Ohio hospitals say governor’s budget could cause job, service cuts

COLUMBUS, Ohio — Leaders from six Ohio hospitals told state House subcommittee members earlier this week that significant job, income tax and medical service cuts are likely to result from Gov. Ted Strickland’s two-year budget proposal.

Officials of the Cleveland Clinic, St. Vincent Charity Hospital, Summa Health System and University Hospitals were among those who told the five-member Human Services Subcommittee about two big problems they have with the state’s proposed budget for fiscal 2010 and 2011. Both problems relate to Medicaid:

• A new hospital corporate franchise fee aimed at raising federal matching dollars for Ohio’s Medicaid program could drive significant losses of  jobs, medical services and income tax revenues in hospital communities.
• A “non-contracting” provision would force hospitals into non-negotiated relationships with private Medicaid managed care plans and potentially lower Medicaid reimbursement rates for hospitals.

The governor proposed the new franchise fee because the state needs to cover the cost of increased Medicaid caseloads — caused mostly by a deep economic recession, and related job and employer health insurance losses – with less general revenue fund money, said John Corlett, Ohio Medicaid director.

Last year, the program that covers health care for the poor and disabled added 100,000 people. Another 172,000 people could be added to the program by mid-2011, Corlett said in testimony to the Human Services Subcommittee (pdf) last week.

On Friday, the Ohio Department of Job and Family Services said the state’s unemployment rate grew to 9.4 percent – 566,000 people — in February from 8.8 percent, or 526,000 people, in January.

Yet Ohio tax revenues are expected to fall through fiscal 2011, Corlett said. So the governor proposed raising existing franchise fees for nursing homes and in-patient care facilities, and imposing a new franchise fee on hospitals, to cover rising Medicaid costs and bring in more matching money under the federal stimulus effort, Corlett said.

The governor also proposed giving some of the franchise fee back to hospitals by raising their Medicaid reimbursements 5 percent. But that would return only about 30 cents of every dollar to pay the new fee, said Dr. Lolita McDavid, medical director of child advocacy and protection for University Hospitals Rainbow Babies & Children’s Hospital, in her testimony.

The franchise fee is estimated by the Ohio Hospital Association to cost the state’s hospitals an addition $598 million during the two-year budget period.

Ohio hospitals already are stressed. The poor economy has cut patient volumes, as well as public and private insurance reimbursements. Earlier this month, four Ohio hospitals said they would cut about 250 jobs, shutter some programs and expand others to adjust to tough economic times.

The new fee could cost up to 90 full-time jobs among 3,600 employees at Community Care 5, a group of five independent community hospitals in Northwest Ohio, which has some of the highest unemployment rates in the state, said Patrick Martin(pdf), president of Fisher-Titus Medical Center in Norwalk.

It also could cost 400 jobs at the Cleveland Clinic, said Oliver Henkel Jr.(pdf), chief government relations officer, in his testimony. Cities like Cleveland in which jobs are lost also would lose income tax revenues, Henkel said.

In addition, the new fee could hurt hospital outreach efforts, Martin said. Community Care 5 hospitals could cut funding to local health departments and senior centers, as well as close health clinics that serve the poor, he said.

The new franchise fee is about 1.2 percent of total facility cost for each hospital. That facility cost includes the cost of charity care — the care hospitals provide for free. So the new fee has the effect of taxing hospitals for charity care for which they receive no revenue.

“This proposal discourages charity care,” said Jeffrey Jeney(pdf), president and chief executive of St. Vincent Charity Hospital, in his testimony.

The intent of the new fee is not to hurt hospitals but to buttress the state’s Medicaid system without reducing people’s eligibility or services — or reimbursement rates for care providers — which several other states have done, Corlett said.

Ohio Rep. Edna Brown, the Toledo Democrat who chairs the Human Services Subcommittee, said she and fellow subcommittee members will submit their budget amendment proposals to the chair of the Ohio House Finance & Appropriations Committee in a week or two.

“The [fee], that’s something new. Perhaps it’s not equitable,” Brown said. “I get a feeling there is sympathy for the hospitals on this particular issue.”

As for the non-contracting provision, the state would set an “artificial” ceiling for Medicaid payment rates, said James Pancoast(pdf), president of Premier Health Partners in Dayton, in his written testimony. This would eliminate the incentive for managed care plans to negotiate rates with hospitals, Pancoast said.

Hospitals contract with Medicaid managed care plans for the highest reimbursement rates they can get. Contracts between hospitals and the plans  also legally bind the organizations “to act in a responsible business fashion” and provide legal remedies if one party fails to live up to the agreements, Pancoast said.

Some Ohio hospitals have negotiated reimbursement rates of  up to 120 percent of the “fee for service” rates that Medicaid pays hospitals directly for their services, Corlett said. The state’s Medicaid director would like to see those reimbursement rates closer to 100 percent of the fee-for-service rate. “We don’t want to pay more than we have to,” he said.

Pancoast said, however, that the fee-for-service rate covers only 86 percent of hospitals’ cost of care. Corlett concedes that there is a gap between the fee-for-service rate and cost of care for most hospitals.

The hospitals are talking with the governor’s office to solve what they see as inequities in the proposed state budget, Rep. Brown said.

“I’ve asked them to continue to negotiate and talk with the governor’s office and see what they can come up with,” she said. “I’m hoping that they come up with something that both sides can agree on so that we as legislators don’t have to force anything on one side or the other.”