A federal judge has ordered a temporary halt in the state's 10 percent reduction in Medi-Cal reimbursement rates, improving access to care for 6.5 million low-income patients but throwing a new wrench in already difficult budget negotiations.

The U.S. District Court decision forces the state to reimburse most Medi-Cal providers at rates prior to the 10 percent cut, which lawmakers and Gov. Arnold Schwarzenegger made effective July 1 as a cost-cutting measure to help resolve a $15.2 billion budget shortfall this year.

The move increases reimbursement rates the state pays to doctors, dentists, pharmacists, adult day-care centers and other providers who serve Medi-Cal patients. It excludes some hospitals who do not contract with the state and do not provide emergency care.

"There's no question this is good news," said Anthony Wright, executive director of Health Access California, a consumer group. "We already have more than half of doctors not taking Medi-Cal patients because of low reimbursement rates, so the additional rate cut was going to further reduce access to care for millions of children, parents, seniors and people with disabilities."

But the injunction comes as lawmakers remain divided because they cannot agree whether to bridge the budget spending gap with new taxes, borrowing or spending cuts. If the state ultimately loses the Medi-Cal reimbursement case, it could face an additional $575 million hole on top of the $15.2 billion deficit, according to Schwarzenegger's Department of Finance.

"We've always said these are difficult but necessary cuts in order for the state to close its $15 billion budget deficit," said Schwarzenegger spokeswoman Lisa Page. She said the Governor's Office is reviewing the ruling and determining what its next step will be.

The state is now 51 days into the new fiscal year without a budget, and some Medi-Cal providers stopped receiving payments in late July because the state does not have a spending plan in place.

Lawmakers and Schwarzenegger in February enacted emergency spending cuts that reduced Medi-Cal reimbursements starting July 1. Groups representing providers filed lawsuits against the state charging that the reduction violated federal law and would cause irreparable harm to Medi-Cal patients because it would reduce access to care.

Democrats agreed to the Medi–Cal cuts in February but said Tuesday their proposed budget, which includes higher taxes on high-income earners, would rescind the cuts if enacted.

"I think all the way along, many of us have thought this was not a good idea because reimbursement rates already are very low, and a cut could be the straw that breaks the camel's back in physicians and nursing homes deciding not to cover Medi-Cal patients," said Assemblyman John Laird, D-Santa Cruz.

But Laird also said that "right now we have such a big budget hole that we are at loggerheads in resolving that it's always difficult when somebody makes the hole bigger."

Sen. Sam Aanestad, R-Grass Valley, an oral surgeon and one of the few GOP legislators to oppose the cuts in February, applauded the judge's decision.

"It looks like the judge recognized that these people have no access, and certainly not equal access to services, at least not the way the (federal) program was envisioned."

Aanestad said the Senate GOP caucus identified $9 billion in cuts in "nonessential services" without touching reimbursement rates.

But Wright said the decision means lawmakers must become that much more open to new revenues, such as tax increases proposed by Democrats. Without new revenues, he feared the state would reduce Medi-Cal eligibility or benefits.

Call Kevin Yamamura, Bee Capitol Bureau, (916) 326-5548. Steve Wiegand of The Bee Capitol Bureau contributed to this report.