A federal appeals court in San Francisco today upheld a lower court ruling blocking a 10 percent cut ordered by the state Legislature in 2008 in Medi-Cal payments to doctors, dentists, pharmacies and other providers.

The 9th U.S. Circuit Court of Appeals said the California Department of Health Services violated federal law by failing to consider the impact of the cut on quality and access to health care.

A three-judge panel upheld a preliminary injunction issued on Aug.

18, 2008, by U.S. District Judge Christina Snyder in Los Angeles last year.

If the cut had not been blocked, payments to Medi-Cal providers would have been reduced by an estimated $639 million annually, including $326 million paid by the state, according to state Finance Department spokesman H.D. Palmer.

Medi-Cal is the California version of the federal Medicaid program, which is jointly funded by the state and federal governments and pays for health services for uninsured low-income parents, children and people with disabilities.

The program currently serves 7.1 million Californians, Palmer said.

The appeals court said a state budget crisis could not be used as a justification for illegal cuts in the program.

Circuit Judge Milan Smith wrote, “We do not doubt the severity of the fiscal challenges facing the state of California,” but said, “A budget crisis does not excuse ongoing violations of federal law.”

Smith wrote for the panel, “There is a robust public interest in safeguarding access to health care for those eligible for Medicaid, whom Congress has recognized as the most needy in the country.”

The cuts were due to go into effect on July 1, 2008. Later last year, the Legislature replaced those cuts with a 5 percent reduction for pharmacies and hospitals effective in March 2009, but those cuts were also blocked by court orders.

The state is challenging the orders halting the second round of planned cuts in a separate appeal.

Lynn Carman, a Novato lawyer for health care providers that challenged the cuts, said, “This is a complete victory not only for beneficiaries but also for everyone who sued the state. It means the Legislature can’t cut health benefits in violation of federal law.”
The panel also said the injunction against the 10 percent cuts should apply retroactively for the period between July 1, 2008, when the reduction went into effect, and Aug. 18, 2008, when the injunction was issued.

Palmer said repaying providers for those seven weeks will cost the state $56 million.
Palmer said Medi-Cal expenses are normally paid approximately 50 percent by the federal government and 50 percent by the state, but during the current stimulus period, from October 2008 through December 2010, the federal government is paying 61.6 percent of the cost.

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