Healthcare Business News

Standing in line

Hospitals and doctors say rules could put stimulus money out of reach

By Melanie Evans
Posted: February 22, 2010 - 12:01 am ET

One year ago, Congress moved to buoy an economy swamped in a grim recession with billions of dollars to fuel spending, create jobs and shore up the nation's safety net.

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Now hospitals and doctors say key health provisions do not go far enough or risk shortchanging the sector of its share of the $787 billion stimulus package, which was signed into law Feb. 17, 2009, as the American Recovery and Reinvestment Act.

Key concerns relate to the possibility that health information technology incentive payments may be out of reach for many hospitals, and to an expected drop-off in Medicaid spending by the federal government.

The package's $87 billion boost to state Medicaid budgets runs out in December and without an extension, prolonged high unemployment may force states to sharply curb pay to hospitals and clinics, enrollment or benefits, say industry insiders and health policy experts.

“It's drastic times,” said Craig Becker, president of the Tennessee Hospital Association. Becker has found himself lobbying for a tax on hospital revenue he has successfully deflected throughout his 16-year tenure. The one-year fee would be used to plug scheduled cuts to state Medicaid spending in July, which, combined with lost federal matching funds, would cut hospitals' revenue by $540 million.

Meanwhile, stimulus spending on health IT—$14 billion to $27 billion of incentives to use electronic health records—won't begin until 2011 and may be sharply curtailed by proposed eligibility rules that put incentives out of reach, providers say (See related story, p. 16).

As of Feb. 12, HHS had spent $50.5 billion, or 71% of the $70.7 billion authorized under its stimulus funding through the end of January, on a variety of its programs, including the Indian Health Service, comparative effectiveness and basic science research.

The stimulus bill allocated $101.7 billion to HHS through fiscal 2010. When first announced, the total expected to be spent on healthcare was estimated to be at least $150 billion over the course of several years.

The National Institutes of Health, which has awarded more than 13,790 grants totaling more than $5.5 billion as of mid-February, had paid out $736.9 million by the end of January, according to figures released on the HHS and NIH Web sites. California, Massachusetts and New York lead the states in number of grants. The three states account for $970.2 million, $529.5 million and $438.8 million, respectively, of NIH grants awarded to date.

Hospitals and health systems also gained indirectly thanks to stimulus spending aimed at maintaining insurance coverage as job losses mounted, such as stimulus spending to subsidize private insurance for laid-off workers under the Consolidated Omnibus Budget Reconciliation Act.

Hospitals and health systems also have benefited from stimulus provisions designed to improve tight credit markets. Build America Bonds, created under the stimulus act, are credited for boosting demand and lower interest rates on bonds issued by not-for-profit hospitals and health systems. States, cities and other government borrowers were eligible to issue the Build America Bonds, which offered federal interest subsidies on taxable debt. That left fewer tax-exempt bonds for investors seeking such investments, helping to lower interest costs for not-for-profit hospitals. President Barack Obama has proposed continuing the Build America Bonds program, which is scheduled to expire in December, and extending the option to private not-for-profits.

But the bulk of HHS spending stems from Medicaid assistance to the states, which accounted for roughly $44 billion, or more than 87% of money paid out by the agency as of Feb. 12.

Medicaid lifeline

Under the stimulus bill, Congress agreed to temporarily cover more of the nation's Medicaid bill, which is jointly financed by federal and state taxes. The infusion runs out in December, though states and hospitals have pushed aggressively for an extension. Obama's budget has called for an additional $25 billion, but Congress would have to agree to that when a budget bill is passed into law for it to take effect.

States face a significant gap should aid expire as scheduled. More than half of the states will see their share of Medicaid financing soar by at least 10 percentage points once federal funding reverts to pre-recession ratios. Lingering effects of the recession have fueled Medicaid demand and crippled state revenue. (A federal commission charged with reviewing Medicaid access and payment policies has yet to be funded. (See story, p. 10.)

Nationwide, Medicaid grew by a record 3.28 million individuals for the year that ended in June 2009, said a report released last week by the Kaiser Commission on Medicaid and the Uninsured. For the first time since the early 1990s, every state saw enrollment climb, with Maryland, Utah and Wisconsin seeing the biggest percentage increases.

Demand and costs for the safety-net insurer had surpassed 2010 projections in 44 states and the District of Columbia, according to state Medicaid directors surveyed by Kaiser roughly six months into the fiscal year, which began July 1 for most states. More than two dozen states saw or expected midyear budget cuts. Among those likely to further squeeze spending, 21 states said Medicaid provider reimbursement was a target.

Nevada hospitals expect to see Medicaid reimbursement cut by at least 5% when the state Legislature meets in an emergency budget session this week, said Bill Welch, president and CEO of the Nevada Hospital Association.

Nevada must close a projected $890 million biennial budget gap through June 30, 2011, the largest in the state's history. Welch said the state is banking on an extension of the stimulus Medicaid funding to plug $90 million of the shortfall. “Being a betting state, I guess that makes it appropriate,” he said.

Governors in several states, including California and Massachusetts, have placed similar bets.

Without an extension, Welch said he expects Medicaid reimbursement cuts beyond the $19 million proposed.

Nevada saw one of the largest increases to the federal share of its Medicaid budget under the stimulus act, which tied aid to unemployment. The state paid 36% of its Medicaid bill in 2009 and 2010 compared with 50% prior to the act.

Without an extension, health-policy makers say states may make it harder to be eligible for the safety net insurance. The stimulus bill prohibited states from curbing access to Medicaid.

Incentives for electronic health records—which make up most of stimulus spending for health IT—may be more than 18 months away, but a trickle of stimulus health IT spending has begun. Earlier this month, HHS Secretary Kathleen Sebelius awarded $761 million of $1.2 billion earmarked to create 70 regional support centers and boost state investment in health IT.

Next month, HHS is expected to announce awards for $60 million set aside for health IT research and another $235 million to establish demonstrations of quality, efficiency or public health uses for information technology in 15 communities. In all, the recent and upcoming awards account for more than half of the $2 billion included in the act for such initiatives, workforce training and related efforts. Of those awards, just $45,000 had been paid out by the end of January. The Department of Labor has also announced $225 million to train workers in high-growth fields such as nursing and IT. And HHS in September released $27.8 million for health-center controlled networks and multistate health centers.

Future health IT payouts may be sharply curtailed by recently proposed criteria for electronic health-record incentives, hospital and physician groups argue.

Incentives for electronic health record use under Medicare, estimated to be $14 billion to $27 billion, are scheduled to begin in 2011. The payouts taper off over five years and are replaced with penalties.

Don May, vice president for policy of the American Hospital Association, said initial criteria to qualify for incentives, released in December, demand too much of providers too quickly and the trade group endorses an approach that would allow hospitals to meet a gradually increasing percentage of the criteria between 2011 and 2017.

May said the trade group supports criteria to show hospitals and doctors use electronic health records meaningfully, as required under the stimulus bill, but said the timeline and lack of flexibility set out to meet the requirements will leave many unable to qualify for incentives. The American Hospital Association supports allowing hospitals to meet 25% of meaningful use criteria in 2011-12; 50% in the following two years; 75% in 2015-16; and nearly all in 2017 to receive incentives, May said.

Doctors may consider accepting penalties rather than face the cost and disruption of trying to achieve the incentive criteria as proposed, said Robert Tennant, senior policy adviser to the Medical Group Management Association.

Rural hospitals also see obstacles to stimulus health IT spending.

Terry Hill, executive director of the National Rural Health Resource Center in Duluth, Minn., said stimulus incentives for electronic health records, as recently proposed, largely fail to help rural hospitals in greatest need of assistance.

Electronic health records at isolated, small hospitals—those federally designated as critical access hospitals—lag those of larger hospitals or health systems, he said. Remote rural hospitals also frequently lack a dedicated technology staff to prepare them to take advantage of stimulus incentives and face challenges recruiting sought-after health IT professionals.

Just not ready

Hill said many simply won't be ready as quickly as federal officials have proposed to receive the bonus payments. “We don't have a whole lot of hope,” he said.

Some limits on who can apply for incentives may also slow the spread of electronic health records in rural communities, rural health consultants said. Significantly, doctors who practice primarily in hospital-based clinics, a common arrangement in rural settings, are unable to apply for incentives of up to $44,000 per doctor under Medicare, said David Ginsberg, president of PrivaPlan Associates, a rural health IT consulting firm under contract with the Northcentral Montana Healthcare Alliance. He described the restriction as chilling. Of the alliance's 15 hospitals, 11 are critical-access hospitals and most are “very, very early in the adoption stage,” Ginsberg said.

Not everyone sees the criteria as insurmountable. Christiana Care Health System, a two-campus, 944-bed hospital based in Wilmington, Del., is on schedule to meet criteria for meaningful use by 2011, said Terri Steinberg, chief medical information officer.

Christiana Care began adopting computer physician order entry two years ago and began planning three years prior to that. Christiana launched its CPOE system at one of its two campuses earlier this month. The second will adopt CPOE in March. Steinberg applauded the content of the criteria with some caveats. “My first reaction was, ‘Wow, these guys really get it,' ” she said. But smaller hospitals with fewer resources face significant challenges achieving all that federal officials require.

St. Luke's Health System, based in Kansas City, Mo., moved up deployment of electronic medical records among its clinics to take advantage of the incentives, said Deborah Gash, the system's chief information officer. Gash said system executives approached St. Luke's physician clinics with information on stimulus incentives to spur adoption sooner rather than later. But the schedule for its 11 hospitals remains unchanged and all are expected to qualify for incentives by 2012, she said.

St. Luke's can benefit from incentive payments, Gash said, but she stressed the system won't recover its costs from the stimulus funding.

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