Cuts Could Hurt Public Hospitals, Private ‘Safety Nets’

Upcoming changes in the California Health and Human Services budget could put the funding of public hospitals in jeopardy and place even more pressure on private safety net hospitals, industry groups say. Safety net hospitals receive money from Medi-Cal in two ways, first through direct reimbursement when treating patients covered by the state program. A second source of supplemental funding goes to public and private safety net hospitals that treat a large amount of uninsured patients through federal matching grants. Those grants, which provide about $2 billion to California hospitals, are about to change and could affect the way that public hospitals in Los Angeles and across the state treat uninsured patients. Rachael Kagan, director of communication for the California Association of Public Hospitals and Health Systems said that the state is working on restructuring safety net hospital financing, moving the distribution of $2 billion in supplemental payments from intergovernmental transfers (IGTs) to a cost-based system using certified public expenditures (CPEs) and freezing the state role in funding safety net hospitals through Medicaid for five years. Kagan said that the Bush administration is indicating it is planning to forgo the IGT plan completely, prompting state officials to be working constantly with the federal government and hospital groups to find something new. Under the IGT system, public hospitals transfer funds to the state, which uses the money to obtain supplemental Medicaid funds that it gives back to public and private safety net hospitals to help offset the costs incurred from treating uninsured patients. A cost-based CPE system is completely untried, Kagan said, and there are questions as to what costs the federal government would certify and serious doubts that public hospitals could maintain their current level of Medicaid funding. Catherine Douglas, President of Private Essential Access Community Hospitals, which represents 40 of the state’s largest private safety net hospitals, said she has serious doubts that a CPE system would be effective. “There is a deep meaning for all of us,” said Douglas of the proposed funding changes. “It’s critical that the entire safety net be supported in such a way that they have adequate funding.” Looking for solutions Douglas said that the state is making efforts to meet with every state hospital group to find a workable solution. “The state is doing every thing in its power to try to comply with a federal administration that seems to want do away with legally accepted methodologies,” Douglas said. Kagan and Douglas said that any new system adopted by the state has to include room for funding growth. Part of the state’s CPE proposal would freeze the state’s role in funding safety net hospitals for at least five years. Douglas said that without funding growth, some private safety net hospitals may be in danger of closing. “Budget neutral is a deal breaker, it’s a recipe for hospital meltdown,” she said. Lisa Chakos-Knapp, spokeswoman for Valley Presbyterian Hospital said that she is waiting along with other private safety net hospitals to see what changes are in store for federal supplemental funding. She said it’s too early to tell how the shift to a CPE system might affect private safety net hospitals, however. “I sure hope that funding does not decrease,” she said. Olive View-UCLA Medical Center is a public safety net hospital, the uninsured patients it treats would otherwise end up in private hospitals like Valley Presbyterian. Shifting patients Gov. Schwarzenegger also plans to shift its aged, blind and disabled Medi-Cal population into managed care programs instead of a fee for service program, which would also decrease the money going to public hospitals. David Jansen, chief administrative officer for the County of Los Angeles, said the county is in “total concurrence with the CAPH about their concerns with a CPE system,” and their concerns about shifting some Medi-Cal patients into a managed care system. “Moving that population into managed care could really hurt the safety net system,” Jansen said. Jansen said that nobody has any way of knowing how a CPE system would specifically affect county hospitals, especially because there are questions about what costs would be certified. Jansen said that some of the IGT system has to be preserved in the state’s safety net funding system. He speculated that any dramatic reduction in funding for Los Angeles’ county hospitals would be bad news for private safety net hospitals. “The county provides about 85 percent of uncompensated care,” he said. “That means that if we are forced to close hospitals or emergency rooms it puts even more pressure on the private sector, which is already struggling.” Jansen said that he expects cuts in Medicaid funding no matter how the state’s Medi-Cal system is reformed. “We’re hearing there are going to be pretty stiff cuts in Medicaid, but given how California is a $40 billion donor to the federal government, they don’t seem to care much about giving it back.” Kagan said that the CAPH had hoped to hear specifics of the plan to replace IGTs in the governor’s State of the State speech earlier this month, but was disappointed with a cursory mention of health care financing. The California Health and Human Services Agency’s proposed 2005-2006 budget makes no mention of CPEs. It does list stabilizing the funding of safety net hospitals by replacing the IGTs with a federally accepted method, preserving funding for uninsured patients whether they’re served through fee-for-service or managed care and finding ways to attract even more federal Medicaid funding as priorities.