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State budget puts hospitals in code red

Hospital advocates were vociferous in their criticism of cuts to health care providers included in Gov. Dannel P. Malloy’s budget proposal for the 2014 and 2015 fiscal years, saying the gap in funding would hurt hospitals and possibly increase the cost of insurance for consumers and businesses.

The Malloy budget proposes to cut hundreds of millions of dollars in funding to hospitals to help offset the state’s rising Medicaid bills and higher initial costs the state will absorb starting next January as the Affordable Care Act takes full effect.

Stephen Frayne, senior vice president of health policy for the Connecticut Hospital Association, said that over the next 30 months, hospitals are facing roughly $650 million in funding cuts from the state.

“These cuts are large. They’re enormous and they’re intended to be permanent,” Frayne said. “The hospitals are figuring out how to live with it. But over the upcoming months, it won’t be pretty.”

The proposed cuts average about a 15 percent annual reduction, state officials said.

Frayne said hospitals would likely need to re-evaluate and eliminate services, reduce staff and put off infrastructure projects. He also said it was likely hospitals would seek higher funding from insurance companies, which would then pass along the cost to businesses in their coverage plans.

Ben Barnes, state budget director and secretary of the Office of Policy & Management (OPM), said the notion that hospitals would somehow need to dig into their own pockets was an inaccurate portrayal of their fiscal health, which he said includes high returns on investments, significant profits and outside donations.

“The cuts do put hospitals in a difficult position,” Barnes said. “I’m not going to deny that. But they are spread out over a three-year period.”

Barnes also said a battle between providers and insurance companies was likely, but that the federal government has a keen interest in controlling costs, which would limit insurance cost increases for businesses and consumers.

State officials have said the funding cuts outlined in Malloy’s budget proposal are necessary in order to offset the higher-than-expected costs associated with the 2010 transition to a Medicaid for Low Income Adults (LIA) program.

About 45,000 residents were expected to enroll in the LIA program, which was approved by the federal government in June 2010 to replace Connecticut’s previous State Administered General Assistance (SAGA) program.

However, to date, about 87,000 individuals have enrolled, leading to projections of a budget deficit for the current fiscal year and forcing state legislators to adopt a deficit mitigation package of across-the-board spending cuts in December.

On top of that, it’s estimated that the net cost to the state resulting from the full implementation of the Affordable Care Act will be $171 million for the state’s 2014 fiscal year, which runs through June 30, 2014. However, the state will see an estimated $19.6 million profit in its 2015 fiscal year as a result of the ACA policies.

The proposed $650 million funding cuts is composed of three major reductions in Malloy’s budget.

First is a $50 million per year reduction in hospital reimbursements for serving uninsured patients. Under the proposal, hospitals would need to absorb the cost by themselves. However Barnes said the costs were in anticipation of ACA changes, which is expected to decrease the number of uninsured patients to 1 percent. Barnes also said the profit made off other patients should be able to cover the temporary expense.

The second cut is a $72 million overall reduction in Medicaid funding to hospitals, which originally was intended to mitigate the losses hospitals may have incurred during the state’s transition off its previously state-run Medicaid program. After further reflection, however, Barnes said officials decided the payment was unnecessary, given the majority of hospitals’ losses were from negotiations with insurance providers for lower rates.

“There isn’t a basis for the state to pay them, especially given the financial constraints we face,” Barnes said.

The final and largest cut comes in the state’s decision to continue the Hospital Provider Tax without returning the all the revenue to the hospitals, as originally proposed. Frayne said the tax, which amounts to $350 million a year in revenue, was intended to be a way to get matched federal funding on Medicaid payments. But under Malloy’s proposal the state would stop returning the complete payment to hospitals to keep the revenue for other purposes. Barnes said the tax would still increase the state’s Medicaid payments.

“The support we were given in the current budget was $50 million a year,” Frayne said. “The funding being withdrawn is $650 million. They’re taking away, in multiples, more funding than we’ve ever received.”

Frayne said CHA intends to fight the cuts and ask legislators for reinstated funding.

“Over the next two years the state will get hundreds of millions of new dollars to help underwrite health care costs,” Frayne said. “We see that more dollars are flowing to the state and less money is going to the provider.”

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About The Author

Jennifer Bissell
Reporter

Jennifer Bissell was a reporter for both the Fairfield and Westchester business journals from 2012-2014. She attended the University of Minnesota and contributed to several regional publications including the St. Paul Pioneer Press, St. Cloud Times and Twin Cities Business magazine.

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