Watts Health pediatrician Oliver Brooks examines 10-month-old Ja'Ceion… (Brian van der Brug / Los Angeles…)
SAN FRANCISCO — In a potential windfall for the state, a federal appeals court decided unanimously Thursday that California may cut reimbursements to doctors, pharmacies and others who serve the poor under Medi-Cal.
A three-judge panel of the 9th Circuit U.S. Court of Appeals overturned injunctions blocking the state from implementing a 2011 law that slashed Medi-Cal reimbursements by 10%. Medi-Cal, a version of Medicaid, serves low-income Californians.
The ruling could make it harder to find doctors for as many as 2 million new patients who could become eligible for Medi-Cal under President Obama's healthcare law — a possible 25% expansion of the program. California already provides one of the lowest rates of reimbursement in the nation for medical services to the poor, and there is a shortage of doctors to serve those patients.
Lynn S. Carman, an attorney for a group of pharmacies, said the decision would be costly for providers, worsen the doctor shortage and would be appealed.
"If this decision stands it will not only destroy the Medicaid program in California, but it will destroy the Obamacare program for millions of Americans who are now being shoved into the Medicaid program under the Affordable Care Act," Carman said.
"They will not be able to obtain quality healthcare or access to services because providers cannot provide services at less than what it costs to furnish them," Carman said.
The ruling could make it considerably easier for the state to close its budget gap.
The state is facing a $1.9-billion deficit next year, although Proposition 30's temporary tax hike and an improving economy are projected to shift the state back into surpluses in the near future.
Medical providers said Thursday that the cutback should be lifted now that the state's fiscal outlook has improved. The ruling can be applied retroactively to June 1, 2011.
"Now that the state has money, it would be like Scrooge for Gov. Brown not to pass a bill to eliminate at least the retroactivity part of it," Carman said.
For the governor, Medi-Cal cuts could serve one policy aim at the expense of another.
Balancing the budget has been Brown's first priority since taking office, and cutting healthcare — the state's second-biggest cost after education — has been key to his fiscal goal.
But at the same time, he has wanted California to be out front in healthcare reform, and lead the country in efforts to put the federal law into place.
A spokesman for Gov. Brown released a statement Thursday that implied that Brown was inclined to put his budget priorities first, and was not likely to rescind the cuts.
"Today's decision allows California to continue providing quality care for people on Medi-Cal while saving the state millions of dollars in unnecessary costs," the spokesman wrote.
In a ruling written by Judge Stephen S. Trott, appointed by President Reagan, the panel said the lower court injunctions were unwarranted because the federal government had approved the cuts.
"Neither the State nor the federal government 'promised, explicitly or implicitly,' that provider reimbursement rates would never change," Trott wrote.
California has estimated that the 10% cut to medical providers and pharmacies would save the state $50 million a month.
Medi-Cal typically covers families and disabled Californians. The federal law will extend its coverage to single, childless adults beginning in 2014.
The California Medical Assn., which joined dentists, pharmacists, medical suppliers and medical response companies in trying to block the cutbacks, urged Brown to repeal them.
Dr. Paul R. Phinney, president of the doctors' association, said the cuts shrink the number of providers who could afford to serve both existing Medi-Cal patients and the new ones who could become eligible for coverage in 2014.
"We need to ensure that health insurance isn't just an empty promise for these patients," Phinney said.
According to the California HealthCare Foundation, Medi-Cal patients already have difficulty finding doctors.
A foundation study published in July 2010 said 25% of physicians provided care to 80% of Medi-Cal patients.
Although 90% of physicians told the foundation they were accepting new patients, only 57% said they were taking on new Medi-Cal patients.
Dr. Ted Mazer, a San Diego ear, nose and throat surgeon, said he had to stop taking fee-for-service Medi-Cal patients several years ago because the reimbursements didn't cover his costs and Medi-Cal patients were inundating his practice.
"So few doctors will see Medi-Cal patients that I was seeing them from the Mexican border to Riverside County to Orange County," said Mazer, an officer of the California Medical Assn. "The reimbursement costs are so poor they don't even cover costs, let alone pay for the administrative hassle. I can only see so many until I go under."
Chris Perrone, deputy director of the foundation, said Thursday's ruling will make it harder to block rate cuts in the future.
"The hurdles for people who want to block these rate cuts are little higher," said Perrone.
Dolan reported from San Francisco and Megerian from Sacramento.
Times staff writer Anna Gorman contributed to this report.