Already profitable New York City teaching hospitals will inherit millions of dollars under a behind-the-scenes accord linked to the state's Medicaid managed-care waiver, and that's infuriated their upstate siblings.
At issue is a nearly $1.3 billion federal funding package negotiated by Dennis Rivera, president of Local 1199 of the National Health and Human Services Employees Union, and Kenneth Raske, president of the Greater New York Hospital Association. Local 1199 represents about 120,000 hospital workers in New York City. Raske, who intervened on behalf of the city's public hospitals, represents about 100 hospitals in the New York City area.
The package negotiated with state health officials and the Clinton administration, with Vice President Al Gore's endorsement, is intended to help hospitals rejigger services and retrain workers for a managed-care environment.
HCFA granted the state's Medicaid waiver request last month. Under the state's plan, more than 2.4 million Medicaid recipients would be shifted into managed-care plans by December 2000 (July 21, p. 6). In theory, the money to pay for the special funding package will come from the savings the federal government will enjoy from the state implementing its Medicaid managed-care program.
The state's annual Medicaid budget is about $24 billion, about half of that coming from the federal government.
To qualify for a piece of the special funding package, hospitals must derive 20% or more of their annual admissions from Medicaid, self-pay or indigent patients. One of the largest beneficiaries is New York City Health and Hospitals Corp., which operates 11 acute-care public hospitals and derives more than half its net patient service revenues from Medicaid. Although the five-year funding package will be distributed among 82 hospitals across the state, New York City-based providers get the lion's share.
Hospitals in New York City, Long Island and counties just north of the city will get about 95% of the money. Included are some of the city's largest academic medical centers, which posted annual profits in the tens of millions of dollars, according to data analyzed by MODERN HEALTHCARE* (See chart).
Before getting any money, hospitals will have to submit their spending plans for health department approval. "It has to be about capacity-building for managed care," said New York State Health Commissioner Barbara DeBuono, M.D. Payments will be made over five years.
The deal, critics say, is just the latest boondoggle in a string of federal and state pork-barrel projects favoring New York City providers. They say it's unfair for downstate hospitals to receive a special break when upstate providers with high Medicare loads won't get a dime to offset federal Medicare reductions.
"For that amount of money to be appropriated and to have this thing done very quietly was very strange," said Gary Fitzgerald, president of the Iroquois Healthcare Association. His group represents 58 hospitals in 31 upstate counties representing 9% of the state's Medicaid volume and qualifying for 2% of the federal funding.
"It sounds like sour grapes," Fitzgerald acknowledged. "We didn't get ours." But it's really a fairness issue, he said. His members derive 50% to 70% of their revenues from Medicare.
"I don't see money being restored to hospital rates (to offset Medicare cuts)," he said.
Critics also claim the windfall undermines upstate providers' ability to compete. According to some hospital executives, the perks New York City hospitals have been receiving give them a cushion to negotiate HMO discounts below Medicaid rates. Upstate hospitals feel they've been put in an awkward position because they cannot afford to give HMOs the same kinds of breaks.
Bonnie Howell, president and chief executive officer of 204-bed Cayuga Medical Center at Ithica (N.Y.), said she tells local employers her hospital simply cannot satisfy HMOs' demands for such cut-rate deals.
"I have tried to say to them, these (downstate) organizations have alternative sources of income . . . . that I do not have and so, consequently, they can afford to do that," she said.
Howell said the federal Medicaid transition package ultimately benefits insurance companies.
"The point is that (downstate hospitals) are using (the funding) to allow or encourage the commercial insurance business to be delivered at below-Medicaid rates," she said.
In Howell's view, though, New York should either encourage a market-based system or control rates. "To me it's one way or another," she said.
New York City hospitals have long benefited from their powerful political ties in Washington and Albany. This spring, for example, they scored a financial coup when HCFA agreed to pay area hospitals to stop training so many new physicians. Bruce Vladeck, who is stepping down as HCFA administrator, recently disclosed plans to join New York City's Mount Sinai School of Medicine as a professor in the department of health policy.
Just last week, state lawmakers agreed to continue funding "financially distressed" hospitals, mostly based in New York City, earmarking some $24 million for that purpose. The funding is part of a handshake agreement between Gov. George Pataki and state lawmakers that irons out major sticking points in the state's long-overdue budget for the fiscal year that began April 1.
Hospitals largely averted $500 million in additional state Medicaid cuts the governor had proposed. The pact also phases out over three years the 0.7% tax on hospitals' gross receipts, which, along with nursing home and home-care assessments, generated some $550 million a year for state coffers.
Raske, the hospital association president, said the Medicaid transition funding deal has to be viewed as part of an entire package. That package, he said, includes the state's phase-out of the hospital gross receipts tax, an item that will benefit many upstate providers. "Therein lies the balance," he said.
He added that a number of New York City hospitals are not getting any transition money because they don't make the 20% Medicaid admissions cutoff, "and that is disturbing to me." Raske said such funding is appropriate for Medicaid providers because they will need to develop clinics and add information systems in order to manage care appropriately.
Health Commissioner DeBuono supported the federal aid package.
"I think that all the hospitals in the state have felt that they are going to be left out of Medicaid managed care if all of the money is going to flow to plans that basically play one off against the other," DeBuono explained. Hospitals, she said, "really want to play and be players," and the state supported that thinking.
But critics question the state's sanctioning of a political favor that largely benefits hospitals in a city that supports some 20,000 excess hospital beds, according to some estimates.
"So we're paying for excess capacity," charged Christopher J. Rogers, administrator of Auburn (N.Y.) Memorial Hospital. "If we have scarce resources, the money should go where it's needed. It should not go where you have political influence."