For Connecticut hospitals, the good news is their patient caseloads have grown dramatically since 2009.

The bad news is those are Medicaid patients, and government payments don’t cover the full cost of treatment.

And then there’s really bad news: Gov. Dannel P. Malloy would cut their state funding by one-fifth over the next two years.

Put it all together, hospitals say, and at best, they will cut jobs and services. At worst, some will shut their doors. And facilities in the state’s poor northeastern corner say they are particularly at risk.

“These cuts jeopardize the very existence of Johnson Memorial Hospital,” said David Morgan, president and CEO of the Stafford-based acute care center. He testified last week before the Legislature’s Appropriations Committee.

“These cuts will clearly put at risk the viability of our hospital and the programs that are meeting the health care needs of those not able to pay for the full cost of their care,” said Cary Trantalis, vice president of operations for Windham Hospital. “… Something has to give.”

The state’s 29 acute-care hospitals insist that when it comes to their relationship with the state, they have been doing the giving.

State stopped sharing federal aid from hospital tax

hospital tax graphic

Malloy and lawmakers placed a new tax on hospitals two years ago to draw more federal aid into Connecticut.

The industry paid nearly $350 million to the state, which turned around and redistributed the dollars back to hospitals — plus an extra $50 million — to offset the cost of treating uninsured and poor patients.

Why the back-and-forth exercise?

Because since that $400 million officially came from the state’s coffers, Connecticut then could report it to the federal government and apply for aid through the Medicaid program.

The state got $200 million from the federal government, enough to cover the $50 million extra Connecticut gave back to the hospital industry with $150 million left over.

Malloy and lawmakers tweaked the relationship this year. Hospitals still paid in $350 million, but this time the industry got $27 million less back than it paid. The state kept the rest and all of the federal dollars for a total gain of $188 million.

And under the governor’s budget, the deal would shift even more in the state’s favor. Hospitals would come up $134 million short in the fiscal year that begins July 1, and $269 million short in 2014-15.

“In short, what started 18 months ago as a scheme to help balance the state budget … has been converted to an unadulterated tax on hospitals,” Stephen Frayne, senior vice president for health policy for the Connecticut Hospital Association, told lawmakers.

“It’s one thing not to help hospitals, it’s something completely different when you harm hospitals,” Frayne added. “Taking patient care revenue to balance the state budget is just plain wrong.”

Revenue from patients on the rise — but so are the costs

But the Malloy administration insists hospitals are swimming in so much new patient care revenue they can afford the state tax.

Since the state moved its health-care program for poor adults without minor children under the federal Medicaid umbrella in 2010, enrollment has grown from about 45,000 to 86,000.

And the governor’s budget director, Office of Policy and Management Secretary Benjamin Barnes, has noted on several occasions that hospital revenues from the program have grown from $70 million to $373 million over the last four years.

“We have 40,000 people who are insured who wouldn’t be insured in any other state in the nation,” Malloy told Capitol reporters Wednesday when asked about the proposed hospital cuts.

Despite ordering more than $1.5 billion in new state taxes two years ago, the governor and legislature face a projected deficit of $1.2 billion next fiscal year based on current spending and revenue trends. That’s equal to about one-sixth of the state’s annual operating budget.

Malloy’s budget closes about two-thirds of that deficit with spending cuts and about one-third with new revenue. Hospitals represent one of the largest cuts in the entire plan, losing $208 million next year and $342 million in 2014-15.

“We’re trying to take as balanced an approach as we can,” Malloy added. “You’re hard pressed to find a state who is doing more than we are” to cover poor patients.

But hospitals and their advocates counter that the state’s approach toward hospitals has been unbalanced for some time, and that the administration’s argument about swelling hospital revenues is a distortion.

Before state officials converted the State Administered General Assistance program (SAGA) into Medicaid for Low-Income Adults (LIA), the state used to reimburse hospitals for a portion of the cost of treating program patients. In fact, those payments used to mirror federal Medicaid payments — until 2004, when total state payments were capped.

From then until the conversion to LIA in 2010, state payments were frozen while enrollment grew. As program enrollment grew from 27,500 in 2004 to 44,700 in 2010, hospitals saw state payments per SAGA patient steadily erode.

Converting State Administered General Assistance into LIA and moving it under the federal umbrella in 2010 brought those payments back up to Medicaid level.

In fact, more than half of the revenue growth the Malloy administration likes to cite only involves ending the reimbursement cut hospitals faced between 2004 and 2010, rather than helping them gain fiscal ground, Frayne said.

In addition, he said, Medicaid reimbursement rates still fall short of covering the hospitals’ full cost of treating patients. In fact, he said, facilities lose — on average — 30 cents for every dollar they spend treating Medicaid patients.

Hospitals have long been accused of inflating the costs they bear for treating the poor and uninsured.

So is getting to treat 41,000 more Medicaid patients now than they did three years ago a big fiscal boon to hospitals?

Legislative panel may look to minimize cuts

Sen. Toni N. Harp, D-New Haven, co-chairwoman of the Appropriations Committee, said many lawmakers at least are convinced that hospitals will be significantly worse off under the governor’s budget than they are now.

“I assume there will be some pressure” to restore the funding, Harp said. “I think we’ll try to put something back, but it will depend on whether we can find some other cuts, or what people decide they want to do about revenue.”

Harp’s panel and the tax-writing, Finance, Revenue and Bonding Committee will issue their proposals for the next two fiscal years in early April.

Malloy has been pressing his fellow Democrats in the legislature’s majority to avoid steep tax increases given the 2011 increase — and the proximity of the 2014 state election cycle.

But many legislators, particularly from Connecticut’s poor urban centers, have proposed increases to income, sales, corporation and other taxes to blunt some of the cuts in the Malloy plan.

Rep. Daniel S. Rovero, a Putnam Democrat, is worried about the future of Day Kimball Hospital, one of his home town’s largest employers with a workforce topping 1,400.

Hospital President Robert Smanik told the Appropriations Committee that the Malloy budget “will not allow Day Kimball to sustain its current scope of services” including possible reductions in pediatrics, internal and family medicine and specialty care.

Smanik added that “the domino effect, should we be forced to reduce our workforce, will have distressing effects on a region.”

Rovero said he hopes the legislature can review spending proposals for state agencies and find reductions to offset the hospital cuts. “I know there’s going to be some pain when you balance the budget, but let’s share the pain equally,” he said.

Rovero, who voted against the 2011 state tax hikes, said he would consider backing an income tax increase on the state’s wealthy — households earning more than $350,000 per year — if he were convinced no other spending cuts could be found to offset the hospital reductions.

“Everybody knows I’m against taxes, but I’m willing to do that to save the hospitals,” he said. “This is a life-and-death situation.”

Many Republicans also have spoken out against the hospital cuts, but haven’t offered any alternative to date.

“I don’t have a silver bullet response,” said Sen. Tony Guglielmo, R-Stafford, who won’t support the cuts to Johnson Memorial Hospital but also didn’t propose alternative tax hikes or spending cuts. “You’ve got to focus on the basics. To me, health care is a basic.”

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Keith M. PhaneufState Budget Reporter

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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