Despite some scattered investments in health care amid an estimated $23 billion shortfall for the state, Gov. Newsom’s proposed 2023-24 budget comes up short for California’s patients and communities as hospitals struggle to cope with record losses, crippling inflation, and a nationwide workforce shortage.
Most notably, the proposed budget fails to include any relief for hospitals, which have lost more than $12 billion because of the pandemic and are now straining to provide care as labor expenses have spiked by 16%, the costs of life-saving pharmaceuticals have grown by 41%, and medical supply costs have jumped by 19%.
State leaders need only look as far back as the beginning of January to understand the gravity of the situation. California’s Medi-Cal program, underfunded for more than two decades, was a significant factor that led to the closure of Madera County’s only hospital. Now, Madera residents will have to travel as far away as Fresno, nearly 30 miles away, for emergency services, surgeries, and other critical health needs.
If Madera is the proverbial canary in the coal mine, then attention will now turn to the Legislature’s role in amending the budget, where all lawmakers must prioritize the health care needs of those most at risk through an immediate, one-time infusion of funds to hospitals caring for Medi-Cal patients. Without this additional funding, more patients in more communities will find themselves in peril.
Beyond the need for these funds, following is an early analysis of health care issues included in the budget.
Cuts/Delays and Revenue Enhancements
- Reinstatement of the Managed Care Organization (MCO) Tax — The state’s tax on MCOs, which most recently generated about $1.5 billion annually, expired at the end of 2022. This proposal would renew the tax for three years beginning in 2024, raising about $6.5 billion over its lifespan. The budget states an intent to explore opportunities to increase revenues to “support the Medi-Cal program,” which could include relief for hospitals.
- Delay in Health Care Workforce Funding — Last year, the budget approved $1.5 billion for health care workforce investments. This proposal would delay nearly $400 million in spending, including $130 million for community health worker workforce development.
- Delay in Medi-Cal Checkwrite Buyback — Last year’s budget provided funding to eliminate, at the end of 2022-23, a two-week delay in Medi-Cal fee-for-service provider payments that occurs at the end of each fiscal year. This proposal would delay this elimination to 2024-25, meaning about $1.1 billion in provider payments will continue to be delayed by two weeks until at least June 2025.
- Delay in Behavioral Health Infrastructure Spending — This proposal delays $731 million in planned spending on behavioral health clinical and housing infrastructure.
- Borrows from the Health Care Affordability Reserve Fund — Some $330 million from a reserve fund that had been created to support coverage subsidies through Covered California would be tapped to help balance the budget.
Other Key Features
- Medi-Cal Budget Reflects Scheduled Federal Reductions in Hospital Payments — Federal disproportionate share hospital (DSH) payments are scheduled to decrease under federal law. The Medi-Cal budget reflects this scheduled reduction in federal funding, estimated to result in $864 million in reduced Medi-Cal payments for hospitals in 2023-24. More than $790 million of this reflects DSH reductions scheduled under federal law which have been deferred by the federal government in the past. If deferred again, this funding reduction in 2023-24 would be eliminated.
- Recent Health Care Augmentations Maintained — The budget does not propose cuts or delays to major health care policy initiatives such as California Advancing and Innovating Medi-Cal (CalAIM) or the scheduled expansion in 2024 of Medi-Cal coverage to undocumented immigrants ages 26-49.
- Assumes Approval of Additional Federal Waiver Funding and Reflects Associated Provider Rate Increases in Medi-Cal — An 1115 federal waiver request for $646 million in federal funding (over multiple years) is pending. To receive federal approval, the state must increase Medi-Cal reimbursements rates to 80% of Medicare rates for certain providers. The budget includes $23 million to increase rates for primary care and obstetric care (including for doulas).
- Adds New CalAIM Benefit — The budget proposes to add six months of transitional rent for individuals who are or are at risk of experiencing homelessness as an additional community support benefit.
CHA is still analyzing the budget and its implications for advocacy as the 2023 legislative session kicks into high gear. For now, one thing is certain: At the forefront will remain a singular focus on securing financial support for hospitals — so the people who rely on you for life-saving and life-changing care can feel secure that their hospitals will continue to be there whenever they are needed.