Richest Hospitals Get Funds Meant for the Poor

David R. Jones, The Urban Agenda

The best of intentions can go off the rails – and when this happens, unintended consequences demand an immediate fix.   A case in point is the state’s Indigent Care Pool that distributes upwards of $1 billion annually in Disproportionate Share Hospital Funding (DSH), which is intended to support hospitals that serve a higher share of patients who are poor and uninsured. 

A new study by the Community Service Society finds in fact that the ICP’s funding distribution, despite 2012 reforms to make it more accountable, continues to provide significant windfalls to some hospitals that fail to provide meaningful levels of care to uninsured patients. A new, more accountable formula adopted in 2012 prioritizes funding to hospitals based on their services to uninsured and Medicaid patients. A three-year transition “collar” limiting hospital losses while they adjusted to the new formula was included in the reform, and then extended for three more years without public input.

The sums in question are not insignificant:  From 2013-2016, hospitals received over $550 million in windfall payments under the transition collar.   

These ICP windfalls are paid to hospitals that, according to the CSS study, provide about half as much financial assistance to patients per hospital bed as the hospitals that lost funding.  For instance, in 2015, the formula took $138 million from 54 hospitals statewide and redistributed it as windfalls to 93 other hospitals.  Consequently, the faulty formula resulted in the unfair reallocation of 12.2 percent of the total $1.134 billion in ICP funding.

The 20 hospitals with the highest annual ICP windfalls include well-heeled institutions such as Memorial Sloan Kettering, Mt. Sinai-St Luke’s, Mt. Sinai Beth Israel and the Hospital for Special Surgery.  Meanwhile the 20 biggest losers list is dominated by institutions in New York City’s public hospital system, Health + Hospitals.  (Note: I am a member of the blue-ribbon commission the mayor created last year that recommended the city hospital system consolidate and "substantially" reduce its inpatient care in order to improve its finances and sustain the system going forward.)

Federal DSH funding cuts under the Affordable Care Act (ACA), slated to take effect this year, raise the stakes.  New York will lose $329 million in just the first year of the cuts, which would come entirely from Health + Hospitals.  Today’s H + H system, which serves more than one million patients a year, (425,000 of whom are uninsured), is trapped in a death spiral of declining revenue and budget deficits projected to rise to $1.8 billion by FY2020. Six of the 11 H+H hospitals have Level 1 trauma centers reducing the pressure on private volunteer hospitals that provide this kind of emergency care.  Health + Hospitals is the largest provider of care to uninsured and low-income patients in the state.  H+H is also the largest provider of addiction and psychiatric services in the city. 

The transition collar is due to expire in 2018. Governor Cuomo and the Legislature should let it sunset this year. If Congress does not act to delay the cuts to DSH funding, New York should re-examine how we’re spending the remaining funding to protect the hospitals that serve our most vulnerable patients.

To his credit, Gov. Cuomo proposed in his executive budget to extend the collar for only one more year, rather than proposing another three-year extension. Eliminating the transition collar could reduce funding for some safety-net hospitals, such as Brookdale Hospital in Brooklyn.  A spokesman for the state budget office said that the state needs an additional year under the transition collar to work with hospitals and other stakeholders to find a new formula for the ICP. 

Changing the ICP funding formula is a top priority that requires Cuomo, in the name of fairness, to stand up to the status quo.  It won’t be easy: the debate pits powerful private and voluntary  hospitals against true safety net hospitals and the various unions that work in them. Evenhandedness demands that wealthy hospitals, whose boards are filled with major political campaign contributors, no longer be allowed to use the ICP as a rainy-day fund.

Immigrants and communities of color disproportionately depend on NYC’s financially beleaguered public health system.  The loss of federal Medicaid funding, and no alternative ICP formula, would amount to a body-blow to H + H and its essential role in providing services to the poor and people of color. No less than the future of H + H hangs in the balance.   

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