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general inflation during this period.62  As previously discussed, Medicaid programs have historically reimbursed physicians below the fees paid by commercial insurers or Medicare.  

California’s fees rank 47th overall among states when adjusted for geographic differences in the cost of providing medical care. 63 Low Medi-Cal physician rates relative to the national average create continued concern with access to care for California’s most vulnerable populations.  The insufficient Medi-Cal fees also severely compromise California’s ability to create health delivery system reform in lower cost, more coordinated care settings such as the “medical home” model.  Physician services are an integral component of health care reform and therefore, physicians must receive equitable reimbursement.  Under reform, increased rates to physicians could also include incentives based on quality and performance.

The unintended consequences of these decisions have compromised California’s ability today to effectively institute reform of the health care delivery system without the front-end support of the federal government.  

Ending Intergovernmental Transfers

Over the past 6 years, the federal government has taken an aggressive role in ensuring that states fund their Medicaid programs through sources considered permissible under federal law.  California was impacted by this federal financing initiative and made changes to the manner in which it paid hospitals for services provided to Medi-Cal and uninsured individuals, beginning in 2005.  

To eliminate the use of IGTs, California was forced to make two difficult decisions:


Payments to the designated public hospitals for most inpatient hospital services using state general fund and most payments using IGTs were replaced by the use of certified public expenditures (CPEs), making counties and the UCs responsible for the non-federal share of services to both Medi-Cal and uninsured patients.  


Private hospitals could no longer be paid under the SB 1255 and DSH programs using IGTs.  To accomplish this in a budget neutral manner, California utilized most of the state general fund historically committed to payments for designated public hospitals and used those state funds as the replacement for IGTs that historically funded private hospitals.  This change made private hospital funding entirely dependent on state general fund.

Hospital Financing Waiver

Under a section 1115 waiver, California converted the SB 1255 program and approximately one half of the DSH program funded by intergovernmental transfers (IGTs) from the county and the University of California (UC) to non-IGT funded programs.  The SB 1255 payments had

62 Stephen Zuckerman, Aimee Williams, and Karen Stockley, Medi-Cal Physician and Dentist Fees: A Comparison to Other Medicaid Programs and Medicare, Urban Institute, April 2009.

63 Ibid.

Health Management Associates/Harbage ConsultingPage 46

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