Louisiana’s health department is preparing for what could be up to $700 million in budget reductions under a directive from Gov. Bobby Jindal’s administration.

Officials in the state Department of Health and Hospitals have been told to save $200 million to $250 million for the fiscal year that begins July 1. That translates to a $600 million to a $700 million cut because the money is used as “matching dollars” that draw down funding from the federal government, which pays most of the bills for the state’s health care programs.

DHH’s annual budget is $9 billion, or about a third of the state’s $25 billion spending plan. Medicaid provides health care for the poor — about one of every four residents are recipients — and accounts for about $8 billion of that amount.

Health care and higher education are bracing for the largest cuts as the Jindal administration drafts the budget for fiscal year 2016, which starts July 1 and is coming up approximately $1.38 billion shy — at least that’s the administration’s latest estimate — of the revenues needed. Higher education could get up to a $300 million budget hit.

Though state government was anticipating a shortage of revenues, the fiscal situation has grown worse of late because of declining oil prices. The Revenue Estimating Conference, which certifies for the state the amount of revenue available for spending, meets Monday to decide how much the administration will have to adjust its spending to balance the budget in light the of expected revenue shortfall.

Both DHH Secretary Kathy Kliebert and Undersecretary Jeff Reynolds declined interview requests to discuss the budget situation.

“Any changes necessitated by reductions in the budget for the next fiscal year will be outlined in the executive budget. We would not speculate as to what those changes might be at this time,” a statement issued through the agency’s communications office said. “We won’t know what reductions for FY16 will look like until we know what the executive budget allocates for the Department. Any assessment of potential reductions and programs before the executive budget is released would be pure speculation.”

DHH has three basic options when cuts are required in the state’s Medicaid program, former state Medical Director Don Gregory said. They are: reductions in the payments doctors, hospitals and other health care providers receive; elimination of optional services, such as hospice and adult dentures; and removing optional populations, he said.

Gregory said provider cuts have become “more problematic” as a result of contractual agreements with insurance companies through which two-thirds of the state’s 1.4 million Medicaid recipients get health care. Most of the recipients are pregnant women, children, the elderly and disabled.

“It becomes difficult because actuaries set those (reimbursement) rates and, under federal rules, they are supposed to be viable rates to ensure access to care,” Gregory said. “That’s always the rule. Will you affect access to care?”

Contract amendments with the five insurance companies also would be required, he said.

Another restraint is contracts that guarantee higher levels of Medicaid funding to private hospitals that assumed management of LSU hospitals. Those contracts have early-out provisions if the dollars don’t materialize as anticipated.

“Those partners certainly aren’t going to do it at a loss. They have to at least break even,” Gregory said.

Louisiana Hospital Association President Paul Salles said cuts of the magnitude that DHH is preparing for “would be devastating to health care.”

“There are some actuarial soundness numbers that may come into play with any significant cuts. The federal government does monitor reductions to evaluate whether it’s impacting the number of providers,” Salles said.

Federal law requires states “assure that payments are consistent with efficiency, economy and quality of care and are sufficient to enlist enough providers.”

If reimbursements get too low, some Medicaid providers will conclude that it’s not worth their while to continue in the program or reduce participation or end up — as in the case of hospitals — reducing some of the services they provide, he said. Salles pointed to last year’s announcement by Baton Rouge General Medical Center-Mid City officials that financial losses would lead to the closure of its emergency room. The hospital rescinded the decision after the Jindal administration agreed to an infusion of cash.

Financial concerns led to a change in the contracts with the private partners hired to manage LSU hospitals: They no longer have to provide all of the services that were used to treat the poor and uninsured when the state ran the facilities.

Salles said deeper budget cuts could push physicians to stop accepting Medicaid patients.

“All that does is push people back into the emergency room” which is costly, Salles said. “It’s very concerning. We don’t have a lot of details yet.”

Berkley Durbin, director of the physician trade group MedicineLouisiana, said primary care physicians already are experiencing cuts because a temporary increase in reimbursement provided under the federal Affordable Care Act is going away. Across the U.S., it equates to an average 43 percent reduction for patient care delivered by pediatricians, family practice physicians and others.

“Any additional cuts would be on top of that,” Durbin said. “How could it not impact access, particularly to primary care? … Primary care is the crux of the whole system. I’m very concerned about access.”

With the cuts physicians have taken over the last five to eight years, “I don’t really see where they have any options for provider cuts,” said Jennifer Marusak, vice president of governmental affairs for the Louisiana State Medical Society.

She said the state could face federal denial of rate reductions over patient access issues.

Follow Marsha Shuler on Twitter, @MarshaShulerCNB. For more coverage of the State Capitol, follow Louisiana Politics at http://blogs.theadvocate.com/politicsblog.