PA Hospitals: PHC4 Report Shows $100 Million Growth in Uncompensated Care

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Responding to a new Pennsylvania Health Care Cost Containment Council (PHC4) report, The Hospital & Healthsystem Association of Pennsylvania (HAP) today said that Pennsylvania’s acute care hospitals face an uncertain financial future and that full restoration of hospital payments in the 2012-2013 state budget is essential if patient access to care is to be preserved.

PHC4’s report, Financial Analysis 2011: Volume One—General Acute Care Hospitals, covers the year ended June 30, 2011, and it documents that the state’s hospitals provided $990 million in uncompensated care—a nearly $100 million increase in just one year.

“The hospital financial performance documented in this report is welcome news, but it is not a long-term trend,” said HAP President and CEO Carolyn F. Scanlan. “This one-year snapshot of hospital performance masks the financial uncertainty facing hospitals in the current fiscal year and going forward.” The release of the PHC4 report follows last week’s report from Moody’s Investors Services that expects ratings downgrades for nonprofit hospitals nationwide to outpace upgrades this year.

“While Medical Assistance payment modernization and a short-term improvement in non-operating income helped to push aggregate hospital margins just over the threshold of viability for 2010-2011, the outlook for the current year, and subsequent years, is troubling,” Scanlan said.

Preliminary financial data compiled by HAP for the first half of the current fiscal year shows a four-percentage-point drop in total margins—the largest decline over the past seven fiscal years.

In addition, HAP recently released data showing Medicaid payments falling short of costs by $5.28 billion between 2011 and 2015.

“This shortfall is financially harmful for Pennsylvania’s hospitals, and patients will suffer as access to care is reduced through hospital or service closures,” Scanlan said. “With state revenue continuing to improve, hospital payments should be fully restored in the final state budget.”

Scanlan emphasized that the Medicaid program has always paid hospitals at less than the cost of care, but that budget and payment policy changes in Harrisburg will cause the shortfall to more than double in the coming year.

“In fiscal year 2011, Medicaid paid Pennsylvania’s hospitals $542 million less than the cost of care for Medicaid patients,” Scanlan said. “For fiscal years 2013 through 2015, the shortfall exceeds $1 billion annually and peaks at $1.454 billion in 2015.”

Scanlan added that the Medicaid payment shortfall is just a small component of the hospital community’s financial predicament in Pennsylvania.

“The impact of this year’s proposed budget is not a one-time occurrence,” Scanlan said. “It is on top of a current-year budget freeze that will reduce special payments for obstetrics/neonatal, burn care, trauma care, and critical access hospitals by 10%; a 2% reduction (“sequester”) in Medicare payments as a result of federal deficit reduction action by Congress; last year’s state reductions in uncompensated care and Medical Assistance payments for obstetrics/neonatal intensive care, burn care, trauma care, and critical access hospitals; and $9 billion in other Medicare and Medicaid payment reductions that will be absorbed by hospitals as part of federal health reform.

Scanlan expressed appreciation for the state Senate’s vote to restore some hospital funding in the coming year’s budget and noted that HAP will continue to work with the Governor and legislators on full restoration of Medical Assistance payments to hospitals.

“Whether nonprofit hospitals, for-profit businesses, or even individuals, it is virtually impossible to avoid fiscal harm when costs continue to exceed revenues,” Scanlan said. “While hospitals’ Medicaid payments have improved modestly over the past two years, the payment shortfall remains.”

“Preserving patient access to care is a must,” Scanlan said. “We cannot continue to fund ‘must-have’ services at ‘nice-to-have’ levels. We urge the legislature to remedy this disconnect by crafting a final budget that brings budget rhetoric and reality into alignment. Pennsylvania’s patients and hospitals are a ‘must-have’—yesterday, today, and tomorrow.”

HAP is a statewide membership services organization that advocates for nearly 250 Pennsylvania acute and specialty care, primary care, subacute care, long-term care, home health, and hospice providers, as well as the patients and communities they serve. Additional information about HAP is available online atwww.haponline.org.