State’s Hospital Funding Revamped

Times Staff Writers

Half a million elderly, blind and disabled Californians now enrolled in Medi-Cal -- including all of those in Los Angeles County -- would be shifted into managed care as part of a complex deal with the federal government, the Schwarzenegger administration announced Wednesday.

The pact dictates how California can spend $18.4 billion in Medicaid money over five years and amounts to an overhaul of hospital financing in the state.

Administration officials called the agreement the best means of preserving federal assistance for hospitals at a time when U.S. health officials are cracking down on liberal spending of Medicaid dollars and threatening $10 billion in nationwide cuts.


“Our state’s approach to hospital financing has to change,” said S. Kimberly Belshe, the secretary of Schwarzenegger’s health and human services agency. “If we want to secure federal funds, we have to play by the rules of the federal government.”

The elderly, blind and disabled often are the most expensive patients to treat. Moving these patients into HMOs is in line with an earlier proposal by Schwarzenegger and rejected by the Legislature in May.

While the new accord is being hailed by the Schwarzenegger administration, it is being received with trepidation by the state’s hospitals, Democratic lawmakers and advocates for patients. Overall, they say, the plan could leave the hospitals that care for most of California’s poor and underinsured with insufficient aid.

The large-scale switch to managed care is one of the most controversial aspects of the pact, and critics questioned whether it was essential to satisfy federal officials.

“One-size-fits-all does not fit for the disabled community,” said Angela Gilliard, a legislative advocate at the Western Center on Law and Poverty. “Some folks have some very delicate conditions, and they’re very nervous about going into the managed care system, where their specialists may not be there.”

The accord requires the state to move 554,000 elderly, blind and disabled people from 35 counties into managed care between January 2007 and mid-2008, state officials said. A third of them -- 174,586 -- are in Los Angeles County.

The administration said the changes were needed to contain costs. The theory behind managed care is that it saves money because hospitals and doctors are paid fixed monthly rates to provide all the care patients require. Patients also have a limited choice of medical providers.

The elderly and people with disabilities make up about 23% of the state’s 6.8 million Medi-Cal beneficiaries. But because of the severity of their ailments, they account for 57% of medical expenses. A Public Policy Institute of California study projected that the state’s $33-billion annual Medi-Cal spending would more than double over the next decade if the system were left unchanged.

“The federal government was very clear in saying that ‘in order for us to invest more money in the program, we want to see some reforms,’ ” Belshe said at a Capitol news conference.

Michael Chee, a spokesman for Blue Cross of California, said managed care provides patients with complex health needs the services they can’t get in traditional Medi-Cal, including disease management and, in some cases, transportation. “It’s a much better environment for them,” Chee said. “It’s a much better array of services.”

Opponents said managed care could be unsettling for these particularly frail classes of patients. They also questioned whether the state could move as quickly as the Schwarzenegger administration had committed to, given the complications in setting payment rates, enticing doctors into managed care plans and helping reluctant and often confused patients shift to potentially unfamiliar caregivers.

“Without any guarantee that their long-standing physicians will become a member of the managed care plan, we’re talking about disruption,” said Deborah Doctor, a legislative advocate based in Sacramento for Protection and Advocacy Inc., a disability rights group.

“The challenge for Los Angeles is going to be enormous, just because of the numbers,” said Sen. Denise Ducheny (D-San Diego), noting that it took Orange County two to three years to phase in its mandatory managed care program.

Some family members and caregivers voiced concern as well.

Valerie deChadenedes, a 20-year-old San Franciscan with Rett syndrome, a neuromuscular disorder that has left her dependent on a wheelchair and unable to speak, sees about five specialists regularly, her mother, Audrey, said.

“A crisis can come up at any point, and I can just go straight to her neurologist,” she said. “I know so many kids like my daughter and more complicated than my daughter. I’m not sure they really understand how complex that can be and that they’ll be able to design a system that will be able to handle the kinds of things that can come up.”

Even if the transition is successful, California hospitals are concerned that directing Medicaid money to health maintenance organizations instead of safety-net hospitals will end up hurting those institutions.

In California, these hospitals have agreed to treat not only Medi-Cal patients but also the uninsured in exchange for extra financial assistance. Currently, 146 private and public hospitals, 52 of which are in Los Angeles County, are part of this arrangement.

Finally, critics have questioned whether managed care will save substantial amounts, because it emphasizes preventive care and discourages unnecessary treatment. The people to be switched to HMOs are already seriously ill or disabled and probably will warrant expensive care, they said.

Insurers said they were capable of caring for these new patients.

L.A. Care Health Plan, a nonprofit HMO serving more than 750,000 Los Angeles County residents who participate in the Medi-Cal and Healthy Families programs, has been preparing for the transition for the last four months, said Howard A. Kahn, its chief executive. L.A. Care and its partners serve 25,000 elderly, blind and disabled patients who enrolled voluntarily.

“If it’s done right, managed care can actually do a lot for people with disabilities,” Kahn said. “A lot of the burden rests with the health plans to make sure that they’ve got a full complement of the important specialists that have been serving these folks.”

But healthcare advocates said that if managed care was superior, more patients would have shifted to it voluntarily.

Of 1.6 million elderly, blind and disabled people on Medi-Cal, just 285,423 are in HMOs. That includes patients in eight counties, including Orange, that require such participation.

The Schwarzenegger proposal comes after other efforts to enroll more patients in managed care fell short.

If the terms of the new plan are not met, however, the state stands to lose $360 million over two years in reimbursements for Medi-Cal, the state’s Medicaid program. Legislative leaders acknowledged Wednesday they would have to incorporate the terms of the deal into legislation, which must be passed by the end of August for California to qualify for its Medicaid payments.

The switch to managed care, in fact, is part of a larger transformation in hospital financing. Simplified, the new Schwarzenegger plan requires that instead of getting federal money based on the number of poor patients they treat, hospitals now will have to account to the federal government for the specific services the money is spent on.

The federal government’s intention is to prevent accounting maneuvers that allowed some states to receive substantial hospital funds and spend them on non-health-related programs. The practice, though legal, was considered a costly loophole.

California, by contrast, has been spending its extra money on uninsured adults who don’t qualify for Medi-Cal. Now safety-net hospitals, which provide much of that care, are unsure how they will be compensated.

Under the deal, the Schwarzenegger administration contends the state would receive up to $3.3 billion more over five years than it would have under its previous arrangement. But after an initial increase next year, public hospitals would receive no additional money for four years.

Counties are concerned they will be left responsible for propping up ailing health centers, because the state will no longer guarantee it will cover their losses. Private hospitals that treat the poor are also worried about their stability.

Moving patients into managed care could exacerbate those losses, hospital officials say.

“We really can’t sustain a loss of patients as part of managed care,” said David Janssen, chief administrative officer for Los Angeles County, which runs five public safety-net hospitals. “I really don’t know what the solution to all of that is.”