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federal waivers to cut $1 billion in the State’s funding for the Medi-Cal program by obtaining additional federal funds, tightening eligibility, reducing provider rates, and reducing benefits.  The ability to sustain services provided to Medi-Cal beneficiaries and the uninsured and to begin the process of reforming its health care delivery system will require an investment of dollars into the health care system. This approach is consistent with the direction of the Obama Administration.  To achieve this reform, California must seek a front-end investment by the federal government, which could be tied to milestones of health care reform that would be implemented over the duration of the Section 1115 waiver demonstration.  Under this arrangement, California could initially increase spending in the public and private hospital settings to help subsidize the increasing levels of uncompensated care incurred by the hospitals and eventually redirect that spending to more efficient delivery system settings consistent with national health care reform goals. However, the federal government will only pay for its share of this reform.  California must be able to find a source for the non-federal share of these payments to invest in and reform the Medi-Cal program.  

In order to create increased spending authority under the Section 1115 waiver, California could request a budget neutrality ceiling that includes “hypothetical spending” in recognition of historic savings realized by the federal government as a result of California’s low payment rates and program structure.  The hypothetical spending should consider the significant federal savings realized under Medi-Cal managed care program (regardless of the fact that the savings were achieved under a Section 1915(b) waiver and not a Section 1115 waiver), the long-standing low fee-for-service payment rates to hospitals and physicians, and more recently the prohibition on instituting a hospital tax.  

Finally, in order to create an initial federal investment to the system, California could use additional health care programs currently funded by State and/or local-only revenues and request federal matching funds in order to begin reform activities.  Similar arrangements have been approved in California and other states.

Health Management Associates/Harbage ConsultingPage 50

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