Even as the U.S. Supreme Court prepares to hear a pivotal case for the future of New York's hospital rate-setting system, hospital representatives are beginning to envision the broad outlines of a new reimbursement contract with the state.
"What's needed is a plan for the transition to a competitive system," said Daniel Sisto, president of the 400-member Healthcare Association of New York State. Such a plan should provide a four- to five-year transition to a market-based system, he said. The plan also should provide uncompensated-care subsidies and expanded access to capital so that hospitals have enough flexibility to form integrated delivery systems, he said.
The state's current rate-setting system expires at the end of 1995.
Discussions with state officials about the next hospital reimbursement system are very preliminary, Mr. Sisto stressed. There are many unknowns that will shape the eventual outcome, such as whether Democratic Gov. Mario Cuomo will be re-elected this November, and whether New York will retain its exemption from the federal Employee Retirement Income Security Act.
ERISA is the 1974 federal law that governs private benefit plans. Because most employees in the country get health benefits through employer- or union-sponsored benefit plans, the law has proved to be a powerful tool.
On Oct. 7, the Supreme Court agreed to review an ERISA case that challenges New York's practice of adding surcharges to privately insured patients' inpatient hospital bills. The case could profoundly change the way New York hospitals are reimbursed. But it's also being closely watched by other states that rely on ERISA waivers.
The plaintiffs in the case, led by Hartford, Conn.-based Travelers Insurance Co., claim that ERISA prevents the state from passing along surcharges to private payers (Sept. 21, 1992, p. 16). A ruling this year by the 2nd U.S. Circuit Court of Appeals upheld a federal court decision that the hospital taxes are illegal.
A 13% surcharge paid by commercial insurers generates $200 million annually. It is intended to offset losses that hospitals incur when treating Medicaid and Blue Cross patients.
The lower courts also struck down a 9% surcharge paid to the state by some HMOs and an 11% tax paid to the state by commercial insurers during the fiscal year ended March 30, 1993.
In a statement, Travelers said it is confident the Supreme Court will uphold the lower court's ruling.
HANYS' Mr. Sisto said the high court's ruling "could be a significant precedent" in other ERISA cases. New York's rate-setting system is the target of several ERISA-based lawsuits that threaten to unravel the entire hospital reimbursement system (See chart).
For example, a case brought by Connecticut General Life Insurance Co. challenges not only the 13% surcharge but rate-setting in general, along with hospitals' right to balance-bill patients for charges their insurance companies refuse to pay (June 14, 1993, p. 26).
Through a special federal tax code amendment, New York's system of adding surcharges to hospital bills is protected through May 12, 1995. It is an interim measure meant to hold together the state's hospital reimbursement system until the courts resolve the matter.
If the ability to shift uncompensated-care costs to private payers is lost and hospitals bear the burden, the state will need a new social contract with not-for-profit providers, Mr. Sisto said.