Hospital braces for state budget cuts

MIDDLEBURY — Gov. James Douglas’s proposed state budget cuts have hospital administrators at Porter Medical Center keeping a close eye on what potentially severe cutbacks in health and human services funding could mean for Vermont hospitals.
With Medicaid funding and hospital reimbursements on the chopping block, Porter President James Daily said Vermont hospitals will have to figure out how to make do with less in a time when the state’s $150 million deficit “defines the time for us to pull together and get through this.”
“These are extraordinary times,” Daily continued. “Clearly human services, including health care and education, were the primary targets (of Douglas’s budget cuts), but that’s where the money is.”
The biggest threats to hospital funding in Douglas’s proposed state budget are threefold. First, the governor calls for caps on Medicaid spending.
“Vermont’s Medicaid program is among the most generous in the nation,” said Douglas in his budget address last week. “We can all be proud of efforts to expand coverage, because better health outcomes are achieved when people get care before they become sick. But maintaining coverage for the greatest number of people will mean scaling back benefits for some.”
Right now, Daily said, roughly one in three Vermonters qualify for Medicaid.
Scaling back benefits could mean putting in place some caps on services. Douglas has proposed capping emergency room visits that do not result in hospitalization at 12 visits per year, a change he said would bring Vermont more in line with other states.
But Daily expressed some concerns that capping a Medicaid patient’s visits to the emergency room and doctors’ offices would just push more costs onto the hospital in the end.
“Obviously we have a mission, and we’re going to take care of everybody, regardless of their ability to pay,” Daily said.
If a patient shows up for a 13th visit to the emergency room, he said, the hospital wouldn’t turn that person away; instead, they’d bill Medicaid, and if the claim is denied the hospital would be stuck absorbing that cost.
Second, Douglas’s budget would trim back what hospitals receive in what are commonly called DSH (pronounced “dish”) payments, or Medicare “disproportional share” payments.
These payments are a way to compensate hospitals for the higher operating costs they incur treating a large share of low-income patients.
In the past, DSH payments have traditionally made up some of the gap caused by provider taxes that the hospital pays to the state. But this year, Douglas’s budget would keep tax rates for hospitals at the same level while dialing back DSH payments, a move that would generate an extra $7 million for the state.
Third, Daily said that Douglas’s proposed cuts could have less direct impacts on hospital services by putting the hospital in the position of serving as a “safety net” should social services see significant cuts.
The budget calls for targeted reimbursement rate reductions for home health agencies, and across-the-board grant and rate reductions for smaller providers working with the Department for Children and Families. The proposals also include hikes in deductibles for the state-provided Catamount Health insurance program.
Daily expressed concern that the higher deductibles might cause some Catamount users to drop their insurance — a move that could leave the hospital treating more uninsured patients with no guarantee of payment.
“We’re concerned about a number of those impacts,” Daily said, mentioning community mental health agencies in particular. If their resources dry up, he said, the emergency department could bear the burden of some of those changes.
Moving ahead, Daily said he’ll be working with other leaders at community health and social services organizations in the county to make sure groups are collaborating to meet increasing needs in an environment of decreasing resources.
“We’ve known for some time that this was going to be a challenging fiscal period, so we’ll also take a look at anything out of the ordinary, and be even more collaborative than before, to make sure that the safety net is strong,” Daily said.
The governor’s budget proposals did bring some good news for the hospital. Douglas’s budget supports inflationary increases for the 39 Vermont nursing homes that accept Medicaid payments, including the Helen Porter Healthcare and Rehabilitation Center in Middlebury.
Daily didn’t know yet just how the hospital would make up for the proposed cuts, if they come to pass.
One option, he said, would be to reduce expenses and try to get by on a smaller operating margin — a choice that he sees as all but impossible given the hospital’s plan to invest heavily in a new electronic medical records system in the coming year.
Traditionally, the other way to address Medicaid or Medicare cutbacks has been to shift costs to other rate payers. Medicaid is one of the worst culprits for cost shifting: In 2008, Medicaid reimbursed the hospital roughly 35 cents for every dollar the hospital charged the program. The extra 65 cents is shifted to other rate payers, who end up paying more.
But Daily expressed some reluctance to continue the cost shifting pattern.
“The fact of the matter is that cost shifting these gaps, that will be larger this year, only takes someone else’s job, or compensation or benefits away. In a time when job creation and full employment and creating economic activity is important, we’re going to have to really use good judgment about how much of the gap we can cost shift,” Daily said.

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