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cannot be used to pay for uncompensated services provided in non-hospital settings such as public clinics.  Moreover, if DSH is converted to waiver payments for either coverage or clinic services, it loses its identify as DSH despite being counted against the state DSH allotment.  Without near universal health coverage, converting DSH is not a viable option for California since the funding would not be available to fund the uncompensated costs of providing inpatient and/or outpatient hospital services to unqualified immigrants nor could that portion of the redirected DSH funding be claimed for federal matching funds at 175 percent of the matchable uncompensated care under the hospital-specific DSH limit.    

Further, California’s DSH allotment is considered low relative to other states.  The federal DSH allotments were established based on 1992 spending without regard to the uncompensated care furnished in a state or the size of a state’s population.  Therefore, under federal law Texas receives a DSH allotment $400 million greater than California, even though California has more than 12.7 million more residents than Texas.59  As another example, Massachusetts’ DSH allotment equates to approximately $47 per resident, while California’s DSH allotment equates to approximately $30 per resident.  California’s DSH allotment also is well below the levels of eligible uncompensated hospital care state-wide.  

Managed Care

In the early 1970s, California established a Medicaid managed care program to promote improved access, reduce costs and help further reduce general fund obligations.  This program was expanded in the 1990s.  California implemented Medi-Cal managed care under a Section 1915(b) waiver60 and not under a Section 1115 Medicaid waiver.  This approach was taken in part because California was looking for ways to reduce Medi-Cal expenditures rather than redirect program spending toward coverage expansions or other reforms.  For the past several years, California has effectively reduced both state and federal government obligations to the California Medicaid program – in 2006 California had the second lowest per enrollee spending in the nation.61  However, the state cannot receive “credit” from the federal government for those savings based merely on the authority under which the California Medicaid managed care program operates.  

Physician Reimbursements

California has sought to control program cost by largely freezing rates for physicians and many other providers.  The last two general across-the-board rate increases for Medi-Cal were in 1985 and in 2000.  There have been a few targeted rate increases, but there have also been rate decreases.  From 2003 through 2008, Medi-Cal physician fees grew by 2 percent on average compared to 15 percent growth in average Medicaid fees nationally and 21 percent

59 Author calculation based on Kaiser Family Foundation’s State Health Facts, available at www.statehealthfacts.org.

60 Some portions of the managed care program were moved to the state plan under the provisions of the federal Balanced Budget Act.

61 California and Arizona took very different paths to control spending.  Note that per the California Health Care Foundation, California is slightly below average in its Medicaid spending per state resident, which reflects the combined effect of a low payment rate per enrollee and a broad coverage.

Health Management Associates/Harbage ConsultingPage 45

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