Over 3-year period more than half a billion dollars in Indigent Care Pool funds went to hospitals that served fewer uninsured and needy patients than real safety-net hospitals
New York, NY, — Delay in full implementation of reforms to the allocation of scarce Indigent Care Pool (ICP) funding have resulted in unintended consequences. A new Community Service Society study of New York’s ICP found that hundreds of millions of dollars actually flowed away from struggling safety-net hospitals serving large numbers of uninsured and low-income patients to hospitals with healthier bottom lines.
The report, “Unintended Consequences: How New York State Patients and Safety-Net Hospitals are Shortchanged,” studied the impact of 2012 reforms on ICP payment distributions statewide. These reforms changed the distribution formula to direct funding based on hospital services to uninsured and Medicaid patients. The law included a three-year transition collar, based on an unaccountable formula, which limits losses and gains to allow hospitals to adjust to the new system. But in 2015, without public discussion, this unaccountable transition collar was extended for another three years.
In 2015, $138 million in ICP funds were taken from 54 hospitals and distributed as windfalls to 93 other hospitals. This harms needy patients because the windfall hospitals, on average, provided about half as much financial assistance to patients, per hospital bed, as the hospitals that lost funds. Overall, between 2013 and 2016, hospitals received windfalls of more than $558 million.
“Public funds intended to help patients who are low-income and uninsured should flow to hospitals that serve these patients,” said David R. Jones, CEO and President of the Community Service Society. “With Washington cutting funds to hospitals that serve low-income, uninsured patients -- who are disproportionately racial and ethnic minorities -- New York needs to step up and ensure that hospitals providing care to the most vulnerable patients are not shortchanged.”
“The ICP provides more than one billion dollars in public funds to hospitals. The transition collar has had the unintended effect of directing some of these limited funds away from the hospitals and patients that need them the most,” said Elisabeth R. Benjamin, Community Service Society Vice President for Health Initiatives. “This report lays out recommendations that, if implemented, will help ensure that ICP money follows the patient.”
The report makes the following recommendations to ensure that the $1.13 billion in ICP funds are distributed to hospitals that provide hospital financial assistance to uninsured patients:
- End transition adjustment payments in 2018 so all ICP funding is distributed in an accountable and equitable manner;
- Improve the patient experience by: (1) adopting a uniform statewide financial assistance application, and (2) requiring hospitals to accept DOH income and residence determinations and eliminate any asset tests.
Changes in Federal Law Make Protecting ICP Funds More Urgent
Two important federal laws make the need to eliminate the transition payment adjustment urgent.
First, as more people become insured, the Affordable Care Act (ACA) reduces the amount of federal Disproportionate Hospital Share (DSH) funds that supports hospitals that provide care to the uninsured. These funds support the ICP.
This year, New York is slated to lose an estimated $329 million in federal DSH funding, with more cuts to come through 2025. Under current law the entire first year’s cut would come from NYC Health + Hospitals, the largest provider of care to uninsured and low-income patients in the state.
DSH funding is intended to help hospitals that “serve a disproportionate number of low-income patients with special needs.” The Institute of Medicine (IOM) defines safety-net hospitals as those that provide a significant level of health care to “uninsured, Medicaid, and other vulnerable patients.” The transition collar wastes dwindling DSH funds on non-safety net hospitals that provide disproportionately less care to those patients who need it.
Second, federal DSH payment regulations prohibit states from using DSH funds for bad debt. The transition collar impermissibly continues the use of bad debt in the ICP payment formula. Some of the hospitals with the highest transition payment bonuses from 2013 to 2015 were hospitals that had reported a high percentage of bad debt compared to charity care in 2012.
New York should allow the transition adjustments to sunset once and for all in 2018. New York should mitigate any harm that eliminating the transition adjustments would cause for safety-net hospitals. In addition, in the face of enormous federal cuts to the program that funds New York’s ICP, this funding should be allocated solely on the basis of services provided to uninsured patients who have received hospital financial assistance. Only this will ensure that the interests of New York’s most needy patients and taxpayers alike will be fully served.