June 3 (Reuters) - Moody’s Investors Service said on Monday that a recent ruling granting California the right to cut the state’s Medicaid program, known as Medi-Cal, is credit negative for all California hospitals, but positive for the state.
In 2011, the state enacted a 10 percent reduction in Medi-Cal reimbursements, but some Medi-Cal providers sued and got an injunction delaying the start of the cuts. The Ninth U.S. Circuit Court of Appeals upheld the legality of the cuts in a May 24 ruling.
California will apply the cuts retroactively from 2011 and will reduce future payments to physicians over the next four years, leading to about a 15 percent rate reduction in Medi-Cal.
Medicaid is a healthcare program for the poor that states operate with reimbursements from the federal government. It is becoming a budget buster for many states - in fiscal 2012 it consumed 24 percent of total state spending.
The circuit court ruling effectively upholds a state’s right to change the amounts it reimburses physicians for Medicaid, Moody’s said, and that will give California “additional budgetary flexibility in addition to the modest cost savings.”
“The appeals court’s ruling demonstrates that states can change Medicaid reimbursements unilaterally,” it said.
Healthcare providers in California had argued the lower payments would prompt physicians to drop out of Medi-Cal and threaten the health of enrollees. Moody’s emphasized that the cuts only affect physician reimbursements and would not reduce funds sent directly to hospitals.
Moody’s has had a negative outlook on the not-for-profit hospitals that serve low-income patients for five years.