State and hospitals battle over money

Officials at the Connecticut Hospital Association say state budgeting policies will force hospitals to increase their rates by $216  million in 2015 to make up for what they say are “unnecessary costs.”

While hospitals this year will pay a $100 million hospital provider tax and absorb $630 million in Medicaid costs, officials project those expenses to increase to nearly $1 billion in 2015. The result, CHA officials say, will be increased costs for insured patients.

Like any other business, hospitals will need to increase their prices to make up the difference, said Stephen Frayne, CHA”™s senior vice president of health policy.

But to state Budget Director Benjamin Barnes, the  idea of even higher prices is unconscionable.

Given what he called the industry”™s wide profit margins and already inflated prices, Barnes said he believes hospitals should and will absorb the costs. After absorbing some $500 million in unfunded Medicaid costs in 2012, hospitals still made a $700 million net profit, he said.

“I don”™t know how they could make that argument with a straight face,” Barnes said. “I don”™t believe it.”

Net income at St. Vincent”™s Medical Center, for instance, was $85 million in 2012 after absorbing Medicaid losses, according to the most recent state hospital filing. The center had a 16.7 percent profit margin. Representatives say hospitals require a 4 percent operating margin to remain viable. The 2012 median for hospitals was 5 percent.

“If we did provide more funding, would they cut rates?” Barnes said. “I don”™t think so. They are trying to make money. They want more money available to pay executives”™ salaries and expand because they all have growth strategies.”

“Everyone is going to be above average; everyone is going to grow,” he said, later acknowledging not every hospital is doing well financially. “How big do they need to be?”

Historically Connecticut has reimbursed hospitals 70 percent of all costs incurred treating Medicaid patients, leaving the rest for hospitals to absorb. With growing Medicaid enrollment, due to a poor economy and Affordable Care Act changes, however, hospitals forecast the reimbursement gap will grow to $710 million in 2015.

Barnes said the forecast seemed high.

Last legislative session, hospital advocates fought hard to resist a new hospital provider tax and other funding cuts amounting to $650 million in hospital lost revenue from 2013 to 2015. The provider tax allows the state to receive matched federal funding on Medicaid payments and was originally intended to be returned to hospitals. Under the new law, however, the state elected to keep the revenue for other purposes.

Last year, Frayne said the combination of cuts and taxes would eliminate services, reduce staff and delay infrastructure projects within one of the only industries thriving during the economic recovery. Whereas last year Frayne hinted about the possibility of raised costs for patients, this year he says the majority of losses will be passed on to patients in 2015 ”“ a $104 increase from 2014 per patient on average.

“Hospitals are pursuing a variety of ways to address it,” he said. “There”™s a tremendous effort to become more efficient and improve quality, but at some point there”™s only so much you can do and the balance of that translates into a price increase.”

No state reimburses 100 percent of Medicaid expenses, but most fund significantly higher or keep pace with inflation, Frayne said. The CHA like to see the provider tax eliminated within five years, plus a higher reimbursement rate from the state, he said.

“These problems are perpetual,” Frayne said. “It’s not just a $235 million hospital for one year, but year after year after year. Sooner or later, you have to find a way to make up that difference into the future, or you have to shrink your organization to a smaller amount of funding.”

[box type=”info”]This article has been revised to correct a misstatement. A previous version incorrectly stated how much hospitals anticipate costs will increase by in 2015. [/box]