Medi-Cal As We’ve Never Seen It Before [Part 2: Welcome to the New Normal, California]

The economic downturn associated with COVID-19 is likely to significantly alter the payor mix for providers. Because Medi-Cal eligibility is based on income, the State of California projects more Californians will enroll in Medi-Cal. The burning questions are to what extent will the recently unemployed seek Medi-Cal benefits, and if they do, what impact will that have on the program?


The recently enacted California budget projected that in July 2020, Medi-Cal rolls would swell to 14.5 million enrollees, a nearly 2 million increase compared to the projection in the absence of COVID-19. However, over the last few months, Medi-Cal enrollment has remained approximately 12.5 million. By comparison, since March 2020, California has lost over 2 million jobs. At this point, the reasons why these increased number of unemployed individuals has not yet translated into significantly increased Medi-Cal enrollment is unclear, though most experts agree that there will be an increase on the horizon.

Medi-Cal costs are likely to increase in the budget year ahead. However, it is currently uncertain exactly how much financial burden will be placed on the Medi-Cal program. The enacted budget is based on an increase of $6.9 billion ($2.4 billion state general fund) associated with increased caseloads. By contrast, the Legislative Analyst Office projects an increase of only $2 billion general fund costs associated with the caseload. The differences in these estimates are in part due to differences in the types of individuals who will become eligible for Medi-Cal and the expected expenditures associated with them.


Importantly, the increase of Medi-Cal enrollees will result in Medi-Cal becoming a greater proportion of providers’ payor mix. The payor mix is crucial for establishing Medi-Cal finance mechanisms, such as quality assurance fees (“QAF”). These QAF programs impose fees on all patient utilization to fund increases in Medi-Cal reimbursement to providers for specified services (e.g., hospital services, ambulance services, skilled nursing services, etc.). As the percentage of Medi-Cal patients increases, the balance between the amount of fees collected, the matching of federal dollars, and the total add-on/supplemental Medi-Cal expenditures may shift. Luckily, the CARES Act increased the federal matching assistance percentage by 6.2% during this epidemic, which may help ensure that the funds collected are sufficient to fund the add-on/supplemental Medi-Cal expenditures. If not, the Department may have to consider regulatory action to address the anticipated increase.


The impact of this increased caseload on the Medi-Cal managed care systems is unknown. The adopted budget includes a 1.5% reduction to Medi-Cal managed care capitation rates for the July 1, 2019, to December 31, 2020, period, a projected saving of $586 million. Some managed care plans may try to pass these capitation reductions on to providers by reducing rates or seek to recoup these funds through increased audit activity. We have heard Medi-Cal managed care plans seek to put downward pressure on provider rates, notwithstanding lower utilization in the last 6 months.


Unlike Medi-Cal physical health care plans, which are paid based on capitation, the realignment funds to Medi-Cal county mental health plans do not fluctuate based on the caseload enrolled in Medi-Cal. As we will discuss in further detail in a post discussing mental health care during this COVID-19 pandemic, some mental health plans may seek further cost-saving strategies despite increased demands due to reduced funding.


Lastly, we have already seen what appears to be more aggressive enforcement activity by Medi-Cal both in routine cost report audits and other types of audits. Some of these audits have sought to recoup overpayments for dates of service well over five years ago, which the California Supreme Court noted in Robert F. Kennedy Medical Center v. Belshe (1996) 13 Cal.4th 748 may be barred by the doctrine of laches. We at Athene Law will continue to monitor such audits and defend providers from unwarranted administrative action.


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