Efficiency at the heart of quest to ensure hospitals are funded

Balanced Budget Act cuts in the Medicaid disproportionate share hospital (DSH) program are inspiring a hunt for new ways to fund hospitals that treat the poor and uninsured.

"You’ve got desperate providers all over the place beating their brains out to be creative," says Jan Gorrie, JD, a Tallahassee, FL, attorney who represents the state’s six statutorily defined teaching hospitals.

For states, the process involves not so much maximizing reimbursement as making sure Medicaid payments are appropriate and Medicaid DSH programs are efficient, says Michael Spivey, JD, a Washington, DC, attorney who has been working with providers in this field for more than a dozen years.

"Providers always have been concerned they’re paid fairly, [but] the BBA has focused people’s attention on this," he says.

Creativity counts

Creativity is crucial as the hospitals try to increase reimbursement without having to ask for increases in state general revenue funding. The first part of the post-BBA strategy is reclassifying certain payments out of the disproportionate share program, which has been capped since the early 1990s, to conventional Medicaid reimbursement, which has no comparable limitations.

"When the limits went into place, that really changed the game," says Gary Redding, head of Georgia’s Division of Medicaid Assistance, which administers Georgia’s Medicaid program. For the current year, Georgia reclassified about $75 million as conventional Medicaid that, under the previous year’s payment scheme, would have been counted as disproportionate share.

About half of the payments reclassified in Georgia’s recent initiative relate to allowable payments for graduate medical education, Mr. Redding says. Federal law allows states to boost conventional Medicaid payments up to what providers would have received if the care had been covered under the Medicare program, and payments must be "reasonably related" to the cost or volume of services.

"You can interpret that pretty broadly," says Mr. Redding. "We have some flexibility and try to take advantage of it."

Tweaking the Medicaid disproportionate share program to snag increased provider payments is not new. Disproportionate share dates from the early 1980s, and it was states’ successes in boosting these Medicaid payments that led the federal government in 1991 to restrict the kinds of funds that could be used for the state DSH match, as well as to apply brakes on the growth of the program.

"I want to make clear that I think that was a different time," says Mr. Spivey. "There are absolute caps now; it’s not like the Wild West days of the early ’90s."

The second part of the strategy that is picking up speed is tapping government sources other than general revenue for the state DSH match. Georgia has looked to public hospitals for the intergovernmental transfer of funds allowed for that purpose. While the state now sends 100% of the funds contributed by a given hospital back to that hospital — with the federal match — participating organizations get no guarantees that will always happen, he says.

"The trick is to get the hospitals to buy into it. When we first did this, we had to say Trust us,’" he says.

As in other states, South Carolina’s federal contribution to Medicaid DSH payments dropped in 1999-2000, cutting total DSH payments some $59.2 million or 13.3% over the previous year. At the same time, this year’s plan calls for the state to pay a larger share of Medicaid providers’ costs, boosting conventional Medicaid payments for inpatient services by $44 million and outpatient services by $20.5 million.

A key feature of South Carolina’s DSH plan is a "high-volume Medicaid adjuster" that is neither fish nor fowl — not conventional Medicaid or DSH payment. The three hospitals that had at least 35,000 Medicaid days in 1997 will share a $29 million pot "to ensure the continued viability of these high-volume Medicaid providers," says the public notice announcing the fund.

While the Health Care Financing Administration has not approved the proposed plan amendments, the federal government hasn’t rejected them either, notes Marianne Melton, director of acute care reimbursement for South Carolina’s Medicaid agency.

Tapping local governments

Florida’s teaching hospitals are trying to convince county governments to increase their contributions to the Medicaid DSH program. If successful, the funds will be used to offset some of the $45 million extra the state would be asked to kick in to conventional Medicaid in the upcoming year, a hike that would boost conventional Medicaid payments by $185 million.

In a total Medicaid budget of $7 billion, the boost doesn’t seem like much. For the state’s statutory teaching hospitals, though, it’s crucial, says Ms. Gorrie.

"The first round of BBA cuts has really hit the fan," says Ms. Gorrie, an associate in the Tallahassee firm of Pennington, Moore, Wilkinson, Bell and Dunbar. "We’re doing it for the people who are caring for Medicaid recipients and the uninsured."

She says she hopes the four large Florida counties that tax residents for health care services accept her premise — that their contributions to the state Medicaid program ultimately will make their way back home enhanced with the federal match.

"When you have a sophisticated health care program and mission, they get it," says Ms. Gorrie.

To help restore BBA’s Medicaid DSH funding cut, hospital groups nationally are lobbying Congress on behalf of three bills: HR 3698, HR 3710, and SB 2299, says Lynne Fagnanni of the National Association of Public Hospitals and Health Systems in Washington, DC. The BBA cut out $10.4 billion in absolute funding compared to 1995 spending levels, she says, and reduced what would have been spent in 2002 by 37%.

Contact Mr. Spivey at (202) 383-9497, Ms. Gorrie at (850) 222-3533, and Ms. Melton at (803) 898-1030.