California revises Medi-Cal payment rules after federal abortion funding ban and court rulings

The California Department of Health Care Services (DHCS) has released updated guidance for Medi-Cal managed care plans (MCPs) on how to handle payments to providers affected by the new federal restrictions in H.R. 1 (a.k.a. Donald Trump's One Big Beautiful Bill), the controversial law enacted on July 4, 2025, that blocks federal Medicaid funding to certain reproductive health providers.

The revisions come in response to recent federal court rulings that temporarily altered H.R. 1's impact in California, including a July 28 preliminary injunction allowing Planned Parenthood affiliates in the state to continue receiving Medi-Cal payments.

The updated rules detail how Medi-Cal managed care plans must process claims, which providers remain eligible for payments, and how those requirements align with recent changes in California’s health care budget.

Background: H.R. 1’s Impact on Providers

Section 71113 of H.R. 1—titled “Federal Payments to Prohibited Entities”—prohibits federal Medicaid funding for one year to any “prohibited entity.” This includes organizations that:

• Are 501(c)(3) tax-exempt nonprofits.
• Are classified as essential community providers primarily engaged in family planning and reproductive health.
• Provide abortion services, except in cases of rape, incest, or life-endangering conditions.
• Received more than $800,000 in combined federal and state Medicaid payments in fiscal year 2023.

The provision was widely understood to target Planned Parenthood. On July 7, Planned Parenthood Federation of America sued in Massachusetts federal court, arguing that Section 71113 is unconstitutional and intended to block the organization from receiving Medicaid reimbursements.

A Temporary Restraining Order (TRO) initially halted immediate enforcement for Planned Parenthood nationwide. However, a July 21 preliminary injunction did not provide relief to California affiliates. That changed with a July 28 ruling, which extended protection to all Planned Parenthood affiliates in the state, allowing them to continue receiving Medi-Cal payments for now.

DHCS Guidance: What the New Letter Says

On July 31, DHCS issued an All Plan Letter—a formal statewide policy notice sent to all Medi-Cal MCPs—outlining how health plans must process claims and payments under the new federal law.

The updated letter, responds to a rapidly shifting legal landscape, including two federal preliminary injunctions in late July that directly affect California’s Planned Parenthood affiliates. DHCS says the updated instructions aim to ensure compliance with federal law while protecting access to essential reproductive health services for Medi-Cal members.

Under the revised APL, Medi-Cal MCPs must:

• Continue normal claims processing for providers who do not meet the “prohibited entity” definition—these are unaffected by H.R. 1.
• Pay claims for prohibited entities for services provided on or before July 3, 2025.
• Continue payments for California Planned Parenthood affiliates (protected under the July 28 injunction) for services provided on or after July 4, 2025, until the injunction ends or further court orders are issued.
• Suspend payments for prohibited entities without such relief for services provided on or after July 4, 2025, except for abortions covered entirely by state funds.

State-Funded Exception for Abortion Services

DHCS clarified that even for prohibited entities without legal relief, procedural and medication abortions—and directly related ancillary services—remain reimbursable because they are funded entirely through California’s General Fund.

Claims for these services must be submitted separately, using specific CPT and HCPCS codes (59840, 59841, 59850–59852, 59855–59857, S0190, S0191, and S0199) and cannot include unrelated services.

Discretion for Non-Abortion Services

The updated policy also allows MCPs, at their discretion, to continue paying for non-abortion services provided by prohibited entities without July 28 injunction relief. However, DHCS notes that the cost of these services will not be factored into Medi-Cal capitation rates under primary contracts and may only be considered later for state-only contracts.

Compliance Requirements

MCPs are responsible for ensuring that subcontractors, downstream subcontractors, and network providers are aware of and comply with these requirements. DHCS says it will issue additional policy and system updates as court rulings and legal interpretations develop.

Broader Health Policy Shifts

The H.R. 1 guidance comes as California continues to reshape its health programs in the 2025–26 state budget. In late June, California eliminated Medi-Cal coverage for certain GLP-1 weight-loss and diabetes drugs, including Ozempic, as part of cost-cutting measures. That decision—like the abortion funding changes—affects both providers and patients, with ripple effects across California’s health care system.

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