State likely to renege on hospitals' accord

Budget shortfall affecting Medicaid deal

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Hospital officials in Pennsylvania say they stand to lose millions of dollars because the state is backing out of a 2010 agreement that would partially pay them back for underwriting a modernization of the state's Medicaid reimbursement process.

State officials say they simply don't have the money to make good on the deal.

In July, the association that represents nearly 250 hospitals and other health facilities statewide agreed to let the state assess, or tax, them $246.5 million over three years to pay for reworking Medicaid reimbursements -- with the money going to the state's general fund.

In return, hospitals expected to get much of the assessed payments back when the state received federal matching funds meant to encourage states to make the improvements to Medicaid reimbursements.

Now, however, that part of the deal is off the table unless legislators restore it during budget negotiations in the next few weeks.

"In order for Pennsylvania to receive an estimated $183 million in federal funds, the commonwealth would need to spend $150.2 million in state funds," said Michael Race, spokesman for the state Department of Public Welfare, which administers Medicaid. Medicaid is a joint state/federal program, also referred to as medical assistance, that provides health insurance for 2.2 million Pennsylvanians but which hospital officials have long said does not adequately reimburse their costs.

"Faced with a budget shortfall that exceeds $4 billion, the governor needed to make a number of extremely difficult decisions about how to invest limited funds, and this $150.2 million expense is one that we simply cannot justify in this difficult budget year," Mr. Race said.

But Carolyn Scanlan, president and CEO of the Hospital and Healthsystem Association of Pennsylvania, said much of that money needed to qualify for matching funds was coming out of hospitals' pockets.

"It wasn't [the state's] money to begin with. It was hospital tax money. And what they've essentially done is take the money and use it someplace else."

The hospitals already have begun paying the tax and will continue to do so as required by law.

According to the association, hospitals in Pennsylvania lose about 23 cents for every dollar's worth of care they provide to patients on Medicaid -- a loss that hospitals try to recover through increased charges to privately insured patients.

Under the Quality Care Assessment agreement passed by the state Legislature last year, hospitals estimated they would cut that loss to 11 cents for every dollar of care they provide for patients on Medicaid because the formula for determining reimbursements would more accurately reflect hospitals' costs.

But under Gov. Tom Corbett's proposed budget, hospitals estimate they would lose 18 cents on the dollar.

While that is an improvement over previous years because of the restructured reimbursements, it falls short of what the hospitals would get if the state were to go ahead with the investment in improvements that are required to tap the federal matching funds.

For individual hospitals, those pennies can add up.

For example, Medicaid reimbursements represented 11 percent to 12 percent of net patient revenue at UPMC Presbyterian, UPMC Shadyside and Allegheny General Hospital, and 15.15 percent at Magee-Womens Hospital of UPMC in the fiscal year that ended June 30, according to a financial analysis by the Pennsylvania Health Care Cost Containment Council.

That analysis also showed that hospitals' total average margin -- a measure of profitability -- was 5.26 percent, a 3.23 percent increase after showing declines the previous two years.

Hospitals, said Mr. Race, "are doing much better than many in the private sector."

About one-quarter of Pennsylvania's hospitals lose money, Ms. Scanlan responded. And when they do make money, she said, "We take care of patients and put it back into the community.

"I don't know any private company," she added, "that would contract with the state to provide a service below cost."


Steve Twedt: stwedt@post-gazette.com or 412-263-1963.


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