Georgia cuts costs in state employee health plan; hospital payments slashed, PPO on deck

Georgia plans to cap hospital reimbursements for government and university employees, eliminating one of the state’s last bastions of traditional indemnity coverage and pinching an industry already complaining about cutbacks in government programs.

If hospitals decline to participate in the new plan, though, they could find themselves frozen out of future state business.

In November, the state’s Department of Community Health in Atlanta gave hospitals a take-it-or-leave-it offer: 150% of the Medicaid rate to serve state and university employees. All of the 162 invited acute care hospitals re-enlisted by the Dec. 3 deadline.

For Georgia hospitals, the state’s indemnity plan was "one of the few cost-shift opportunities left to help reimburse for indigent charity care costs uncovered by other sources," says Cal Calhoun, vice president for finance at Georgia’s hospital association. "It’s hard to take issue with the governor when he wants to use his purchasing power to make economic decisions on state costs. But as far as the hospitals go, it’s another reimbursement reduction, which makes it tough to bear all the other cuts that are coming."

For many hospitals, the new plan is something of a Hobson’s choice; 150% of Medicaid is almost a guarantee they will suffer new financial shortfalls but being frozen out of future state business is untenable. The State Health Benefit Plan and the university system plan, which joined forces to contract with hospitals, cover 555,000 and 90,000 employees respectively.

State officials hardly had a choice themselves. The cuts are expected to generate about $18 million in savings, but the department still expects to ask the legislature to covers $200 million deficit in the plans for the current fiscal year. In another cost-cutting effort, the state is developing a preferred provider organization (PPO) option for the 2000-01 fiscal year. Hospitals that don’t participate in the direct contracting initiative now won’t be allowed to be part of any PPO panel offered to state employees.

Hospitals sitting on the contracting sidelines also are precluded from billing the state or university plans electronically and are subject to a reduced usual and customary fee schedule for state health plan business. As if that weren’t a big enough stick, their lack of participation will be "noted" in Certificate of Need reviews.

Georgia reimburses for Medicaid services, the model for hospital payment in the state employee plan, on a diagnosis-related group (DRG) basis similar to that used by Medicare. While the program’s payment categories are based on a CHAMPUS grouper, actual reimbursement rates are a function of Medicaid costs rather than the Medicare DRG fee schedule.

"Actuarial analysis has confirmed that our reimbursement rates to hospitals are significantly above the rates that are available to any large employer in Georgia. This is not a defensible position for the largest purchaser of health care in the state," DCH director Russ Toal said in a letter to hospital CEOs.

There’s no current attempt to restructure payment for care provided to Georgia’s 1.2 million Medicaid enrollees, says state spokeswoman Joyce Goldberg, but adds that the state is interested in "coordination" and "integration" among its health plans.

Speaking from the bully pulpit, Mr. Toal told hospital CEOs in his Nov. 12 letter to expect "integrated management, consolidation of administrative functions, adoption of sound business practices, and purchasing maximization" as part of the state’s effort to put its health programs on a sound financial footing. This could suggest that more than the state plans will be overhauled under Governor Roy Barnes.

Contact the Georgia Department of Community Health at (404) 656-6359.