With a looming estimated budget deficit of $14.5 billion by the end of fiscal year 2008-09, Gov. Arnold Schwarzenegger declared a fiscal emergency Jan. 10, proposing budget cuts that may take effect as soon as June 1. If enacted, the cuts will result in 10-percent Medi-Cal reimbursement reductions for  fee-for-service and managed care doctors.

"These cuts will force doctors out of this important program, will force hospitals and clinics to close their doors, and will force tens of thousands of patients to get their care in emergency rooms," said California Medical Association President Richard Frankenstein, MD, in a Jan. 10 statement.

By declaring a fiscal emergency, the governor set in motion a process that allows cuts in the current 2007-08 budget, with a legislative deadline of Feb. 23. The governor's proposal for fiscal year 2008-09, which begins July 1, also calls for cuts. "The [Senate] budget committee will begin meeting on [Jan. 22], and will meet probably twice a week to start dealing with those mid-year cuts that need to be done quickly, because the state is in a cash-crunch situation," Lynda Gledhill, a spokeswoman for state Senate President Pro Tem Don Perata, told Southern California Physician.

The approach is intended to help prevent the current year's deficits from adding to those of next year. "The governor has had to make difficult decisions in order to produce a balanced budget," said Norman Williams, deputy director of the California Department of Health Care Services. "Part of his approach has been to spread any reductions across all state agencies and programs, which means that Medi-Cal cannot be exempt." This way, the program will keep supporting critical care, and eligible Californians will continue to have access, he added.

Without changes, Medi-Cal is estimated by the California Health and Human Services Agency to cost the state $14.1 billion in the current fiscal year. The CMA estimates that the proposed cuts in Medi-Cal will reduce 2007-08 state spending on the program by $48 million, for a total reduction of about $100 million, due to lost federal matching funds. Provider reimbursement cuts of 10 percent will account for about $33 million of that state funding reduction, or about $67 million, counting federal matching funds.

Medi-Cal state funding cuts for 2008-09 will total $1.1 billion, bringing the program's cost to California down to about $13.7 billion, according to the CHHSA. Including federal funds, the Medi-Cal cuts amount to about $2.2 billion, bringing the program's final total budget to about $33 billion.

The 10-percent cut in reimbursement rates will continue through 2008-09, accompanied by similar reductions in rates for long-term care facilities and noncontract hospitals, decreased funding for 22 public hospitals, and other cuts. Together, these state funding cuts add up to $720.9 million.

The mid-year cuts will be exposed to less scrutiny than the proposed budget for fiscal year 2008-09. "Senate Democrats will move expeditiously on the governor's proposed mid-year cuts," to protect the state's fiscal viability, Perata said in a Jan. 17 statement. "Once we have ensured the state's current-year finances are sound, we can begin debating the deep cuts the governor is proposing for next year and the larger questions posed by them," he said. "I see no way out of the long-term problem with cuts alone, and I do not subscribe to locking California into permanent mediocrity."