CommonSpirit 'doubly concerned' about California Medicaid

Chicago-based CommonSpirit is concerned about Medicaid funding across many of the states in which it operates, but "doubly concerned" about California, its strongest market and the state in which about 30% of its business occurs, CFO Dan Morissette said during a May 23 investor call. 

Earlier this month, California Gov. Gavin Newsom outlined plans to divert more than $7 billion in funding from the healthcare sector to address a major funding deficit. 

The governor's proposal would reallocate $6.7 billion from Medi-Cal provider rate increases set for Jan. 1, 2025, to balance the state budget, which is facing a shortfall of $27.6 billion this year and a projected deficit of $28.4 billion in 2025.

"We're doubly concerned given the state budget," Mr. Morissette said. "Lean times create new concerns for us as it relates to Medicaid funding, which does not cover even the direct cost of care for the various ministries that we serve."

California's $6.7 billion funding proposal was generated by the managed care organization tax that was expected to provide $19.4 billion in federal funding through 2026. In 2024, rates rose to at least 87.5% of Medicare rates for primary care, maternity care and nonspecialty mental health providers. According to Politico, these rates will continue, but no more workers will be added under the revised plan.

CommonSpirit executives said that the health system is out of network with only one major payer in California — an unnamed Medicaid provider in the north of the state.

"All other payer arrangements have either just been signed or we were out of network for a short period of time and have successfully rejoined the network," Mr. Morissette said. "We always find it disruptive — as all providers do — to be out of network, but sometimes we don't have much choice given our need for the cross-subsidy where the commercial insurers do provide a substantial amount of our EBIDA margins. It's a really difficult and delicate balance."

CommonSpirit said it receives about $600 million in California provider fees — a permanent program through Proposition 52 — and these funds will not be affected because they are not part of the general fund.

"However, we always include a 0% increase in our budget and long-range financial planning when it comes to the Medicaid rate because that's what we've been experiencing," said Benjie Loanzon, senior vice president, finance and corporate controller. "We don't expect an increase in the Medicaid rate with this proposal."

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