Gov. Brown’s May revision to the state budget for fiscal year (FY) 2012-13 includes $325 million in savings for the state General Fund that will have a direct impact on hospitals. The May revision estimates the budget deficit at $15.7 billion, up from $9.2 billion, due to a decrease in revenue, higher expenses, and decisions by courts and the federal government to block previous budget cuts from being implemented.
Overall, the governor’s new budget plan proposes $4.1 billion in spending reductions, in addition to the $4.2 billion already put forward earlier this year. Budget solutions related to Health and Human Services include the following:
Hospital Fee Program – Increase payments made by private hospitals to the state for children’s health care coverage by $150 million in FY 2012-13 and $75 million in FY 2013-14. In addition, designated public hospitals would give up some of the fee-funded direct grants and managed care payments to generate $41.5 million in state General Fund savings for FY 2013-14.
Diagnosis-Related Group (DRG) Transition – Freeze DRG base payments for FY 2013-14, which is expected to save the General Fund $75 million and cost hospitals $150 million in FY 2013-14. The transition to a DRG payment system would be delayed by six months to July 1, 2013.
Waiver Funds – Decrease unexpended prior year waiver funds to designated public hospitals by $100 million in FY 2012-13 and $9 million in FY 2013-14.
Payment Changes to Non-Designated Public Hospitals – Transition non-designated public hospitals to a Certified Public Expenditure methodology for inpatient fee-for-service in the Medi-Cal program. This would generate $75 million in ongoing savings to the state General Fund beginning in FY 2012-13. The state would seek increased federal funding through the Safety Net Care Pool and delivery system reform incentive payments for these hospitals.
The May budget revision also includes a proposal to reduce the number of counties in the Coordinated Care Initiative (CCI) for individuals who are eligible for both Medi-Cal and Medicare (dual eligibles) from 10 to eight. The start date of CCI would be delayed from Jan. 1, 2013, to March 1, 2013. The Governor’s revised plan maintains previously proposed changes, including reducing Healthy Families managed care rates to the same level that it would cost to cover enrollees under Medi-Cal, transferring the Healthy Families Program to Medi-Cal beginning in October 2012, and reducing stabilization payments to private disproportionate-share hospitals by $43 million in state General Funds ($86 million in total funds).
CHA is disappointed that the Governor’s May revision goes against a 2011 agreement between hospitals and state government that would generate more than $900 million in new money to the state General Fund between July 1, 2011, and December 31, 2013, through the hospital fee program. Hospital services must be preserved through balanced solutions to the state’s fiscal problems. Several viable alternatives were offered to the state that would minimize the negative impact to hospitals and the patients they serve; however, they were not included in the May budget plan. CHA issued the attached media statement this morning.