi-Cal program.

David Langness of the Hospital Council of Southern California puts the blame squarely on Deukmejian. He said he recalls the governor remarking during his 1986 budget message that “he believed we had a Cadillac of a medical program and he was going to scale it back to a Chevrolet.

“Basically,” Langness said, “he drove the Chevrolet into a wall and turned it into an old Ford Pinto.”