Another Illinois Medicaid shake-up threatens hospitals

For years, nearly every Illinois hospital has paid into a pot of money that helps the state bring in more federal dollars. But the program, effectively a tax on hospitals, is dated and doesn't reflect how much the health care industry has changed.

Now, state lawmakers, the Rauner administration and lobbyists want to modernize the hospital assessment program, shaking up how it doles out money to medical centers across the state. Currently, it redistributes funds based on claims data for Medicaid services provided in the hospital in 2005 and on an outpatient basis in 2009.

The potential overhaul is causing major anxiety among hospital executives. A public hearing about the potential changes is scheduled in the Loop on Jan. 11.

"The hospital tax assessment is our lifeblood," said Tim Egan, CEO of Roseland Community Hospital on the Far South Side. "Without it, you're going to see a massive string of hospitals shut down in Illinois."

Roseland, for example, contributes $3.8 million to the hospital assessment program each year, yet gets back about $23 million. That represents nearly half of the hospital's total budget.

The program, which is set to expire July 1, works this way. Each year, medical centers give a fixed amount of money to the state based on a formula that accounts for how many beds were full in 2005 and how much outpatient revenue was grossed in 2009. Illinois then sends it off to the federal Centers for Medicare & Medicaid Services for a match to generate a total of $3.5 billion for the state. Most of the money flows back to hospitals, but some goes to other services, including long-term care. The $3.5 billion pot represents about 16 percent of the budget for the Illinois Department of Healthcare & Family Services, which runs Medicaid.

The reality is that a lot has changed. Low-income Chicago neighborhoods that surround safety-net hospitals have emptied out, dwindling their patient base. The push toward outpatient care means fewer people need to be hospitalized. At the same time, the state expanded Medicaid under the Affordable Care Act, leading to crops of new patients who sought care elsewhere. The bottom line: The current assessment program doesn't reflect where Medicaid patients seek treatment.

"It's a tough process to renegotiate," said Rep. Greg Harris, a Chicago Democrat who is among the state lawmakers working to redesign the program. "Every hospital in the state is affected. There will be winners and there will be losers."

The revamp could drastically alter the hospital landscape in Illinois. In the new hospital assessment program, more money would follow the patient and hospitals would be paid based on Medicaid services they provided in 2015. At the same time, a special fund would help hospitals saddled with lots of vacant beds to close or convert to facilities that might be needed more, such as an urgent care center or a behavioral health hospital.

Hospitals that largely depend on Medicaid dollars would be prioritized. But in Roseland's case, some might still lose money going forward.

Under the latest proposal, Roseland would receive about $7 million less. This comes as CEO Egan's salary is frozen for at least 60 days (he makes $350,000 a year). Under orders from the board to keep the hospital afloat, he recently laid off workers and cut some senior executives' pay by 25 percent. Like hospitals around the state, Roseland isn't getting paid on time by private insurers that cover Medicaid patients, and it has seen an uptick in the number of claims insurers deny.

A.J. Wilhelmi, CEO of the Illinois Health & Hospital Association, a leading lobbying group that's negotiating the redesign on behalf of its members, acknowledged the tough path ahead for his industry. He represents safety-nets and affluent health systems alike.

"It's a challenging environment in health care," he said, ticking off a host of financial pressures that hospitals face. "We are working diligently to collect the input from our diverse membership and to move this program forward with significant reforms."

So far, a sticking point among lawmakers, lobbyists and the Rauner administration is how much additional money Illinois can spend on Medicaid, and therefore ask federal CMS to match. An analysis by Matt Werner Consulting found that Illinois could spend at least $500 million more, including the match from D.C.

In the meantime, hospital CEOs await their fate.

"Another Illinois Medicaid shake-up threatens hospitals" originally appeared in Crain's Chicago Business.