DHCS Stakeholder News – Updated Managed Care Organization (MCO) Provider Tax Proposal

On May 8, DHCS released an updated MCO Provider Tax proposal that includes the renewal of the MCO Provider Tax, via trailer bill language (TBL), effective April 1, 2023, nine months earlier than planned in the proposed 2023-24 Governor’s Budget. This earlier start results in approximately $3.7 billion in additional General Fund revenue, on an accrual basis, that was not accounted for in the proposed Governor’s Budget. To implement the renewed MCO Provider Tax early, DHCS must submit the MCO Provider Tax proposal to the federal Centers for Medicare & Medicaid Services (CMS) by June 30, 2023. Additionally, the May Revision increases MCO Provider Tax revenue to achieve an approximately $5 billion annual state benefit.

Additionally, effective January 1, 2024, DHCS proposes to increase provider rates to at least 87.5 percent of Medicare for primary care (includes nurse practitioners and physician assistants), maternity care (includes OB/GYNs and doulas) and non-specialty mental health services. Note: The TBL to effectuate this increase will be released as part of the May Revision.

The rate increases will include the elimination of the Assembly Bill 97 (Chapter 3, Statutes of 2011) provider payment reduction and factor in Proposition 56 supplemental payments for applicable services. DHCS will direct Medi-Cal managed care plans to pay providers at least these rates, including in capitated provider arrangements. These investments support DHCS’ Comprehensive Quality Strategy and its clinical focus on children’s preventive care, maternal care and birth equity, and behavioral health integration, with the goal of directing efforts toward upstream preventive and primary care interventions. 

Following the submission of the MCO Provider Tax proposal to CMS, DHCS, in collaboration with key stakeholders in the Medi-Cal delivery system, will assess ongoing, long-term rate enhancements to determine which will deliver the greatest benefit to improving Medi-Cal systems across California, with a focus on enhancing equitable access to care. The evaluation will prioritize augmentations to primary care, maternal care, behavioral health (as noted above), as well as specialty care, outpatient, and acute care systems. The aim is to increase the provider commitment to serving Medi-Cal members, particularly those in disproportionately impacted areas, and build robust teams and programs, with a strong workforce, to ensure high-quality care is provided in the right settings at the right time.  

Following this process, DHCS will submit proposed investments and augmentations to the Legislature in the 2024-25 Governor’s Budget, with an intended effective date of January 1, 2025.

For more information, please visit DHCS’ Budget Information webpage.