California hospitals will get nearly $700 million in additional Medicaid payments over the next four years under a legal settlement last week with the state, but the hospitals say it's still not enough to pull them out of their ongoing financial slump.
"Like many settlements, it's insufficient and does not in any way resolve the structural problems of outpatient or inpatient reimbursement, but it was the best we could do," said Robert Sillen, executive director of the Santa Clara Valley Health and Hospital System in San Jose, Calif.
Santa Clara County was one of eight counties that together sued the California Department of Health Services in 1990, accusing the agency of setting insufficient Medicaid rates for outpatient care.
In a written statement, C. Duane Dauner, president of the California Healthcare Association, which also sued, was conciliatory: "California's hospitals are grateful that the governor and his staff exerted the leadership necessary to bring this longstanding problem to a resolution."
The settlement resolves three lawsuits filed from 1990 to 1992. In addition to the lawsuit by the eight counties and the CHA, a group of hospitals also sued the California Department of Health Services. All three suits alleged that Medi-Cal outpatient payments were insufficient to cover costs. Combined, the suits demanded some $3 billion in back pay and a doubling of outpatient rates. Medi-Cal is the state's Medicaid program.
Hospitals participating in the Medi-Cal program and providing outpatient services will get a total of about $678 million over the next four years, starting no later than June 30, 2001.
The settlement calls for a one-time payment from the state of $350 million to redress the years the hospitals went without rate increases. It will be followed on July 1, 2001, by a 30% increase in outpatient payment rates -- or an additional $78 million a year. The rates would then increase 3.3% per year through 2004, representing about $250 million.
Although Gov. Gray Davis said in a written statement the settlement "will ensure that hospitals in our state will have the resources to provide care to all Californians," hospital lobbyists and executives insist it was merely the best deal they could cut after a decade of litigation.
The settlement left most providers grumbling that it doesn't come close to redressing the fact that they haven't received an increase in Medi-Cal outpatient reimbursement rates since 1985.
Medi-Cal directly paid hospitals about $2.7 billion in 1999. Of that, $2.4 billion was spent on inpatient care, while $300.2 million was spent on outpatient care. The figures do not include payments Medi-Cal made to health plans for its managed-care programs, which cover about 2.6 million Californians.
According to Sillen, California's hospitals receive no more than 33 cents per dollar against their costs for providing outpatient care for Medi-Cal patients -- meaning the increases to which the parties agreed still won't cover losses assumed by hospitals for treating Medi-Cal outpatients. But continuing to fight for more money probably would have taken another decade, Sillen added.
CHA spokeswoman Jan Emerson acknowledged the settlement does not solve all the problems, but noted that Medi-Cal outpatient rates will be going up in the short term.
"At least it's something," she said.
That something, however, nearly matches the aggregate profit earned by California's 395 general acute-care hospitals last year.
According to the latest available data from the American Hospital Association, those hospitals posted an aggregate profit of about $682.3 million in 1999, which represented a 1.9% profit margin. The profit margin for hospitals nationally last year was 4.7%.