Despite a projected $31.5 billion shortfall, Governor proposes significant investment in Medi-Cal system

On Friday, May 12, 2023, Governor Gavin Newsom released his revised 2023-24 state budget, proposing the reinstatement of the Managed Care Organization (MCO) Tax, which will result in $19.4 billion in revenue from April 1, 2023, through December 31, 2026, to help maintain and increase investment in the Medi-Cal program.

Over the past several months, the California Medical Association (CMA) has advocated to reinstate and increase the MCO tax, which expired late last year, to improve Medi-Cal access to care by raising physician reimbursement rates.

In a win for physicians and patients, the budget proposal includes an increase to some Medi-Cal provider rates for the first time in more than two decades. Effective January 1, 2024, the budget proposal would increase provider rates to at least 87.5% of Medicare for primary care, maternity care and non-specialty mental health services. Starting in the 2024-25 budget year, the provider rate increases would be expanded to some additional health care services and specialists.

The rate increase announced today is due in part to the proposed elimination of the 10% Medi-Cal provider cuts authorized as part of the health services trailer bill (AB 97) to the 2011-12 state budget, which CMA has long advocated to undo. CMA had filed a lawsuit in federal court (CMA et al. v. Douglas) to stop the cuts, but ultimately a three-judge panel of the 9th Circuit Court of Appeals court ruled in 2013 that the state could move forward with the rate cuts.

Despite the disappointing 9th Circuit ruling, CMA never stopped advocating for a reversal of these cuts, which have had devastating effects on access to care for California’s poorest and most vulnerable patients.

“The provider reimbursement rate cuts from 2011 have had a detrimental impact on patient access to care for more than a decade and I am very happy to see the Governor’s May revised budget today, which will help us achieve justice and equity in access to care for Medi-Cal patients,” said CMA President Donaldo Hernandez, M.D. “It is more important than ever to address the underfunding of the Medi-Cal system that makes it difficult for many patients to get access to primary and specialty care when they need it.”

Gov. Newsom’s newly proposed rate increases will be an adjustment to base rates, and the California Department of Health Care Services has indicated it will direct managed care plans to pay providers at least these rates.

The rate increases will be paid for by Gov. Newsom’s updated plan to tax managed care organizations. In his May budget proposal, Gov. Newsom announced a commitment to invest additional funds in the Medi-Cal program to improve access and equity. The MCO tax, which allows the state to receive federal matching funds, had been in place for more than a decade and expired in December 2022.

“There is much more to be done,” said Dr. Hernandez. “CMA looks forward to working with the Administration and the Legislature in the coming weeks to seize this rare opportunity to make meaningful change in the lives of Californians by making timely access to health care a reality for all.”