Testimony for Oversight Hearing: Charity Care Funding for New York City Hospitals

Elisabeth Ryden Benjamin

Testimony by Elisabeth Benjamin
VP of Health Initiatives, Community Service Society

Before the New York City Council Committee on Hospitals

Testimony for Oversight Hearing: Charity Care Funding for New York City Hospitals

January 16, 2019

The Community Service Society of New York (CSS) would like to thank the Chair and members of the New York City Council Committee on Hospitals for the opportunity to submit this testimony on charity care funding for New York City hospitals. CSS is a 175-year-old 501(c)(3) non-profit dedicated to fighting poverty and strengthening New York. The organization seeks to address economic disparity through research, advocacy, and innovative programs that strengthen and benefit all New Yorkers. CSS recognizes that access to quality affordable health care is essential to building strong, equitable, and economically secure communities. For more information on CSS, visit us on the web at www.cssny.org.


The time to reform charity care is now

Federal Disproportionate Share Hospital (DSH) funding plays a critical role in supporting hospitals that provide uncompensated care to low-income patients, including NYC Health + Hospitals (H + H). New York’s uninsured rate has been cut in half since the Affordable Care Act’s (ACA) coverage expansions took place, but 1.1 million New Yorkers still remain uninsured. Uninsured low-income New Yorkers rely on hospital financial assistance (also known as “charity care”) to receive needed medical treatment while averting financial disaster for themselves and their families.

New York City Council members have an opportunity now to weigh in on potential changes to this funding on both the federal and state levels. Our testimony will address three critical issues:

1. Distribution of DSH funding through New York’s Indigent Care Pool (ICP) causes unintended consequences, benefitting rich hospitals that provide little uncompensated care at the expense of true safety net hospitals.

2. Health + Hospitals will be the first hospitals to lose funding under impending federal DSH cuts, losing an estimated $700 million to $870 million in the first year.

3. The State’s regulatory system fails to adequately enforce the Hospital Financial Assistance Law (HFAL) requirements, hurting the remaining low-income uninsured patients.


New York should fix the Indigent Care Pool

Through the Indigent Care Pool, New York distributes $1.13 billion in funding, including

$995 million for voluntary (private, non-profit), and $139.4 million for public hospitals. Unlike most states, which direct DSH funding only to selected hospitals that provide the most care to Medicaid and uninsured patients, New York chooses to distribute ICP funds to virtually all hospitals—including private voluntary hospitals—in the state.

Since 2000, the pool has been criticized by patient advocates for a lack of transparency in the funding distribution formula.1 For example, some hospitals that receive significant ICP funding persistently fail to provide discounted care to financially needy patients, according to state data.

As a result of this advocacy, NYS Department of Health (SDOH) convened a workgroup in 2012 that recommended changing the distribution formula. The pre-2012 formula based distributions on hospitals’ reported bad debt and charity care spending. Bad debt is the cost of care to patients who are not given discounts, including patients sent to collections, as well as unpaid cost-sharing for insured patients (i.e. deductibles, co-pays). Under federal regulations, states are no longer allowed to use bad debt as a basis for DSH distributions. The workgroup recommended a new payment method that eliminated this reliance on bad debt.

The 2012 payment method compensates hospitals for actual services provided to uninsured and Medicaid enrollees. Hospitals were concerned about the fiscal uncertainty caused by moving to a new formula, so the state included a three-year transition “collar” to limit a hospital’s exposure. The collar limited losses to 2.5% first year, growing by 2.5% each year. The collar also limited how much funding a hospital could gain under the new formula. In 2015, the state extended the three-year transition period by an additional three years, and the 2018 enacted budget extended the transition period by one more year. If extensions continue, the collar will not close until the year 2050.

In January 2018, CSS published a report examining the impact of the 2012 reform, Unintended Consequences: How New York State Patients and Safety-Net Hospitals are Shortchanged. The report found that the transition collar results in roughly 85% of ICP funding being distributed in an accountable fashion that supports hospitals that provide services to uninsured and Medicaid patients. However, the collar maintains about 15% of funding distribution based on the old, unaccountable formula. As a result, hundreds of millions of dollars flowed away from struggling true safety-net hospitals serving large numbers of uninsured and low-income patients to hospitals with healthier bottom lines. For example, in 2015 the transition collar took $138 million from 54 losing hospitals and distributed it among 93 winning hospitals. Losing hospitals, on average, provided twice as much financial assistance to low-income uninsured patients as winning hospitals. In Unintended Consequences, CSS recommended that New York allow the transition collar to sunset in 2018 and move to a more accountable system that ensures that ICP money directly reimburses uninsured patient care.

Nearly all policymakers agree that DSH funding should be targeted to “safety-net” hospitals. The question is, then, what is a “safety-net” hospital? National experts, such as the Institute of Medicine and the Agency for Healthcare Research and Quality (AHRQ) have resolved this question by defining a “safety-net” hospital as one that provides “a significant level of health care and other health-related services to uninsured, Medicaid, and other vulnerable patients.” Using the AHRQ definition and 2015 data, CSS found that nine of the top ten safety-net hospitals in New York state are NYC Health + Hospitals facilities; 22 of the top 25 safety-net hospitals in the state are located in New York City.

In 2018, the Governor and Legislature agreed in a budget side letter to form a NYS Indigent Care Workgroup to make recommendations regarding DSH and ICP funding. The Workgroup was convened with 22 members, including hospital representatives, consumer advocates, and labor representatives. Workgroup members met four times. During these meetings, SDOH presented three alternative ways to distribute ICP funding, and three Workgroup members presented their proposed alternative methods: the Hospital Association of New York State (HANYS), NYC Health + Hospitals, and the New York State Nurses Association (NYSNA).

CSS has joined eight other Workgroup members in endorsing the Health + Hospitals Community Coalition proposal. The H + H Community Coalition proposal eliminates the transition collar from the ICP distribution methodology. It reduces the ICP by $300 million across all hospitals proportionally and invests that $300 million in ICP funds into Medicaid increases for Safety Net and At Risk/Other Needy hospitals. The proposal addresses the disparity between well-resourced and needier hospitals, establishing a tiered Medicaid payment for safety net hospitals. Finally, public hospitals would be able to access the remaining $150 million federal in DSH funds formerly used for ICP.

The City Council should consider joining the H + H Community Coalition in urging a fairer allocation of ICP funds and an end to the transition collar.


NYC should join hospitals and consumers in opposing looming DSH cuts

On the federal level, the ACA mandated billions of dollars in cuts to DSH funding payments nationally because so many of the uninsured would be newly eligible for ACA insurance. These cuts were slated to take effect in 2014 but have been delayed until 2019. New York is the biggest recipient of DSH funding (16% of the national total). As a result, our state is particularly vulnerable to the planned cuts in DSH under the ACA.

While New York’s robust implementation of the ACA has cut uninsured rates in half, a large number of ACA-ineligible individuals (i.e. immigrants and people who cannot afford coverage) remain uninsured. Safety net hospitals also continue to need DSH funding to supplement low Medicaid reimbursement rates.

New York distributes about $3.6 billion in state, local, and federal DSH funding to hospitals annually in four stages. New York’s gross DSH cut could be $1.3 billion in FFY 2020 and $2.6 billion in FFY 2021.  H + H is the largest recipient of DSH funds in New York and has on average received about $1.4 billion in DSH funding.  Because the bulk of funding for Health + Hospitals comes in the fourth stage under current state law, H + H will bear the initial brunt of any federal cuts – at least the first $700 million and up to $870 million in the first year.

Cuts of this size would have a huge impact on patients and on efforts to address health disparities. Health + Hospitals still serves around 382,000 uninsured individuals annually and Health + Hospitals system is the largest provider of care to uninsured patients and patients covered by the Medicaid program in the city. While uninsurance rates in New York state have been cut in half under the Affordable Care Act (ACA), NYC Health + Hospitals facilities continue to serve a disproportionate share of the city’s remaining uninsured. Because members of racial and ethnic minority communities continue to have higher rates of uninsurance and are more likely to be insured by public programs such as Medicaid, hospitals that serve uninsured and publicly-insured patients have a strong role to play in reducing racial and ethnic health disparities.

The New York State Department of Health, hospital representatives, and consumer advocates are united in opposing the federal funding cuts. New York City Council Members should educate New York’s Congressional delegation about the need to prevent these cuts and state legislators about reforming the sequencing of state DSH distributions.


Hospitals are failing to provide discounts to eligible patients

Although the state’s Hospital Financial Assistance Law (HFAL) requires hospitals that receive ICP funding to offer discounted care to uninsured low-income patients, many hospitals have long failed to meet the state’s requirements for their hospital financial assistance programs. The 2012 ICP reforms included the creation of a new HFAL audit system and incentive pool to reward hospitals that follow the law and DOH guidance.

In the Unintended Consequences report, CSS found that SDOH’s implementation of the HFAL audit failed to hold hospitals accountable. The report recommended that SDOH adopt a single uniform statewide financial assistance application and other materials to be used by all hospitals.  The Governor’s 2018 State of the State also indicated that it is time for all hospitals to use a uniform financial assistance application, and CSS continues to advocate for adoption of this reform.

Thank you for the opportunity to submit this testimony.  Should you have any further questions, please do not hesitate to contact Elisabeth Benjamin at ebenjamin@cssny.org.

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