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Subcommittee presses DHCS on Prop 35 rollout, advisory committee vacancies and federal deadlines
Summary
DHCS briefed the subcommittee on how Proposition 35 (MCO tax) will fund Medi‑Cal provider rate increases and multiple program buckets; lawmakers pressed DHCS about stakeholder advisory committee appointments and the risk of missing federal deadlines that could forfeit matching funds.
Department of Health Care Services staff told the Senate Budget Subcommittee No. 3 that Proposition 35 (passed November 2024) reallocates revenues from the managed‑care organization (MCO) tax to a set of targeted Medi‑Cal investments and provider rate increases. DHCS described a multi‑year implementation approach and presented initial allocation amounts for calendar years 2025 and 2026.
DHCS said Prop 35 guarantees $2 billion in calendar years 2025 and 2026 to support the Medi‑Cal program and presented a list of allocations including, among other items, $691 million for primary care, $575 million for specialty care, $245 million for community and outpatient procedures, $90 million for abortion and family planning services and specified amounts for hospitals, emergency medical transport and workforce programs. DHCS staff explained that some buckets in 2027 depend on revenue thresholds and that the program mix will shift beginning in 2027.
Committee members and stakeholders raised two implementation concerns: (1) the stakeholder advisory committee required by Prop 35 has not been fully appointed, and (2) federal timing requirements for state plan amendments may limit the department’s ability to make augmentations retroactive to January 1. DHCS said it had not received the governor’s and one senate appointment and that its goal had been to convene a complete committee to ensure each stakeholder group has a voice; committee members said a quorum and prompt meetings were more important than waiting for every seat to be filled.
The Legislative Analyst’s Office told the committee the administration’s basic spending plan seemed reasonable but that a detailed implementation plan and additional legislative oversight would be useful. LAO and several provider groups urged early legislative engagement to clarify timing, rate structures and the fiscal uncertainties associated with the MCO tax reauthorization scheduled to begin in 2027.
Multiple provider groups and hospital representatives told the committee the March and June federal deadlines for state plan amendments were important because state plan amendments are reviewed quarterly and can be applied retroactively only if filed within federal deadlines. DHCS said its immediate priority was drafting proposals to bring to the stakeholder advisory committee, with the intention of publishing a value‑and‑implementation plan for certain payments by March 30, 2026.
Stakeholders testifying during public comment urged rapid convening of the advisory committee so that provider rate increases and program augmentations could move forward without leaving federal matching dollars on the table. Hospitals, clinics, community health workers, private duty nursing and pediatric specialty providers urged DHCS to prioritize geographic representation and timely state plan submission.
