Features

SACRAMENTO — California hospitals have settled a 10-year-old lawsuit with the state for $350 million to cover Medi-Cal reimbursement rates that a federal court said were set too low. 

The California Healthcare Association sued the state Department of Health Services in 1990 over Medi-Cal reimbursement rates for outpatient services at hospitals, such as X-rays or emergency room treatment where the patient is not admitted. 

“We had been trying to negotiate with them for several years over the way the state calculated the reimbursement fees,” said Jan Emerson, spokeswoman for the California Healthcare Association, which represents hospitals. 

The state had based the rates on “what was enough of a fee to encourage hospitals to participate” in the Medi-Cal system, Emerson said. 

In 1997, the 9th District Court of Appeals said the state was required to set rates that were “reasonably related to the hospitals’ costs,” she said. 

Hilary McLean, spokeswoman for Gov. Gray Davis, said the agreement will “provide some stability to California’s busiest hospitals.” 

California’s share of the settlement will amount to about $175 million with the rest coming from federal funds, McLean said. 

In addition to the lump-sum payment to the hospitals, Medi-Cal rates for outpatient services will be increased by 30 percent starting July 1. That increase will cost about $79.5 million, McLean said. 

The rates will then be increased by 3.3 percent each year for three years. 

Medi-Cal, California’s version of the federal Medicaid system, is funded jointly by state and federal governments and covers low-income families. 

Two additional lawsuits that didn’t make it to court were included in the settlement agreement. They were a class-action lawsuit representing all hospitals contracting with Medi-Cal and a lawsuit filed by eight counties. 

The California Healthcare Association will create a formula to distribute the retroactive payment to the hospitals, Emerson said. 

“It’s not going to solve hospitals’ problems, but we’re very pleased to get any kind of increase,” she said. 

The increase is the first rise in Medi-Cal rates for outpatient services since 1985.