DHCS asks for staff and contracts to develop a value strategy for Medi‑Cal hospital directed payments

Lindy Harrington, assistant state Medicaid director at the Department of Health Care Services, told the Senate Budget Subcommittee No. 3 that DHCS operates multiple Medi‑Cal managed‑care supplemental payment programs for hospitals and seeks additional staff and contract capacity to design a comprehensive value strategy for state‑directed hospital payments.

DHCS said the state operated 11 hospital‑specific supplemental payment programs at the start of 2024, totaling nearly $14 billion in annual total funds; subject to federal approval, DHCS anticipates approximately $23 billion in Medi‑Cal managed‑care supplemental payments to hospitals for calendar year 2025 service dates. The department asked for 29 permanent positions and contract resources to develop and implement the value strategy, which it described as focusing on aligning state‑directed payments with quality and population‑health goals, improving Medi‑Cal reimbursement relative to other payers and ensuring federal approvability as federal rules change.

DHCS said it planned a phased approach with a published value strategy by March 30, 2026, and noted trailer bill language to allow special funds contributed by hospitals to be used for proposed purposes. The Legislative Analyst’s Office said the broad objective—streamlining multiple managed‑care hospital payments—appears reasonable but recommended enhanced legislative input and oversight given the scope and number of positions requested.

Committee members asked whether the strategy might free hospital funds for seismic upgrades or other capital needs; DHCS said the focus is on access and quality, and the department cannot guarantee how hospitals will use any additional resources. DHCS and LAO agreed that outcome measures would likely appear over several years rather than in the initial strategy report.