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Health care cuts may be larger than they appear

The actual cut to Arizona Health Care Cost Containment System will be more than double than what appears in print if lawmakers approve the fiscal 2010 budget plan without including a routine funding adjustment to cover inflation in health care costs.

Budget discussions cleared the first hurdle last week when a House panel approved a plan to trim more than $2 billion from the state’s finances. AHCCCS, the agency charged with managing the state’s Medicaid system, would see its budget reduced by $60 million in fiscal 2010.

Programs to reimburse hospitals and private physicians for treatment of Medicaid patients would take the biggest hit – about $49 million. Private physicians will lose approximately $30 million and hospitals will be cut by almost $19 million, according to JLBC figures.

The impact of that particular budget reduction, though, will be compounded by the millions of dollars in inflation costs that physicians and hospitals will have to pay in the upcoming fiscal year. It would mark the first time since AHCCCS began in 1992 that the Legislature has withheld funding meant to cover medical inflation.

As a result, the state’s privately insured patients would fall victim to what is known as the “hidden health care tax,” which describes the overpayment for hospital services by privately insured patients that is used to cover the gap created when public insurers underpay for health care services.

“If the state does not pay its share of the health-care tab, then private payers – businesses and consumers that purchase commercial health insurance – foot the bill, and we all pay in the form of higher health care premiums,” said John Rivers, president and CEO of Arizona Hospital and Healthcare Association.

The budget, as written, would leave AHCCCS short the $54 million needed to cover the rise in the number of services provided by hospitals annually and the additional costs of providing care, which the department is required to account for under state and federal law. The measure also would prevent the state from receiving more than $200 million in federal matching funds for health care programs.

The rise in the cost of health care and the increased use of services by patients are two of the largest components governing reimbursements to physicians and hospitals for treating Medicaid beneficiaries. Reimbursement rates also are based on a formula that calculates payment depending on the average age, gender and medical risk of each patient.

Funding for health care in Arizona has risen by 6.3 percent each year since 2004, which is approximately the same inflation rate the Joint Legislative Budget Committee has forecasted for fiscal 2010.

Officials at AHCCCS said the funding reductions will mean more cuts to hospitals that withstood several reductions in fiscal 2009.

Meanwhile, health care providers across the state will be forced to cover the rising costs of medication and medical devices while also carrying out an expected 5-percent increase in the number of services provided.

Monica Coury, assistant director of the AHCCCS Office of Intergovernmental Relations, said the agency may have to reduce payments to hospitals for serving Medicaid patients by as much as 5 percent. The final size of the cut will remain unknown until later in the summer, Coury said.

If the budget passes as written, hospitals across the state would lose approximately $205 million in state and federal funding, according to the Arizona Hospital and Healthcare Association. The loss will lower hospital reimbursement rates to 67 percent from 85 percent of the total cost of treating Medicaid beneficiaries, according to a study done by the Lewin Group research firm.

Several lawmakers have said they won’t vote for a budget that ignores medical inflation. Rep. Bill Konopnicki, a Republican from Safford, said he will not vote for a measure that would affect so many people.

“There are too many people put at risk by the decision,” Konopnicki said. “We just cannot allow this measure to pass.”

Moderate Republicans in the House and Senate have objected to the proposal to withhold funding for medical inflation ever since the measure was first suggested in January as one solution to the state’s budget crisis.

Sen. Sylvia Allen, a Republican from Snowflake, said she is unhappy with the decision by legislative leaders, but she said the budget crisis makes the cuts necessary.

“It just appears as if there isn’t the money to fund the increases,” she said.

One solution to avoid the cuts to inflation is similar to the cost rollovers that have been used to fund the state’s elementary education programs for years – and decried by Republicans as an “accounting gimmick.”

The solution would allow the state to defer one month’s AHCCCS payment until fiscal 2011. The Arizona Hospital and Healthcare Association estimates that the move could save $110 million, which would allow the state to continue to cover medical inflation while still reducing the budget’s bottom line.

“At this point, I would consider anything,” Allen said. “We would still have to pay it in fiscal 2011, but maybe by then we would have had enough time to figure out where else we could cut. We just don’t have the time right now.”

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