New York City Council Oversight Hearing: Charity Care Funding in New York City Hospitals

Mitchell Katz, M.D., President and Chief Executive Officer
NYC HEALTH + HOSPITALS
Tuesday, January 16, 2019

Good afternoon Chairwoman Rivera, and members of the Hospitals Committee. I am Mitchell Katz, M.D., President and Chief Executive Officer of the NYC Health + Hospitals (“Health + Hospitals”). Thank you for the opportunity to appear before you today to share the key elements of Health + Hospitals wide-ranging proposal to rebalance the distribution of New York State hospital indigent [or charity] care funding, while remaining fiscally prudent and staying within the constraints of the New York State Medicaid Global Cap. The proposal was submitted to the temporary New York State Indigent Care Workgroup¹, of which I was a member, in November. The workgroup was charged with preparing a report on its findings and recommendations, which has not been released yet.

As you know, Health + Hospitals is New York City’s single largest provider of care to Medicaid patients, those with behavioral health needs, and the uninsured. Our core mission is providing universal access to high quality health care services to 1.1 million New Yorkers, regardless of their ability to pay, or their immigration status. Nearly 70% of Health + Hospitals inpatient care is provided to low-income Medicaid and uninsured patients, compared to less than 40% of stays for other New York City Hospitals², and half of all uninsured hospital stays and uninsured emergency department visits in New York City occur at Health + Hospitals facilities – a disproportionate share compared to every other health system in the City³.

While New York State’s Medicaid program provides robust health coverage for millions of low-income individuals, Medicaid reimbursement rates have not adequately covered hospitals’ costs for providing care to the most vulnerable among us. As such, the federal Medicaid disproportionate share hospital (DSH) program payments to all hospitals – public and voluntary/not-for-profit – to offset their uncompensated costs is a critical funding source for our financial stability.

Disproportionate Share Hospital Program

Each year, New York State distributes approximately $3.5 billion⁴ gross in DSH funding to both public and voluntary hospitals. As the largest provider of Medicaid/uninsured care in New York State – treating over 380,000 uninsured patients, and approximately 600,000 Medicaid beneficiaries – Health + Hospitals is the largest recipient of the State’s DSH funds, and has on average received about $1.4 billion in funding.

Under the Affordable Care Act (ACA) DSH funding was reduced with the assumption that most uninsured will be eligible for health insurance, which would mean less hospital uncompensated care, and therefore less DSH funding. However, that has not borne true. From 2013-2014, New York hospitals’ total uncompensated care losses increased by $645 million, which reflects an $835 million increase in Medicaid losses offset by a reduction in their losses from treating uninsured patients of $190 million⁵. Under the current federal law, and draft federal rules, New York State’s gross DSH cut could be $1.3 billion⁶ in FFY 2020, and $2.6 billion FFY 2021-25. Without a change to current State law, Health + Hospitals would be first in line for federal DSH cuts, as it is last in line for funding. This would result in Health + Hospitals receiving the first $700 million in cuts in FFY 2020, before any other hospitals DSH funding is reduced.

The Council has been instrumental in previous advocacy efforts to delay DSH cuts, especially you Chairwoman Rivera. We look forward to continue working with you to fight back these damaging cuts.

New York State is charged with distributing federal DSH payments to hospitals pursuant to a formula in State law, which requires funding to first be distributed to state hospitals (including mental hospitals), second to voluntary and public hospitals⁷ through the indigent care pool (ICP) and other allocations, and third to Health + Hospitals, which receives the remaining funds after DSH payments are made to all other hospitals throughout the State.

With such large reimbursement cuts looming on the horizon, New York State should move towards driving more DSH funding to hospitals that provide the most care to low-income and uninsured patients. As was previously stated, Health + Hospitals is the safety-net for New Yorkers, and is the largest provider of Medicaid/uninsured care in New York State. The money should follow the patient.

Indigent Care Workgroup/Health + Hospitals Proposal

As I mentioned earlier, I was a member of the Indigent Care Workgroup, which was charged with making recommendations on reforming DSH and ICP funding. Members of the workgroup were from the hospital/health plan and consumer/labor sectors, and met four times from July through November. Several proposals were advanced for consideration, including ones from the Healthcare Association of New York State; the New York State Department of Health; the New York State Nurses Association; and Health + Hospitals/Community Coalition – a coalition of community advocates and labor representatives.

The Health + Hospitals/Community Coalition proposal was predicated on a set of principles based on a fair and equitable approach to allocate a greater proportion of ICP funds to those hospitals that provide services to uninsured and Medicaid populations – the enhanced safety net hospitals and at-risk/needy hospitals. Our proposal would 1) eliminate the ICP “transition collar,” 2) increase Medicaid rates, and 3) optimize federal funding. This proposal is distinct from our advocacy to ensure federal DSH cuts do not happen.

Below I provide background and more specifics on three proposals advanced to the indigent care workgroup.

• Elimination of the Indigent Care Pool (ICP) “Transition Collar:” In 2012, the State sought to better align ICP funding with provision of indigent care, and developed a methodology to distribute the funds based largely on the number or “units of service” a hospital provides to the uninsured. In order to protect hospitals from large fluctuations in revenues under the new methodology, a 3-year “transition collar” was put in place. This meant that in the first year, no hospital could lose more than 2.5% of its previous 3-year average in ICP funding. By the end of the third year, no hospital could lose more than 7.5% of its previous three-year average. In 2015, the NYS Legislature authorized another three years of transition payments, and by 2018, no hospital could lose more than 15% of its previous three-year average in ICP payments⁸.

  The unintended consequence of extending the “transition collar” is some hospitals who serve the fewest uninsured continue to benefit from the pre-2012 ICP allocations, while some safety-net institutions, such as Health + Hospitals that provide care to large numbers of uninsured and Medicaid patients, are underfunded.

  Proposal: Remove the “transition collar” and reduce ICP funding for all hospitals in order to reinvest the funding in Medicaid rate increases for Safety Net and At-Risk/Other Needy hospitals.
• Enhancement of Medicaid rates for Safety Net and At Risk/Other Needy Hospitals: Since passage of the ACA, Medicaid rates have stagnated, and have created ever increasing financial jeopardy and instability for hospitals that disproportionately provide essential safety net services to low income and at-risk communities. On average, two-thirds of New York State hospital DSH caps are now generated by losses on Medicaid services, rather than the uninsured. This has contributed to a growing disparity between hospitals that have greater access to commercial payers and those that are dependent on public insurance programs.
  Proposal Invest funds reduced from the ICP into across the board rate increases, or increases weighted to prioritize ambulatory and primary care. The funding split between publics and voluntary enhanced safety net and at risk/other needy providers would remain proportional to the public/voluntary shares of ICP funding. There would also be dedicated funding for Critical Access Hospitals.
• Optimization of available federal funding to support these essential services: The reduction in ICP funds reduces the State’s DSH spending, leaving that portion of the state-wide federal DSH allotment still available to be drawn down. Public hospitals can use Intergovernmental Transfers (IGTs) from their sponsoring entities to retain these federal funds. We assume that Health + Hospitals would access two-thirds of this federal funding, with the remaining third going to other public hospitals across the State.

Protect Safety-net and At-Risk/Needy Hospitals:

Our proposal as outlined ensures that the bulk of hospitals identified as Safety Net and At Risk/Other Needy providers gain needed resources to support their care of uninsured and Medicaid patients. To ensure that all Safety Net and At Risk/Other Needy hospitals receive the maximum possible funding, we propose that the State expand existing programs for financially distressed hospitals. These expansions would be modest and can be achieved within existing funds at no additional cost to the State.

By taking a broad view of the needs of Safety Net and At Risk/Other Needy hospitals, this proposal is able to implement elimination of the ICP “transition collar,” without jeopardizing essential hospitals providing services to needy communities. Moreover, it increases Medicaid reimbursement for those hospitals in recognition of the connection between unsustainably low Medicaid rates and the vulnerable financial position of these providers. The proposal also leverages new federal Medicaid funds, while retaining all existing federal DSH funds, allowing increased DSH funding for public hospitals.

Thank you for the opportunity to testify before you today on an important issue to Health + Hospitals and safety net providers across the State and the City. I look forward to answering any questions you may have.

¹ The indigent care workgroup was a requirement of an agreement between the Governor and the NYS Assembly for the enactment of the SFY 2018-19 budget. The agreement stated “The Department [of Health] will establish a temporary workgroup on hospital indigent care methodology which will make recommendations regarding Disproportionate Share Hospital (DSH) and Indigent Care Pool (ICP) funding. The workgroup shall convene no later than June 1, 2018 and create a report on its findings no later than December 1, 2018.”

² Analysis of 2012-2014 Statewide Planning and Research Cooperative System (SPARCS)

³ Ibid.

⁴ NYS receives 14.7% of nationwide federal DSH funding, resulting in approximately $3.5 billion of gross DSH to distribute to NY hospitals.

⁵ GNYHA analysis of CMS Medicaid DSH cap audit data, 2013 and 2014.

⁶ NYS could receive 16% or more of the national cut ($4 billion) in FFY 2020; ($8 billion) each year from FFY 2021 – 2025.

⁷ For non-Health + Hospitals public hospitals, the non-federal share of DSH funds comes from their respective local governments via intergovernmental transfers (IGT).

⁸ “Unintended Consequences – New York State Patients and Safety-Net Hospitals Are Shortchanges.” Community Service Society of New York. January 2018.