2003 Legislative
Wrap-Up
by Steven M. Thompson
CMA Vice President of
Government Relations

This year I felt like Alice must have felt when she fell down the rabbit hole and discovered she was in another land…politics in Sacramento simply didn’t resemble anything I had seen before, and I am not exactly a political naïf.

Down the Budget Rabbit Hole
The year began with a budget hole of $36 billion (18 months), made substantially larger because the Legislature failed to deal properly with the deficit from the previous fiscal year. For the first time, the Governor’s Budget proposal dealt quite realistically with the state’s fiscal situation. Initially, and as revised in May, the $36 billion budget deficit was to be addressed by $12 billion in program cuts, $12 billion in new revenue, and $12 billion in fees, loans and other one-time fixes (18 months).

However, by the time the Governor finally submitted an accurate budget, he had lost most of his credibility on the subject. Critics on both sides of the budget debate –no taxes vs. no cuts – unloaded on the Governor’s proposals. CMA was part of the critic’s chorus. The Governor’s proposal would have reduced Medi-Cal eligibility for 500,000 Californians, slashed all provider rates by 15 percent "across the board", and eliminated "optional benefits" including durable medical equipment and adult dental services.

Nonetheless, given the size of the state budget deficit, preventing any cuts at all was a formidable task. CMA immediately convened a coalition of Medi-Cal providers and consumers to develop a united front on the proposed budget cuts. Eventually, seventy-five organizations signed on to the coalition, which was named Californians United for Quality Care. The CMA was asked to be the lead representative for the coalition and prepared a white paper "Moving Toward Third-World Medicine in the World’s Fifth Largest Economy," which outlined the reasons why the Medi-Cal program should not be significantly reduced.

Our arguments were powerful: 1) every Medi-Cal dollar reduced was also a lost federal dollar from the California economy; 2) reduction in the number of eligible beneficiaries would dump more uninsured on locally-funded "safety net" programs some of which, particularly Los Angeles County, were already in financial crisis; and 3) legislation had been introduced in Congress to increase the percentage of federal-match dollars, obviating the need for a large state general fund reduction.

Thanks to the hard work of Congressman Bill Thomas (R-Bakersfield), the federal match was increased. Medi-Cal did escape deep cuts in provider rates and eligibility reductions, but not without some damage. Provider rates were reduced by 5%; 150,000 beneficiaries became ineligible for Medi-Cal and many of the optional services were not reinstated. After the initial enactment of the budget (albeit many weeks late), the coalition attempted to reinstate all Medi-Cal cuts. We even had sufficient votes to accomplish this, but the joint Republican/ Democratic leadership in the Senate refused to allow the bill to be voted on because they believed if we "busted the budget" in this one request, every other group would attempt to do the same thing.

Formation of the Medi-Cal coalition was significant to our success in keeping the Medi-Cal cuts to a minimum. This coalition will continue to function and grow because most analysts agree we will start next year’s budget dance with an $8 - $10 billion deficit. Thus, the budget battles will continue.

The Mad Hatter's Tea Party
While the Legislature spent hours debating a budget that was impossible to balance without new revenues (both political parties agreed that there was little room for substantially larger budget reductions), external factors began to significantly alter the behavior of politicians from both political parties.

The first, and most influential of these external factors, was the movement to recall the Governor, a movement that gathered steam as the budget deadline approached – June 30th. I frankly didn’t expect a budget to be approved until October…when the Governor would be dangling right up to Election Day. After all, "how can one presume to govern the state if they can’t produce a budget when California faces a crisis?"

Even during "mad times", there is someone willing to provide leadership… in this case Senate Pro Tempore John Burton (D-San Francisco) and Senate Republican Leader Jim Brulte (R-San Bernardino). The two of them worked out a budget deal and produced enough votes in each of their caucuses to obtain a two-thirds vote of the Senate.

They then shipped the result to the Assembly, who would have looked like total goof heads if they refused to pass a bipartisan budget product. In spite of the Assembly’s natural inclination to holdout just because they could, the political imperative to act became overwhelming. By this time, the recall of Governor Davis had qualified, and a special election was called for October.

The second major externality impacting the Legislature was the sudden and huge increase in Workers’ Compensation premiums. Some California businesses saw their premiums more than double in less than a year; a state-wide outcry gathered steam at about the same time the budget was being debated and the recall was qualifying for the ballot. The table was indeed set for the Tea Party.

The CMA had been working all year with medical specialties to fashion a new Workers’ Compensation Fee Schedule…one which would raise fees for basic care provided by treating physicians without penalizing reimbursement for specialist physicians, particularly surgical specialties. A simple conversion to a Medicare RBRVS methodology would not achieve this result…yet; this was the proposal being pushed by the Administration. CMA developed a white paper "Issues Relevant to Fee Schedule Revision" which contained the principles necessary to achieve this result, but it would have required a system-wide increase in physician reimbursement of between $400 and $700 million. In spite of the additional cost, the Administration and the Legislature were prepared to adopt most of the CMA proposal until the additional price tag came face-to-face with the political necessity of having to make huge cuts in the cost of the Workers’ Compensation system. As one legislator put it…how can we give physicians an increase when we’re drastically cutting everyone else? Given this reality, we immediately had to switch gears from an offensive to a defensive strategy.

Inasmuch as a major portion of the premium increases were attributed to the rise in health costs (55% of each premium dollar is spent on health and rehabilitation, including administration), health care became the major target for cost reductions. The Legislature focused on three service areas for major reductions: 1) facility fees for outpatient surgery; 2) chiropractic utilization; and 3) vocational rehabilitation.

During early legislative hearings, the outpatient facility fee issue became a major legislative target. Testimony indicated that some outpatient facilities were charging more than 1,000 percent of Medicare rates, inappropriate surgeries were being performed and physicians had a financial incentive to refer patients to facilities in which they had a financial interest. Outpatient surgery centers that had not excessively billed and had utilization standards approved by Workers’ Compensation carriers were unfortunately lumped in with the "bad actors." Three bills were introduced to prohibit all referrals where physicians had a financial interest no matter how small. The major legislation SB 228 (Alarcon) proposed to cap the facility fee at 120% of Medicare.

Inasmuch as many CMA physicians have investments in outpatient surgery centers, and, indeed, had been encouraged to do so because of both lower cost and greater access to services, we weighed in on this issue, as well as the proposed reductions in the physician fee schedule. Many of the outpatient centers hired contract lobbyists to represent them. A lot of money was thrown around Sacramento, which in my opinion only confirmed the legislative perception that "something was rotten in the State of Denmark."

We could have achieved a better result in the reimbursement for outpatient surgery centers, somewhere between 150% and 170% of Medicare, which is still below the reimbursement level in other states that use Medicare as the standard for outpatient facility reimbursement. However, since that was unacceptable to many of the outpatient centers, and their lobbyists were telling them they could do better, the Legislature said "to hell with them all" and enacted the lowest reimbursement level of 120%. This issue must be revisited early next legislative session, as 120% is simply unacceptable.

With respect to other Workers’ Compensation issues, we were more successful: We held the physician fee reduction to 5% (a 10% cut was on the table during most of the deliberations); physician developed clinical standards are to serve as the basis for treatment approval; second opinions will be required for all spinal surgeries; and, there was a cap imposed on chiropractic and physical therapy visits.

In addition to the enormous reduction in outpatient facility fees, the legislation eliminated vocational rehabilitation entirely except where specifically approved as part of a medical rehabilitation plan. Finally all prescriptions were placed on a Medi-Cal schedule of reimbursement, which is significantly lower than current reimbursement levels.

While there is debate over the actual amount of savings in SB 228 (between $3.5 and $6.0 billion), there is little disagreement that it will forestall an immediate premium increase, and perhaps, generate a rate rollback as much as 10%.

Playing Croquet with the King and Queen
The significant savings generated by the Workers’ Compensation reform package was a high priority for the two Senate coauthors of Senate Bill 2, John Burton (D-San Francisco) and Jackie Speier (D-Hillsborough), not only because of the hew and cry over premium rates, but also because they knew passage of SB 2 (employer required health insurance) would be impossible without significant relief of employer Workers’ Compensation costs. In this sense, SB 228 and SB 2 were politically coupled, even though they were not statutorily joined.

While Workers’ Compensation and the gubernatorial recall campaign occupied the headlines in Sacramento, the SB 2 Conference Committee staff and the bill’s sponsors met repeatedly during August and September with payors, consumers, providers and the business community to fashion a bill that could be supported by the major stakeholders involved in the debate. Given the fact that CMA sponsorship of Senate Bill 2 was not fully supported by all CMA members, it was important that the final legislative result closely adhere to program criteria approved by the House of Delegates and Board of Trustees. Our cosponsorship of Senate Bill 2 allowed us to achieve most of CMA’s goals. Chief among the bill’s provisions: