AHCCCS changes choke off key funds, CEOs say
Legislative budget cuts this fiscal year to the state’s health-care system for the poor could raise insurance premiums for the rest of us, slow or stop plans for hospital expansions or improvements, and worsen the state’s doctor shortage, administrators say.
Hospitals in the state are reeling after the Arizona Legislature cut funds last month to the Arizona Health Care Cost Containment System by:
• Eliminating $13 million in state money that compensated hospitals for the care of a large number of uninsured patients and that helped close the gap between AHCCCS’s reimbursements and the costs of caring for AHCCCS patients.
These “disproportionate share” funds became even more crucial after AHCCCS reimbursements were frozen in October even as health care costs and the number of AHCCCS patients continued to climb.
• Reducing graduate medical education funding by $7 million, which will cost the state an additional $14 million in federal matching funds and could cause elimination of more than 100 residency positions statewide.
Jim Haynes, chief financial officer for the Arizona Hospital and Healthcare Association, said he has heard the Legislature is considering reducing the AHCCCS reimbursement by 5 percent for fiscal year 2010, which begins July 1.
“I think we live in fear of next year,” said Larry Aldrich, CEO of University Physicians Healthcare, which manages University Physicians Hospital on East Ajo Way and whose physician members also staff University Medical Center.
In the meantime, hospital administrators are trying to figure out how to live without the millions of dollars in anticipated funding that was cut from this year’s budget.
“Like most hospitals, we already lose money providing care for AHCCCS patients,” said Jean Tkachyk, chief financial officer for University Physicians Hospital.
AHCCCS pays hospitals set amounts for medical procedures and services, and hospitals receive on average about 80 cents for every dollar spent on an AHCCCS patient. However, the reimbursement freeze, combined with increased costs, has brought that average down to about 77 cents for every dollar spent, UMC chief financial officer Kevin Burns said.
The AHCCCS reimbursement freeze is costing UMC more than $3.5 million this year, on top of the loss incurred because the reimbursement falls short of the cost.
At Tucson Medical Center, the reimbursement freeze, combined with the reduction in disproportionate share payments will have at least a $4.5 million impact on this year’s budget, said spokeswoman Julia Strange.
“As a nonprofit hospital, we operate at a pretty narrow margin to begin with,” she said. “When we don’t receive the revenues that we expect at whatever level, that can make a pretty profound impact.”
In addition, the number of AHCCCS patients is increasing. AHCCCS patients in Pima County increased by 8 percent in 2008. Burns at UMC said that he anticipates that number will continue to climb as laid-off workers use up their severance packages and employer-offered health benefits.
Tucson has lost nearly 10,000 jobs in the last year.
In 1999 hospitals that treated a large percentage of AHCCCS and uninsured patients began to receive disproportionate share funds from the state.
In fiscal year 2008, Carondelet Health Network received a little more than $1 million for its three hospitals – St. Joseph’s and St. Mary’s in Tucson and Holy Cross in Nogales – while UMC received about $1.5 million. Hospitals traditionally receive that money in a lump sum on the last day of the fiscal year, June 30.
“That is a direct cut,” Bill Pike, Carondelet’s director of public policy, said of the Legislature’s elimination of disproportionate share funds. “We are seeing more people who are uninsured, either because employers are cutting back on coverage and certainly with people being out of work.”
People with health insurance may end up indirectly paying for those patients.
“Hospitals will attempt to shift as much of that shortfall to private-paying patients,” said John Rivers, CEO of the Arizona Hospital and Healthcare Association. “They will see their premiums go up much more than expected.”
According to an association survey released last month, 59 percent of Arizona hospitals said there were plans to shift health-care costs to private insurance companies.
But Burns of UMC said the option of passing on the costs to insurance companies is not feasible in the current economic climate.
“Right now, when you have high unemployment, the likelihood of being able to shift that shortfall to insurers – that window is closed to me,” he said. “We’re forecasting we’ll see an increase in (AHCCCS) and an increase in the uninsured, who for a time don’t have coverage from their employer.”
Before the federal economic stimulus was passed, hospital administrators had hoped that it would compensate for some of the state’s cuts. Instead, the stimulus may have just prevented even deeper cuts.
Monica Coury, assistant director of the office of intergovernmental regulations at AHCCCS, said the 2009 budget cuts approved in February, which eliminated $500 million from social services (including the Department of Economic Security and AHCCCS), had already taken into account the estimated $500 million coming from the federal stimulus, also approved in February.
“They settled on $500 million, so it’s kind of a wash,” she said. “Without the stimulus, they would have had to cut $500 million more.”
The hospital association survey found that 45 percent of hospitals in Arizona instituted a hiring freeze in the third quarter of 2008. In January, Burns said UMC had not imposed a hiring freeze, but that had changed by March.
“Our goal is to not have any layoffs at UMC,” Burns said. “We will fight hard to protect our staff. However, you never know what can transpire.”
Strange said TMC is under a “hiring chill.”
“We do have jobs that are posted, but each one of those positions are carefully looked at,” she said
The survey also found that:
• 74 percent of participating hospitals were postponing construction and renovation projects.
• 74 percent were delaying the purchase of clinical equipment.
• 52 percent were suspending information technology improvements.
• 71 percent estimated their capital projects will be delayed for more than a year.
“We are cutting everything you can cut and delaying investments,” said Tkachyk.
Both Aldrich and Burns believe the cuts to health care will end up causing damage to Arizona’s economy.
“Health care can help keep the economy going,” Burns said. “We buy a lot of expensive, high-end equipment. The more they (the state) dampen our flow, that trickles down to the rest of the economy.”
All of Pima County hospitals reported their patient totals have stayed stable or increased over the last year.
University Physicians Hospital’s interim CEO, Peter Bryan, said cutting graduate medical education funding will hurt patients and Arizona’s economy in the long run.
“For every graduate you generate $1.3 million for the community,” he said.
The federal government has given hospitals $2 for every $1 given by the state. Cutting $7 million cost Arizona hospitals $21 million in graduate medical education funding through the end of the year. Rivers estimates that cut will eliminate 112 residency positions a year.
However, the federal stimulus increased the match from $2 to $3. During a hearing Wednesday, members of the Arizona Senate’s Healthcare and Medical Liability Reform Committee learned that if the Legislature restored only $5.5 million in graduate medical education funds, Arizona hospitals would not lose any federal funding. The Legislature has until June 30 to restore funding to programs that receive a federal match.
Tkachyk said current residents won’t be affected by the 2009 cut because hospitals make a commitment to each student. Students planning to start Arizona residencies during 2010 will be affected.
“There’s a shortage of physicians currently in Arizona,” Strange of TMC said. “Funding of graduate medical education is clearly the best path to easing that shortage. The long-term impact is we will have an even greater physician shortage.”
Pima County AHCCCS enrollment figures
Dec. 2008: 184,260
Dec. 2007: 174,262
Dec. 2006: 166,790
Dec. 2005: 168,419
Dec. 2004: 168,505
Dec. 2003: 153,300
Source: Arizona Health Care Cost Containment System
DISPROPORTIONATE SHARE FUNDING
In February, the state Legislature eliminated disproportionate share money given to hospitals that take care of a large percentage of uninsured and self-pay patients. Several Pima County hospitals have been receiving this funding since 1999 and budget for it each year.
Hospital 2004 2005 2006 2007 2008
UMC $2M $1.1M $1.5M $1.3M $1.5M
TMC $1.5M $1.2M $1.2M $1.1M $1M
University Physicians $0 $868,279 $0 $2.1M $470,873
Northwest Hospital $53,765 $113,101 $144,516 $103,013 $256,324
St. Joseph’s Hospital $71,0393 $73,986 $96,033 $72,230 $172,376
St. Mary’s Hospital $315,332 $205,682 $178,383 $163,412 $636,464
Source: Arizona Hospital and Healthcare Association.
* Neither Tucson Heart Hospital nor Northwest Hospital at Oro Valley received disproportionate share money.
BREAKING DOWN THE CUTS
How cuts will affect University Medical Center and Tucson Medical Center:
AHCCCS reimbursement freeze will eliminate $3.5 million from the 2009 budget.
The elimination of disproportionate share funding will reduce the budget by at least $1.5 million.
A reduction in graduate medical education funding will take away $3.7 million.
AHCCCS reimbursement freeze will eliminate $2.5 million from the 2009 budget.
The elimination of disproportionate share funding will reduce the budget by at least $1 million.
A reduction in graduate medical education funding will take away $1 million.