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No relief for hospitals in Brewer’s budget

Hospitals like Banner Good Samaritan are not eligible for a rate increase under Gov. Jan Brewer's budget plan. (File photo)

With an uptick in state revenues, Gov. Jan Brewer is proposing to alleviate some of the pain the state’s Medicaid providers have been experiencing.

The governor wants to give a 3 percent rate increase to state health care providers, including physicians, behavioral health professionals and nursing facilities.

But one group that is among the worst hit by years of incessant budget cutting would be left out — hospitals.

Some speculate the reason is political payback for the hospitals’ decision to sue the state after the governor and lawmakers cut, as part of a budget-balancing scheme, the reimbursement rate to Medicaid providers.

But a gubernatorial spokesman flatly rejected the notion that the decision to exclude hospitals is a result of some political retribution.

There’s another plausible explanation, but no one is publicly talking about it — and it has something to do with the inner-workings of the hospitals’ lawsuit against the state.

Including hospitals in the rate increase could potentially put the state in an awkward position of having to explain to federal authorities why hospitals need the rate increase at the same time the state is defending its budget decision to cut that same reimbursement rate last year.

In short, it could potentially weaken the state’s defense in court.

Sources within the hospital community, who asked to speak on background because of the sensitivity of the issue, said this sentiment is “widespread.”

This view is shared particularly among those who are politically attuned, one source said.

In its lawsuit, the Arizona Hospital and Health Care Association cited federal law that says Medicaid payments to hospitals must be “consistent with efficiency, economy, and quality of care, and sufficient to ensure that beneficiaries have equal access to services.”

The group argued that federal courts have interpreted this to mean Medicaid rates must be “reasonably related to hospital costs.”

But the group said the recent 5 percent rate cut, along with four previous years of rate freezes and payment reductions, meant payments to hospitals fell by 33 percent below actual costs.

The group is arguing that those rate reductions run afoul of federal law and court rulings.

Meanwhile, the state has maintained that the cuts are reasonable, and the Arizona Health Care Cost Containment System, or state Medicaid, commissioned a study that said even with the rate reductions, the reimbursements to hospitals will more than cover their costs and they are unlikely to withdraw from AHCCCS networks.

Brewer and the Legislature substantially cut health care funding as a way to balance the state’s then-gaping budget hole. They also pointed out that health care spending had dramatically risen, and general fund support spiked to nearly

30 percent of the state’s operating budget — up from 20 percent in 1999.

Brewer’s office offered a practical reason for excluding hospitals: The state has to show the federal Centers for Medicare & Medicaid, which must approve rate increases in reimbursements to providers, that the raise is necessary and not providing it would limit people’s access to care — and it can’t illustrate that need for hospitals.

• • •

The governor’s decision to exclude hospitals from getting the rate increase again stung a sector of the health care industry that has been reeling from the impact of the state’s budget decisions.

The hospital association reported a sharp rise in uncompensated care in October, which the group attributed to the enrollment freeze of adults without dependent children in Medicaid as well as the freeze on the medical expense deduction program.

Uncompensated care is a hospital’s unreimbursed or uncollectible costs for treating people, including those who are rushed to the emergency rooms without insurance.

The 6 percent hike in uncompensated care in October amounted to about

$52 million, the group said, adding that nearly all hospitals in Arizona, on the average, operated on a loss, albeit the negative margin isn’t so huge — 1.2 percent.

In the case of St. Joseph’s Hospital and Medical Center, one of the state’s biggest charity hospitals, there was a 37 percent increase in uncompensated coverage between July and October of last year.

But numbers don’t fully illustrate the hospital’s difficulties.

Suzanne Pfister, an executive at St. Joseph’s, said the hospital is shutting down its cardiac rehab program, one of the most dramatic decisions the hospital has had to make recently.

One of the main drivers of that decision was a result of “cumulative cuts” over the last several years, Pfister said.

Chris Herstam, who lobbies for Banner Health and Tucson Medical Center, also lamented the hospitals’ exclusion from the rate increase.

Herstam said hospitals are getting hit financially from two directions — the reimbursement rate freezes and cuts, as well as the rising costs of uncompensated care.

“Now, finally, they’re going to give a small increase and they’re not including hospitals, and then at the same time, the hospital industry, unlike many of the other providers, are getting killed by uncompensated care costs,” he said.

Herstam said Tucson Medical Center, for example, has seen its uncompensated care cost spike dramatically and anticipates it to double this year when compared to 2010.

That’s why for the health sector, the governor’s decision to exclude the hospitals from the rate increase is “disheartening,” Pfister said.

Health care representatives argue it weakens an economic driver that has proven to be quite resilient during the recession.

Economists have said the health care sector has been one of the few bright spots in the state’s economy during its lowest points, adding instead of losing jobs in the past five years.

• • •

The governor’s budget plan is, of course, a starting point for discussions with legislators.

A final spending plan isn’t expected until sometime in March or maybe even as late as April.

In short, there’s ample room for tweaks as Brewer and other Republican leaders hammer out a budget agreement.

The hospital community is likely to ramp up its lobbying efforts in the next few weeks to try to include them in the provider rate increase.

The hospitals are also likely to find sympathetic ears among rural legislators, who represent parts of the state where health care is offered by a limited number of small hospitals.

One rural legislator who is keen to see some additional funding for hospitals is Rep. Russ Jones, a Yuma Republican.

Jones said some of the rural hospitals are on life support and desperately need the state’s help.

He said he is “very uncomfortable” with the governor’s proposal — unless there are provisions to either expand or put money into a fund for hospitals that have a disproportionate share of low-income patients, with special attention given to public and non-profit hospitals with heavy AHCCCS caseload.

“If not, they need to be included in the 3-percent increase,” Jones said.

Actually, the Governor’s Office is not completely shutting its doors to reconsidering the decision to exclude hospitals from rate increase.

Gubernatorial spokesman Matthew Benson said Brewer is always open to new information.

AHCCCS is conducting a more in-depth study about which Medicaid providers should get the rate increase, he noted.

“If at the conclusion of its more in-depth analysis, AHCCCS finds that the hospitals or any other providers are in urgent need of a rate increase then the governor would consider that,” Benson said.

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