CHA News Article

Governor Releases 2018-19 State Budget

Today Gov. Brown, in his final year as Governor, released his state budget plan, totaling $190 billion for fiscal year 2018-19. As he has in the past, the Governor emphasized fiscal prudence even though the state is projected to have a healthy one-time surplus. He noted that California continues to face uncertain times, including ramifications of the recently enacted federal tax bill, which has not yet been factored into this year’s budget. Today’s budget continues to build the state’s Rainy Day Fund and keep spending in line with revenues.

Key issues of concern CHA has identified in the budget include:

  • A proposal by the Department of Health Care Services to restrict federal 340B Drug Pricing Program reimbursements within the Medi-Cal program, effective July 1, 2019. As described in the budget summary, the proposal allows the state to comply with existing federal requirements, helps protect program integrity, prevents unnecessary overpayments, collects additional drug rebates, and reduces the time and resources expended to resolve drug rebate disputes related to 340B claims. CHA will learn more details about this proposal and work closely with the Department of Health Care Services and other stakeholders to mitigate impact on hospitals that participate in the 340B program.
  • A proposal by the Department of Public Health to assess and apply a supplemental fee to its regulated health care entities in Los Angeles County beginning this year. The department contracts with the Los Angeles County Department of Public Health to regulate certain health facilities in the county. The department and the county are developing a comprehensive contract for the county to conduct 100 percent of the regulatory work with Los Angeles, including performance benchmarks, beginning in 2019-20. The budget will propose statutory language to assess this supplemental fee, which will be based on the additional cost necessary to administer and enforce licensing and certification services to health facilities located in Los Angeles County. CHA will learn more details about this proposal as well and will be fully engaged in the ongoing conversations.

In positive news, Proposition 56, the California Healthcare, Research and Prevention Tobacco Tax Act of 2016, is expected to bring in $1.3 billion in revenue. A significant portion of the revenue will go toward Medi-Cal provider payments and growth in the Medi-Cal program. After backfills of $125.8 million and other allocations, the budget allocates $649.9 million for supplemental payments and rate increases based on those approved in the final 2017 budget package, an increase of $232.8 million from the 2017-18 budget. Of the increased amount, approximately $163 million is for physician payments, and $70 million is for dental payments. The budget also includes $169.4 million to support new growth in Medi-Cal and $31.6 million of Proposition 56 funds for a 50 percent rate increase for home health providers that deliver medically necessary, in-home services to beneficiaries in the fee-for-service system or through the home and community-based services waivers. 

Overall, Medi-Cal caseload over the last year is relatively flat — projected to cover nearly 13.5 million Californians in 2018-19, an increase of only 0.05 percent from last year. However, Medi-Cal General Fund spending is projected to increase 11 percent, from $19.5 billion in 2017-18 to $21.6 billion in 2018-19. Part of the cost increase is attributed to the state’s cost-sharing ratio for the Affordable Care Act optional Medi-Cal expansion population, which will increase to 6 percent. Other cost increases are due to retroactive payments of drug rebates to the federal government and a higher estimate of Medi-Cal managed care costs.

Today’s budget release begins the formal budget process, during which time the details of various proposals will become more clear. Over the next several months, budget subcommittees will hold hearings on the different aspects of the budget, and CHA will have an opportunity to weigh in on issues. In mid-May the Governor will release a revised budget plan reflecting the most up-to-date revenue and expenditure information, as well as changes to budget proposals. The budget will need to be finalized by June 15, 2018.