Hospitals: Malloy budget demands more than their fair share

Many hospital officials are still calculating the fallout of Gov. Dannel P. Malloy’s proposed budget, but those that have done the math say it deals them a big hit.

The budget calls for taxing hospitals and cutting the funding hospitals receive for treating uninsured and underinsured patients. The Malloy administration says the potential losses will be offset by increased reimbursement hospitals get for treating low-income adults in a new Medicaid program, which replaced the lower-paying state administered general assistance.

But hospital officials don’t take the same view, especially when the hospital tax is figured in.

“It essentially puts my hospital in the red,” Bristol Hospital President and CEO Kurt Barwis said.

Beyond the numbers, officials say, the potential changes add another element of uncertainty to an industry in the midst of massive change.

Federal health care reform is expected to bring significant changes to the way hospitals are paid and, for many, a drop in Medicare payments. The expansion of health insurance to millions more people will mean less uncompensated care, but many of the newly insured will be covered by government health care programs that tend to pay less than the cost of care.

“There’s an enormous amount of uncertainty right now,” said Kim Hostetler, vice president for administration and communications at the Connecticut Hospital Association. “It’s a very frightening picture over the next four to five years.”

Many hospitals are already facing tight margins. Statewide, hospitals had an average margin of 1.8 percent for the 2009 fiscal year, up from a slightly negative overall margin, -0.5 percent, the year before. Seven hospitals posted negative margins for fiscal-year 2009, and nine hospitals had negative average five-year margins from 2005 to 2009.

Roy Occhiogrosso, Malloy’s senior adviser for politics and media, said the administration is aware it’s asking hospitals to make sacrifices, but that everyone is bearing some of the cost of balancing the budget.

“We don’t think that they’re bearing a disproportionate burden or they wouldn’t have been asked to do it,” he said.

Under Malloy’s proposal, Connecticut hospitals will lose $83.3 million a year in funding–known as disproportionate share hospital grants–meant to partially offset the cost of caring for uninsured and underinsured patients.

The amount of uncompensated care hospitals provide has been rising over the past decade. In 2009, they provided $258 million in uncompensated care, representing 3 percent of total hospital expenses, according to the state Office of Health Care Access. Uncompensated care includes both charity care, for which hospitals don’t expect to get paid, and bad debts.

In addition, hospitals typically lose money treating patients with Medicare or Medicaid. On average, for every dollar of hospital cost in 2009, Medicare paid 87 cents and Medicaid paid 70 cents. Hospitals try to make up the money through private insurance, which in 2009 paid $1.22 for every dollar of cost.

Budget director Benjamin Barnes said the cut in grant payments will be balanced by increased reimbursement for treating low-income adults in a new program known as Medicaid LIA.

The program began last year to replace state administered general assistance, or SAGA, which reimbursed hospitals at a significantly lower rate than Medicaid. According to the administration’s budget summary, hospitals are projected to receive $226.8 million in reimbursement for treating patients in Medicaid LIA this fiscal year. If the patients were still covered by SAGA, the hospitals would only receive $66.3 million.

Hostetler acknowledged that converting SAGA to Medicaid was good for hospitals, but she noted that hospitals still lose money treating Medicaid patients.

“They’re still getting 70 cents for every dollar that they spend on this patient population,” she said.

In addition, she said, the increased payments to hospitals reflect an increase in patients in Medicaid LIA program, which grew by 33 percent in its first nine months.

Hospital officials are also concerned about the proposed provider tax, which is intended to bring the state additional federal money. By taxing hospitals and then distributing the money to them, the state can garner a federal match. But to do so, the state can’t simply give each hospital back the money it paid; the state must give some hospitals more money and some less, creating “winners” and “losers.”

Barwis said Bristol Hospital would be one of the losers, and projections suggest it would lose about $1.4 million in net revenue–not a trivial amount for a hospital that made about $1.2 million in operations last year.

The budget calls also calls for provider taxes on nursing homes and intermediate care facilities for the mentally retarded. Those facilities will receive some of the federal funding that the tax brings in. But the budget calls for hospitals to pay $266.6 million and get the same amount back, while the additional $133.3 million the tax brings in will go to the state’s coffers.

Stamford Hospital officials are still analyzing the impact of the proposals, but spokesman Scott Orstad said they are concerned about losing funds to help cover uncompensated care and the potential tax. Any loss of revenue could make it harder to renovate facilities, add programs and services, and add jobs, he said.

While health reform will bring changes in the coming years, the hospital is also facing more immediate uncertainty. Officials will be renegotiating contracts with commercial insurers this year, and are expecting additional pressure as insurers try to keep costs down.

“Our hope is that there are some other solutions that can be figured out,” Orstad said.

Barwis emphasized that it’s still early in the budget process and he expects to discuss his concerns with legislators and the administration. And Hostetler noted that with a significant portion of the governor’s plan tied to as-yet-undetermined state employee union concessions, the budget is still in flux.

“We’re at the very beginning of a process,” she said.