State to Stop All Medi-Cal Funding : Finance: Health-care providers such as UCI Medical Center are put on notice that all money is being cut off, even IOUs.

Hospitals, doctors, nursing homes and other health care providers were put on notice Thursday that, effective today, the state is cutting off all funding--even IOUs--for medical services for the poor until a new state budget is signed.

The development, in the wake of a court’s refusal to force the state to continue making Medi-Cal payments, means that thousands of Californians could be denied health care once hospitals’ thin reserves run out, state Controller Gray Davis said.

“If you think it’s hard for the needy to find medical services today . . . it will literally become impossible if I am precluded from compensating providers,” Davis said at a Los Angeles news conference.

The Hospital Council of Southern California said its 230 member hospitals have cash reserves that will allow them to meet payrolls and operating expenses for an average of 18 days. But the council warned that some hospitals have only five days’ worth of reserves and may run out of money to pay employees within two weeks.

The cutoff comes after the U.S. 9th Circuit Court of Appeals in San Francisco refused to continue an emergency stay that required the state to continue making payments for the 4.2 million Californians receiving medical care under the Medi-Cal program.

Although all hospitals in Orange County have some Medi-Cal patients, UCI Medical Center in Orange by far depends more on state Medi-Cal reimbursements from Sacramento than any other hospital in the county. More than 50% of their patients use the state Medi-Cal program, according to David Langness of the Hospital Council of Southern California.

UCI Chancellor Jack W. Peltason said it “doesn’t take much knowledge to know that we depend heavily on Medi-Cal reimbursements. It costs money to treat patients, and it strains our budget when we are not reimbursed.”

But Langness said the situation “is not as crucial in Orange County as it is in Los Angeles. We have some hospitals up here that are facing the possibility of not being able to make their payrolls without the state payments.”

Russell Inglish, another spokesman for the Hospital Council of Southern California, said 13 hospitals in Orange County received more than $1 million in Medi-Cal payments annually.

They are: AMI Medical Center of Garden Grove; Anaheim Memorial Hospital; Children’s Hospital of Orange County; Fountain Valley Regional Hospital and Medical Center; La Palma Intercommunity Hospital; Humana Hospital-Westminster; Martin Luther Hospital in Anaheim; Mission Hospital Regional Medical Center in Mission Viejo; Samaritan Medical Center-San Clemente; Santa Ana Hospital Medical Center; St. Joseph Hospital in Orange; St. Jude Medical Center in Fullerton; and UCI Medical Center in Orange.

“I think the crisis will be a matter of cash flow problems. I really don’t know if we will have any hospitals in Orange County that will have to shut their doors because of this. I think hospitals will be forced to use up cash reserves,” Inglish said.

Asked if hospitals might start turning down Medi-Cal patients, he said hospitals have a “moral and legal responsibility” to treat all emergency cases. He said some elective surgeries could be delayed until after the budget crisis.

Davis said that on Thursday he mailed 95,000 IOU payments--worth about $190 million--to Medi-Cal providers but announced that there will be no more checks issued until there is either a state budget or court action requiring him to make the payments.

Davis predicted the legal action would “create utter chaos.” Since July 1, Davis’ office has issued nearly $1 billion in weekly Medi-Cal IOUs.

“It’s an outrage that I am denied the opportunity to compensate people who are acting exactly how the law envisions providing services to the needy,” he said.

Gov. Pete Wilson told reporters in Sacramento that the lifting of the stay “has heightened the pressure” on state leaders to reach a budget agreement.

Wilson said he was “very much concerned that people not be deprived of needed health care” but offered no solution to the impasse.

Hospital administrators said they plan to continue seeking relief in the courts. But they said that until they get either a new court order, relief from the Legislature or a budget, they will have to keep afloat by using their emergency reserves.

C. Duane Donner, president of the California Assn. of Hospitals and Health Systems, said that as a result of the budget stalemate, “we are on the edge of a cliff. This decision could well push a couple of hospitals over.”

A spokesman for an organization that represents most of the state’s nursing homes said the last round of state vouchers would tide them over until late August. Nonetheless, Kathy Daigle warned, “we have a huge crisis brewing.”

Typically, two-thirds of nursing home patients are on Medi-Cal, making the state crunch particularly painful for them. Already, Daigle said, some suppliers have warned home operators that they will soon cut off service, and administrators have had to scramble to find banks that will honor the state IOUs.

A spokesman for Los Angeles County said the county--which has about 1,500 hospital patients on Medi-Cal--will borrow money to get through the next few weeks and does not anticipate that the lack of state checks will have an effect on patient services. “For now, it’s not an impact,” said Irv Cohen, director of administration and finance for the county Department of Health Services.

Hospital administrators say that on average they derive about 60% of their income from the Medi-Cal program. Unlike doctors, who can deny treatment to Medi-Cal recipients, hospital officials say they are committed to treating anyone who shows up. Thus, they say they may be forced to close their doors if the stalemate continues indefinitely. “Denying payment may force health care providers to close or restrict medical services needed by Medi-Cal patients,” Donner said.

Hospital administrators theorize that doctors, who are also being paid in IOUs, have been turning away Medi-Cal patients, forcing them to hospital emergency rooms. Hospitals in Southern California are reporting that their emergency room caseload is up 20% in recent weeks.

The federal court stay had been put in place two weeks ago, and forced Davis to send out checks to Medi-Cal providers even though the state has no legal authority to cash them until a state budget is enacted.

Earlier, U.S. District Judge David Levi had ruled that it was not illegal for the state to hold up Medi-Cal payments indefinitely, but granted a 14-day stay. That is due to expire today.

The checks issued since July 1 have been in the form of registered warrants, or IOUs. Hospitals have found it increasingly difficult to cash the promissory notes, but officials said some banks were continuing to honor them and they were better than nothing.

Locally, Queen of Angels/Hollywood Presbyterian Medical Center has been able to cash all its checks, but Childrens Hospital of Los Angeles has been scrambling to find a bank to cash two checks, worth $2 million, after being turned down by its regular bank, Bank of America. Other hospitals are said to be holding from $5 million to $10 million in checks that they have been unable to cash. Still others have been able to cash their checks on secondary financial markets, but only after paying a penalty of as much as 2% of the face value of the check.

At Temple Community Hospital in Los Angeles, Chief Executive Officer Herbert Needman said his staff could probably get through another couple of weeks without the state checks but after that would be forced to lay off as many as 100 of the 300 workers and turn away Medi-Cal patients.

“It’s horrendous, absolutely unheard of” Needman said of the check stoppage.

About a third of Temple’s average patient load of about 75 people are on Medi-Cal, including nine in a long-term care unit.

Staff writers George Frank and Daniel M. Weintraub contributed to this story.