Failure to seek federal funds frustrates legislators, hospitals

The latest explanation from the state Department of Social Services for its failure to apply for millions of dollars in federal health care reimbursement has hospital officials and a key state legislator fuming.

“The state should be aggressively moving forward” to collect the federal money, said Stephen Frayne, Connecticut Hospital Association’s senior vice president of health policy. “Hospitals are being held hostage.”

At issue is Connecticut’s State Administered General Assistance (SAGA) program, which provides health care for some 43,500 low-income individuals who are not eligible for the federal Medicaid and Medicare programs. Hospitals and legislators say that by obtaining federal reimbursement for some of the cost of SAGA care, the state could increase payments to hospitals without spending more state tax dollars.

Despite repeated direction from the state legislature beginning in 2004 to apply for these federal funds, DSS has yet to comply.

The latest directive is contained in the current budget for fiscal years 2010 and 2011. In the budget, the General Assembly increased spending for SAGA care by $134.3 million so the state could pay hospitals at Medicaid levels for SAGA patients. In return, the legislature’s Office of Fiscal Analysis estimated, $179.6 million in federal reimbursement would be available, for a net savings to the state of $45.4 million.

Raising SAGA spending also would benefit struggling hospitals, who now are paid less than half the cost of treating SAGA patients, Frayne said.

But in a Jan. 20 letter to the legislature’s Appropriations and Human Services committees, DSS Commissioner Michael P. Starkowski said that the department is counting on federal health reform legislation to provide reimbursement for SAGA payments, so there’s no need to apply for the federal funding.

He said it would cost DSS $100,000 to produce the application and require “significant resources in the department.”

Rep. John C. Geragosian, D-New Britain, co-chairman of the Appropriations Committee, said he’s not satisfied with the explanation.

“What was their excuse before national health care reform was on the table?” he asked. “We have been saying ‘do this’ for years.”

“Why are they dragging their feet?,” he said. At a time when the state is facing a $515 million deficit for the current year alone, “to leave federal money untouched is inexcusable.”

Frayne also questioned Starkowski’s rationale, saying national health care reform is too uncertain.

“We are not clear if national health provisions are going to prevail,” he said. “Look, we have been at this for six years. This should already be done by now.”

In the event that national health reform never happens, Starkowski wrote in his letter, DSS is ready to move in an “expedited fashion” to pursue federal reimbursement. However, January 2011 is the “absolute earliest time that federal revenue would likely be received.”

Meanwhile, Gov. M. Jodi Rell’s proposed adjustments to the current budget would eliminate the $134.3 million in increased SAGA payments, and hospital officials say the results would be severe. Without the increase, the Connecticut Hospital Association says, caring for SAGA patients will cost hospitals $300 million each year.

Waterbury Hospital President John H. Tobin testified to the Appropriations Committee Thursday that caring for SAGA patients cost the hospital $11.9 million in 2009, forcing spending cuts and elimination of 70 full-time jobs.

If the increases now in the budget are eliminated, “we will need to look first at the areas of the hospital that produce the largest losses – behavioral health, maternity and emergency services.”

These are the services with the highest demand from SAGA patients, he warned.

Likewise, the two hospitals in Eastern Connecticut – Manchester Memorial and Rockville General – had to reduce employee hours and make other cuts because of reimbursement shortfalls for both Medicare and SAGA.

“This restricts us from being able to reinvest in our facilities, programs, medical equipment and technology,” said Rosemary Martocchio, spokeswoman for Eastern Connecticut Health Network.