Hospitals Brace For Another Hit Medicaid Cuts Will Add To Deficit In Uncompensated Care Pool

Mark Tolosky says state hospital administrators have long known that there is something seriously wrong with not only the formula governing the state’s uncompensated care pool, but also the larger system by which care providers are funded.

 

But the extent to which that system is broken was driven home emphatically in a recent missive from the state Division of Health Care Finance and Policy, (DHCFP), said Tolosky, president of Baystate Medical Center and current board chairman of the Mass. Hospital Association.

That letter told hospital presidents that the planned dropping of 50,000 people from the Medicaid rolls next April 1 will swell an expected shortfall in the uncompensated care pool from $64 million to about $140 million — and unless something dramatic and unusual happens, hospitals will have to pick up that entire tab.

“Some hospital presidents just went ballistic when they read that and I don’t blame them,” Tolosky told The Healthcare News. “There are three partners playing in this game with the uncompensated care pool, and only one of them is vulnerable — the hospitals — and that’s not right.”

Tolosky was referring to the formula created for the uncompensated care pool, a fund (currently $350 million) created to pay for the care given to those without insurance. Three entities pay into the pool — hospitals, the state, and private payers, said Tolosky, but the amounts paid by the later two are essentially locked in. If demand on the pool increases, and it will when more people are left without insurance when MassHealth Basic is eliminated, then hospitals will have to make up the shortfall.

Making matters even worse, he said, hospitals probably won’t know the full extent of their liability until next summer, very late into the present fiscal year. Hospitals are being told to plan ahead and consider the cash-flow implications of this latest development, he explained, but no one has any idea what the damage will be.

“We’re still trying to determine what the impact will be on various programs,” said Sisters of Providence Health System President and CEO Vincent McCorkle, who believes behavioral health programs will be among the hardest hit. “Even though it’s early and we don’t know all the numbers, it looks grim — we see a real crisis.”

For the short-term, hospitals will have to decide how to cope with this latest setback, Tolosky said. Options include further damage to the bottom line or cutting back or eliminating services to minimize that hit. Neither alternative is particularly appealing. For the long-term, hospital administrators hope that the injustices of the present funding schemes — as well as the precarious state of most hospitals in the Commonwealth — will become even more clear to legislators and the state’s next governor, and that changes will be forthcoming.

State of Urgency

Noble Hospital President George Koller is one of those administrators who turned to strong language in reaction to the latest turn of events. “I think the state is raping the health care industry,” he told The Healthcare News. “I think it’s totally unfair for hospitals to have to shoulder the burden of the shortfall. If this keeps up, no hospital will survive.”

Like others, Koller was incensed that hospitals would wind up taking another financial hit in the wake of the state’s efforts to address a worsening budget crisis by trimming the Medicaid rolls. “By taking people off Medicaid, the state’s going to put much more strain on the pool,” he said. “And hospitals will have to pay the price — at a time when we’re already only getting about 70 cents on the dollar from Medicaid. This is insane.”

Holyoke Hospital President Hank Porten equated the developing scenario to the levying of an additional tax. “And it looks like hospitals will be the only ones to be taxed.”

In her letter to the state’s acute care hospitals, DHCFP Commissioner Linda Ruthhardt said displaced Medicaid enrollees would inevitably seek services through the uncompensated care pool. “Once the anticipated demand on the pool begins to increase,” she wrote, “we expect that the shortfall — the difference between funds available to distribute to hospitals and total allowable uncompensated care costs — will quickly increase.”

Ruthhardt projected that the elimination of MassHealth Basic could eventually double the projected shortfall of about $70 million.

Mass. Hospital Assoc. Vice President Joseph Kirkpatrick said the size of the hit — and the fact that it will come late in the fiscal year for most hospitals — will make it an especially dangerous one for hospitals.

“What this means is that an enormous wave is heading toward hospitals and they won’t know how big the hit to them will be until they are about to close their books for the year,” he said.

Quantifying the impact on individual hospitals and specific programs is difficult at this early date, said McCorkle, but it is clear that a growing deficit in the uncompensated care pool will be yet another serious blow to hospitals. He said that perhaps the biggest impact would be felt in behavioral health services, where a disproportionate number of patients are on Medicaid.

“Maybe one-third of the behavioral health patients we care for will be impacted and will no longer have coverage,” he said. “This brings into question the very viability of some of our services.

“Essentially, every hospital in the Commonwealth will be going to the pool earlier,” he continued, “and that means it’s going to dry up much sooner.”

McCorkle said that programs, especially those in behavioral health, would be eliminated only as a last resort. Mercy is the only provider of some behavioral health services, including some programs for children and adolescents, west of Route 128, he explained, and every effort will be made to continue them.

Still, Mercy, like all health care systems, will have to take some steps in anticipation of the revenue hit, he said. “When you’re not going paid for the services you provide, programs get put in jeopardy.”

Tolosky told The Healthcare News that the state’s hospitals must now respond as any business would if it was facing a decline in revenues. They must either take the hit on the bottom line, he explained, or find ways to minimize that hit by either cutting costs or finding new ways to generate revenue.

“There are a number of options for hospitals,” he said. “If you were losing money, now it looks like you’re going to lose more. If you were projecting a positive outcome, now you’re looking at less, unless you go back to your business plan and find cuts to make your business plan whole.”

He said Baystate, which has a fairly high percentage of Medicaid patients, is projecting a loss from the mounting pool deficit of between $1 million and $2 million. That’s a very small percentage of the system’s overall budget, he said, but the hit is yet another blow to hospitals that have been struggling to make ends meet for years.

The Deep End

Porten told The Healthcare News that he is holding out some hope that the high cost of taking 50,000 people off the Medicaid rolls will be shared by all the parties now contributing to the uncompensated care pool.

Meanwhile, like other hospital administrators, he hopes this latest taxing of hospitals will spark debate that would result in more systemic changes to the ways health care providers are compensated. “What’s happening is symptomatic of a system that’s in trouble,” he said. “You can’t keep reimbursing hospitals at 71{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}, and you can’t keep finding new ways to tax hospitals.”

Tolosky concurred. “We need to rethink this whole thing,” he explained. “The pool is an issue for many hospitals, but Medicaid reimbursement is a huge issue for everyone. The system is flawed, and we have to get people’s attention in order to fix it.”