A U.S. appeals court ruled this month that the U.S. government wrongly approved California’s request to temporarily cut Medi-Cal reimbursement to medical providers for outpatient care by 10 percent during last decade’s recession. The decision comes on the heels of a lawsuit by California residents with Medi-Cal citing substandard care or no access to medical services because of Medi-Cal’s low reimbursement.

The recent legal decision by the three-judge panel of the U.S. 9th Circuit Court of Appeals said the federal government can approve such cuts only if evidence shows that the recipients of aid will have access to the same services as the general population. The ruling echoes the sentiment in recent court filings by disgruntled Medi-Cal recipients in which they are claiming they are being denied equal healthcare in the state of California.

California, struggling with a state budget crisis, imposed the cutback from July 2008 through February 2009. If the court’s ruling stands, the state and the federal government will have to pay back California hospitals hundreds of millions of dollars, according to attorney Robert Leventhal, who represented more than 50 California hospitals in the legal action.

Before cuts can be made by a state, federal law requires a showing of evidence that beneficiaries will have access to care “at least to the extent that such care and services are available to the general population in the geographic area,’’ the 9th Circuit said, citing a provision in federal law.

Leventhal said previous challenges to the Medi-Cal cuts relied on different legal theories. The court’s ruling “will have a major impact on Medi-Cal rates and hopefully bring them up,” said Leventhal. “They are the lowest or next to the lowest in all 50 states for hospital outpatient services,”

Legal pundits believe this court ruling could be used in future challenges involving Medi-Cal. The government would face a huge uphill battle in attempting to show that the rate cuts would leave Medi-Cal recipients with the same access to care as the general public.

“It’s clear that the rates aren’t structured to provide the same access to care,” said Leventhal.

The government has appeal rights. The state could ask the panel to reconsider the decision, request a larger 9th Circuit panel to weigh-in on the decision or appeal to the U.S. Supreme Court.

The fallout will continue for months. Civil rights advocates sued California this month, alleging that care provided by Medi-Cal for low-income people is substandard and disproportionately hurts Latinos, who are by far the largest group of Medi-Cal enrollees.

The lawsuit was filed in Alameda County Superior Court by the Mexican American Legal Defense and Educational Fund (MALDEF) and the Civil Rights Education and Enforcement Center. The suit states that Medi-Cal participants have “substantially worse access to health care than their counterparts” in employer-based insurance plans or Medicare, the federal program for seniors and people with disabilities. State and federal laws require Medi-Cal to provide a level of care that is on par with that available to the general population, according to the court filing.

The two groups that filed the case hope to get it certified as a class-action lawsuit on behalf of all Medi-Cal enrollees. The complaint claims that beneficiaries of Medi-Cal, the state’s version of the Medicaid program, often experience delays in care or are denied care altogether. And, it says, they may have to travel longer distances to find medical providers who are willing to see them.

The California Department of Health Care Services runs Medi-Cal and is named as a defendant in the lawsuit. The Department released said a statement that it has “not identified any systemic problems with patient access to services in the Medi-Cal program, nor has the federal Centers for Medicare and Medicaid Services identified any issues.”

The department said it “routinely monitors access and network adequacy in the contracting Medi-Cal Managed Care Plans.” The lawsuit cites the alleged obstacles to health care access on Medi-Cal’s low reimbursement rates. The low reimbursement, states the suit, discourages physicians from accepting Medi-Cal patients. The lawsuit alleges that the state of California has failed to provide adequate monitoring to ensure that beneficiaries have timely access to care.

The lawsuit’s plaintiffs are not seeking monetary damages, other than attorney fees and other legal costs. Instead, the plaintiffs want systemic changes, including “adequate” pay for doctors treating Medi-Cal beneficiaries as well as better monitoring and enforcement to ensure Medi-Cal patients get care when they need it.