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Administration's Prop 35 spending plan aims some funds at provider rates and some at program costs; providers urge clarity
Summary
The subcommittee reviewed the administration's proposed Proposition 35 spending plan, which splits revenue between provider payments, workforce investments and limited program support while reserving some funds to address base Medi‑Cal costs.
The subcommittee reviewed the administration's proposed expenditure plan for Proposition 35 (the managed‑care organization tax and spending package approved by voters in 2024). The Legislative Analyst's Office summarized how the measure works and flagged choices the committee will face about using the funds for base costs versus new augmentations.
What Prop 35 does: LAO staff reminded members that Prop 35 makes the managed‑care organization (MCO) tax permanent and sets domains and limits for how the money can be spent. The measure raises revenue that the department may allocate to augment provider payments or to offset general‑fund costs for Medi‑Cal. The administration's May Revision included a two‑year spending plan for calendar years 2025 and 2026.
Administration plan and allocations
Linda Harrington and other DHCS staff presented the administration's plan, summarized in the department materials and the LAO handout. Key elements included: - A total plan of roughly $22.7 billion across the spending domains for the two calendar years, with about $7.5 billion estimated annually from the MCO tax to support the Medi‑Cal program. - Targeted rate maintenance for primary care, maternity care and some mental‑health services (DHCS cited $356 million in 2025 and $374 million in 2026 to maintain base thresholds such as 87.5% of Medicare for certain emergency‑department physician pay). - Approximately $1.6 billion across 2025–26 described as supporting increases in managed‑care base rates for primary and specialty care, ground emergency medical transportation and hospital outpatient procedures. - Supplemental payments and targeted directed payments: community clinic directed payments ($50 million per year), dedicated reproductive‑health investments ($90 million per year for education, midwifery pipeline and loan repayment), behavioral‑health workforce and data‑sharing investments (about $300 million per year), graduate medical education and designated‑public‑hospital support.
Concerns from providers and analysts
Provider groups and hospital associations expressed concern that the administration's proposal used a substantial share of Prop 35 revenue to help cover base Medi‑Cal costs (a budget solution) rather than directing the funds to the targeted provider‑rate augmentations some voters expected. Hospitals, public health systems and physician groups voiced worries that redirecting funds to general‑fund savings would reduce the measure's capacity to strengthen provider capacity and access in underserved areas.
LAO considerations and timeline
The LAO noted that the spending rules change in 2027, which constrains planning beyond the two‑year horizon the administration put forward. The office encouraged the legislature to weigh whether proposed uses match the measure's intent and to consider alternatives if the committee prefers a different mix of base versus supplemental payments.
Ending
Committee members said they want clearer administrative detail, including how uniform dollar supplemental payments would be implemented for 2026 and which provider types and billing codes would be included. DHCS said it would continue stakeholder engagement and provide more specifics as the budget process proceeds.
