Clinics Claim California's New Medicaid Drug Program Could Remove Existing Services

California has a new Medicaid program where it will buy prescription drugs for its nearly 14 million Medicaid patients, according to a recent report by Kaiser Health Network.

The new Medi-Cal Rx program that debuted Jan. 1 has alarmed health clinics that say the state's Medicaid will lose money and have to cut services.

It was reported Gov. Gavin Newsom recently acknowledged some clinics, which serve the poorest Californians, would lose funding, and he included $105 million for them in the 2022-23 proposed state budget he unveiled in the state capital.

However, the Medi-Cal Rx program and the millions in this new state budget most likely will not be enough to keep critical healthcare services funded in some of California’s neediest areas, according to clinic officials.

California’s federally qualified health centers, which operate more than 1,000 clinics across the state, have filed a lawsuit in federal court to exempt them from the program, but a judge denied their request Jan. 10 for a temporary reprieve while the lawsuit proceeds.

Medi-Cal Rx takes the responsibility for prescription drug coverage in the state’s Medicaid program away from managed-care plans and puts it into the hands of a state contractor.

In the past, Newsom promised the overhaul would deliver better healthcare for patients and save “substantial annual savings” because the state would negotiate lower prices as one of the largest drug purchasers in the country. His administration anticipates the state will save $414 million in the 2022-23 budget year and nearly two times that amount in the next one, Keely Martin Bosler, director of the California Department of Finance, said in the report.

California’s health clinics, however, could lose up to $200 million a year in drug reimbursements. The reimbursement money is a key revenue stream for clinics, but they rely primarily on federal grants for their funding, in addition to some patient revenue and private donations.

At issue is money the clinics have received through a federal prescription drug savings program known as “340B.” The 340B program requires drug manufacturers participating in Medicaid to offer deep discounts to certain providers that care for underserved and uninsured people, including health clinics. The health centers, in turn, must use that money to expand health care services. 

Beginning Jan. 1, California started buying prescription drugs for all its low-income and disabled residents enrolled in Medi-Cal. Because the state expects to get bigger discounts on drugs than the roughly two dozen Medi-Cal managed-care insurance plans did, clinics expect to receive less 340B money.

The proposed $105 million for health clinics in the state's budget to offset their losses was not intended to fully replace them, according to administers of Medi-Cal.

The funding Newsom proposed is not guaranteed, the report said. The legislature has until June 15 to negotiate with Newsom and adopt a deal. The 2022-23 state budget takes effect July 1.