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California suspends health pay Financial crisis means cutoff of state plan.


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

The development means that recipients of Medi-Cal, the California version of Medicaid, could be denied medical services 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," Mr. Davis said at a news conference.

The Hospital Council of Southern California said that 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 came when the 9th U.S. Circuit Court of Appeals in San Francisco refused to continue an emergency stay that had required the state to continue making payments for the 4.2 million Californians receiving medical care under the Medi-Cal program.

Mr. Davis said that yesterday he mailed 95,000 individual IOU payments -- worth roughly $190 million -- to Medi-Cal providers but announced that no more checks would be issued until there was either a new state budget or a court action requiring him to make the payments.

Mr. Davis predicted the legal action yesterday would "create utter chaos." Since July 1, Mr. Davis' office has issued nearly $1 billion in Medi-Cal IOUs.

Hospital administrators said that 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 own emergency reserves.

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