A budget-balancing gimmick that effectively reduces uncompensated-care payments to Connecticut's 35 general acute-care hospitals has prompted the state hospital association to consider bringing legal action.
Deep reductions in New York's Medicaid program already have caused some hospitals and nursing homes to lay off staff and trim services.
For months, providers in both states have lobbied lawmakers to soften the blow of proposed budget-balancing initiatives. The states' fiscal 1996 budgets passed earlier this month.
In Connecticut, the General Assembly approved a bill that requires hospitals to collect $342 million in taxes from hospital patients, $102 million of which will be diverted to the state.
Of the $102 million, $25 million is earmarked for the creation of a distressed-hospital fund, but the other $77 million goes into the state's general fund. The state also will draw another $120 million in federal matching money.
Last year, hospitals collected $302 million. Of that, $262 million was redistributed to cover uncompensated care, and the state kept $40 million.
The 17% tax collected by hospitals, originally meant to offset uncompensated-care costs, consists of an 11% tax on hospitals' gross revenues and a 6% sales tax on nongovernmental revenues generated from hospital services.
Because of a November 1994 federal court decision that found the assessments to be in violation of the Employee Retirement Income Security Act, the future of the taxes has been unclear. But a more recent ruling by the U.S. Supreme Court in favor of New York's hospital surcharges undermines the ERISA prohibition in Connecticut (May 1, p. 2).
Under Connecticut's new formula for redistributing the tax proceeds, most hospitals will get back less money than they put in, said Dennis May, president of the Connecticut Hospital Association. Yale-New Haven Hospital, New Haven, Conn., will fare the worst with an expected shortfall of $10 million.
CHA attorneys are studying possible litigation, and members may ask for a special legislative session, May said.
New York's budget for the fiscal year that began April 1 finally passed on June 6. Healthcare providers acknowledged that the budget mitigates some of the fiscal pressure they might have endured under Gov. George Pataki's budget blueprint. It's a "significant improvement, but we still have a lot of pain," said Kenneth E. Raske, president of the Greater New York Hospital Association.
The final budget reduces projected Medicaid spending of $5.9 billion by $500 million. That's less than half the $1.2 billion cut proposed by the governor (Feb. 6, p. 10).
The Legislature approved $137 million in cuts to hospitals, or 44% of the $307 million Pataki wanted to take from providers. But because the formula used to control hospitals' inpatient rates magnifies the impact of Medicaid cuts, the net impact is a $400 million reduction in hospitals' revenues, Raske said.
Nursing homes, which faced a $243 million reduction, will see their payments squeezed by $143 million. In addition, nursing homes will pay $35 million this year in taxes on gross income.
In anticipation of the cuts, more than 1,100 healthcare workers have been laid off in New York since the beginning of April and more than two dozen healthcare providers have implemented hiring freezes, according to the Healthcare Association of New York State. Seventeen facilities have curtailed or plan to reduce services, HANYS said.
Despite Pataki's big push to make managed care mandatory for Medicaid recipients, the budget didn't include authorization to move ahead with the plan. The Pataki administration says it will press for federal approval of a Medicaid waiver to make the program mandatory.
Under the current voluntary program, counties are encouraged to enroll Medicaid recipients in managed-care plans. The state's goal is to have 1.1 million Medicaid recipients in managed-care plans by 1996.