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Is the Fight Over Tobacco Tax Money About Helping Patients or Helping Doctors?

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One of the biggest budget fights unfolding behind closed doors in Sacramento this week is over how to spend the $1.2 billion raised by the state’s new tobacco tax, with dentists, doctors, gynecologists, and podiatrists all vying for a cut.

The biggest ask comes from the California Medical Association, which wants at least half of the money, $610 million a year, to increase payments to doctors who treat low-income patients on Medi-Cal. The group has long argued that low reimbursement rates force doctors to limit the number of Medi-Cal patients they can see, making it harder for some patients to find care.

“We’ve let this program atrophy for so long, you have to put a substantial amount toward it to make a difference in access to care,” says Dustin Corcoran, CEO of the California Medical Association. “It’s been a systemic problem for years, and Prop 56 was an important investment in that."

The 2016 ballot initiative that raised the tobacco tax earmarked the revenue to "augment spending on health care for low–income Californians,” in part, by "providing improved payments for all healthcare." That fuels the medical association's argument that increasing Medi-Cal payments to doctors should be the first priority. Other health advocates say California should also bring back services Medi-Cal used to cover before the recession (hearing tests, vision care, podiatry exams); and, allow undocumented immigrant young adults to receive Medi-Cal coverage until age 26.

But the loudest  fight over the money has revolved around the payments for doctors. The California Medical Association has been highly critical of Gov. Jerry Brown, who has routinely refused to increase doctors’ payments in years past, and whose draft budget again snubbed doctors, allocating the entirety of the tobacco tax proceeds to cover the general costs of the Medi-Cal program in the next fiscal year, namely, new patients coming on to the Medi-Cal rolls.


The thinking behind this is simple, says H.D. Palmer, the governor’s spokesman on finance and the budget. 

Eighty percent of Medi-Cal patients are covered by managed care plans, Palmer explains. These insurance companies, contracted by the state to run the Medi-Cal program, are the ones who negotiate payment rates with doctors, not the governor.

“Four out of every five participants in the Medi-Cal program are in managed care,” Palmer says repeatedly. “Rates are specifically negotiated between the plans and their network of providers. That’s not a negotiation that the state is in the middle of.”

The state can only raise reimbursement rates for doctors with whom it contracts directly in “fee-for-service” arrangements. Those doctors serve just one out of five Medi-Cal patients.

Managed care plans may look to the state rates when setting payment rates for doctors in their own networks. But insurance experts say that only happens to a minor extent. Plans rely more on a range of actuarial risk data to set rates, and increasingly, plans are paying doctors a fixed, “capitated” payment to manage each patient’s overall health for the year, rather than paying for individual appointments or medical procedures.

Fight with Governor

Nonetheless, both the state Senate and Assembly have rejected the governor’s spending plan for the tobacco tax. Instead, each house has proposed setting aside hundreds of millions of dollars to fund provider rate increases that would directly benefit doctors who serve the 20 percent of Medi-Cal patients not covered by managed-care.

“That’s still three million people,” says Anthony Wright, executive director of Health Access, a patient advocacy group. “There is a rationale to do this.”

Wright points to dental care and family planning services as two specialties that mainly operate outside managed care plans, and have a “demonstrated need” for improved access.

A state audit found 16 counties in California had no dentists accepting new Medi-Cal patients, while Planned Parenthood recently announced it will close three of its reproductive health clinics in Northern California, and Women’s Health Specialists closed another two. Both clinic operators cited low Medi-Cal reimbursement rates for family planning services as the main reason for the closures.

More than half of Planned Parenthood’s patients are covered by fee-for-service contracts with the state, and the Medi-Cal managed care contracts it does have, covering 31 percent of patients, specifically set fees to match the state rate, says Beth Parker, chief legal counsel for Planned Parenthood. A fee bump could help prevent more clinic closures. Also, making it easy for women to get contraception saves the state more money in the long run.

“California pays  for 64 percent of unplanned births in the state through the Medi-Cal program," she says. "So every time an unplanned pregnancy is averted, it saves the state a tremendous amount of money, not just in the maternity costs, but also all the social services costs that come after."

The state Senate and Assembly are both proposing giving a small portion of the tobacco tax money specifically to family planning providers ($50 million) and dentists (up to $247 million). Up to $700 million would go to other doctors to increase payments.

But the bigger question is whether or not raising rates for doctors actually prods them to accept more Medi-Cal patients.

“There’s always a question of whether or not physicians respond to economic stimuli that simply,” said Suzanne Delbanco, executive director for Catalyst for Payment Reform. “If an increase in fee schedules will make them take more patients, it’s hard to say what the right level of increase would be to lead to that scenario.”

For example, after Tennessee’s Medicaid program increased reimbursement rates for dentists, the number of dentists participating in the program more than doubled. But the number of children who got dental care only went up by 38 percent, according to a study by the National Academy for State Health Policy.

The federal government tried it, too: The Affordable Care Act mandated an increase in Medicaid payments to primary care doctors for two years. In California, doctors got paid 136 percent more, but state health officials say they don't know if the increase affected the rate of patients accessing primary care in the state at all.

California proposals

That’s why the California Medical Association developed a plan, taken up by the state Assembly, to give supplemental payments to doctors based on the percentage of Medi-Cal patients they see in their practice. Doctors would get extra money if 5 percent of their patients were on Medi-Cal; they'd get more if the proportion were 10 percent, and more at 15 percent, and so on up to 30 percent.

All doctors would be eligible for these lump sums, whether they’re contracted by the state or by managed care plans.

“Many physicians have to severely limit their patient population on Medi-Cal because they lose money on each patient,” says Dustin Corcoran, the California Medical Association’s CEO. “If we can improve that and incentivize physicians to enter the space, we think that would do a lot to improve access.”

But patient advocate Anthony Wright says this plan amounts to giving doctors a “bonus” for work they’ve already done, and in some cases, arguably, would have done anyway.

Instead, Wright’s group has convinced the Senate to advocate for rate increases based on data, carefully evaluating geographic regions and medical specialties for shortages, then directing money where the need is most acute. Again, these rate increases would apply to doctors seeing 20 percent of Medi-Cal patients.

“We think that would be a more targeted and data-driven way to make an impact on access to care,” Wright said.

The Legislature must pass a final budget by June 15, and whether lawmakers unite behind the Assembly plan, the Senate plan, or a compromise plan, they still have to convince the governor. With the number of people enrolling in Medi-Cal  increasing every year, and federal funding for the program uncertain because of political infighting in D.C., Jerry Brown seems more skeptical than ever of spending new money.



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