Feds giving a safety net to Massachusetts’s safety net hospitals?

Two of the most prominent “safety net” hospitals in Massachusetts are facing sizable budget gaps again this year, and are turning to the feds to bail them out. Boston Medical Center (BMC) and Cambridge Health Alliance (CHA) have long received, in part because of their emphasis on the under- and uninsured, greater political assistance in propping up their balance sheets. The desired Medicaid waiver amendment would be worth $86 million this year for CHA and $90 million for BMC. These institutions play an important role in Massachusetts, but the new slug of federal dollars undermines the viability of Massachusetts health reform by introducing new annual bailouts.

A key accomplishment of the Massachusetts experiment was a deal to leverage public money away from hospitals for the care of the uninsured to assist low-income individuals in purchasing insurance on their own instead. MIT economist Jonathan Gruber described the status quo as “The federal government was essentially supplementing the expansion of these inner city hospitals.” For more on this funding arrangement see Greg D’Angelo and Ed Haislmaier “Health Care Reform in Massachusetts: Medicaid Waiver Renewal will Set a Precedent“.

Post-reform, these safety net hospitals were provided multiple measures to aid in the transition to the new health care landscape. For example, they were granted three years of supplemental payments starting at $200 million dollars and ratcheting back $20 million annually. This arrangement kept in place some form of direct payment to these institutions, and earmarked that money away from subsidized coverage for low-income individuals. Pioneer Institute’s Executive Director called for the end of these payments in a op-ed in The Boston Globe, see Jim Stergios “Doing the Math on Healthcare”

As Medicaid moved from direct payments for care toward more payments to managed care organizations, BMC and CHA established and were granted a three-year exclusive contract to these patients. The state was also given permission from the feds to use additional money remaining in the Safety Net Care Pool (SNCP) to compensate these hospitals for remaining care they provided to the uninsured.

Two things raise additional concerns. One, in order to make budget numbers work in a period of economic freefall, Governor Deval Patrick refused to make payment to BMC for Medicaid services already rendered. So the federal money possibly on its way to BMC could be another special deal to paper over Massachusetts’ budget woes.

Second, the budget gaps these hospitals face are reason for even more concern because of the President’s recently passed national health plan. Because the federal law both expands Medicaid eligibility and offers generous subsidies to families up to 400% of the federal poverty level (up from 300% in Massachusetts), the number of individuals seeking care at safety net hospitals is going to spike. Because the federal law is premised on $500 billion in projected “saving”/cuts from entitlement health spending, safety net hospitals will be in even higher demand as other doctors stop taking patients due to lower reimbursement rates. The Obama Administration has essentially asked the hospitals to accept a business model not seen since the late ‘90s internet boom — you’ll lose money on each patient but you’ll make it up on volume.

If safety net hospitals are not able to balance their budget sheets even with the special funding streams provided under the Massachusetts health reform, low-income individuals with private insurance or Medicaid will lose their place of care because the status quo is unsustainable.
All of these issues turn on ever-rising health care costs. And they make clear that we need reform that puts consumers in the drivers seat and leverages health care decisions to help contain health care costs. Instead of paying hospitals when individuals don’t have insurance or not reimbursing doctors at a rate that covers the cost of care, Massachusetts must focus on reforms that promote market choice and competition. That’s the only way to control the cost of providing coverage for employers and affordable, quality coverage for employees.
For more on how Massachusetts has struggled to aid its small business community by limiting competition and choice during health reform, and suggestions to fix it see Joshua Archambault “Massachusetts Health Care Reform Has Left Small Business Behind: A Warning to the States“