Connecticut hospitals say they are hurt by higher taxes, looming Medicaid cuts [NHRegister]

June 24, 2015

New Haven Register
NEW HAVEN >> Hospitals in the state are lobbying as hard as any group to eke out higher contributions from the state, but pressure from other sectors, particularly corporations looking for tax changes, could temper any gains as a special session draws near.

In each of the next two years, the state’s hospitals as a group will pay an estimated $105 million more between increases in taxes and adjustments in Medicaid rates, as well as other cuts, according to figures from the Connecticut Hospital Association.

More than half of that difference, $58,645,015, will be absorbed by the state’s largest hospital, Yale-New Haven Hospital, which will pay a net tax of $109.6 million in each year of the biennium starting in July.

“Is there any other corporation in this town (New Haven) that pays that amount of money to the state of Connecticut? I would say there is no company in the entire state that pays that tax to the state of Connecticut,” said Stephen Frayne, lobbyist for the CHA in an editorial board meeting with the New Haven Register.

Marna Borgstrom, CEO of Y-NH, said it provides services to the most Medicaid patients in the state, some 30,000 of then last year, nearly one quarter of its patient population.

She said while public reimbursements covered some 58 cents on the dollar up to now, that will drop to 40 cents when the state budget, narrowly approved on June 3, goes into effect on July 1.

That budget has not yet been sent to Gov. Dannel P. Malloy to sign, who last week suggested $223.5 million in tax reductions for businesses, after listening to their loud complaints. His proposal to cut 1.5 percent cross the board would mainly impact social service, higher education and town aid.

“It is going to be impossible to offer services to a quarter of our patients with business as usual,” Borgstrom said.

She said the Yale New Haven Health System “is basically being asked every other year to provide all of our care to Medicaid patients for free.”

Borgstrom is also president and CEO of the health system, which includes Bridgeport Hospital and Greenwich Hospital, in addition to Y-NH.

Frayne said the hospitals received $83 million from the state in 2011 to help cover costs; that dropped to $50 million in 2012 and became a net tax of $27 million in 2013; $100 million in 2014 and for this fiscal year, he said they are net taxpayers of $270 million.

Projected for fiscal 2016 they will be net taxpayers to the state of $315 million collectively.

“We are hoping it is not going to get any worse in the special session,” Frayne said.

A draft from the governor’s office given to CtNewsJunkie showing the impact of cutting the budget 1.5 percent across the board has a $37 million Medicaid cut in 2016 and another $38 million cut in fiscal 2017.

Frayne said cuts due to rescissions during the course of the last year diminished funding for lab costs, radiology and other services by $100 million across the system.

“It’s a huge change in an extraordinarily short period of time and this is all incurring at a time when enrollment in Medicaid is increasing,” he said.

On the other side of the argument as to whether hospitals can afford these payments, lawmakers look at the increasing profits of hospitals from 2009 to 2013.

The amount of revenue over expenses was $220 million in 2009. This figure grew to $596.8 million in profits in 2013, according to the state Office of Healthcare Access.

It was mainly attributed to the Yale New Haven Health System, where profits grew by 280 percent, while they were up 277 percent for Hartford HealthCare. The Yale system has a total of 2,130 licensed beds and a proposal to add Lawrence + Memorial Hospital in New London to the system would increase that number by 308.

Hartford HealthCare has Hartford Hospital, Backus Hospital, the Hospital of Central Connecticut, Midstate Hospital and Windham Hospital for a total of 1,846 beds

Yale New Haven Hospital, with revenues of $2.3 billion in fiscal 2014, had a 6.77 percent profit that year; Bridgeport Hospital with revenues of $439 million showed a 9.14 percent profit, while Greenwich Hospital’s revenues were $332 million with a 10.27 percent profit.

There is also concern among the legislative leadership as to the real costs for hospitals, which goes back to such things as the chargemaster, which is the list of services and goods designed for billing purposes.

Several studies in 2013, including a list of the cost of common procedures put out by the Centers for Medicare and Medicaid, showed “a snapshot of an incoherent system in which prices for critical medical services vary seemingly at random — from state to state, region to region and hospital to hospital,” according to the Huffington Post.

State Rep. Matthew Ritter, D-Hartford, said he understands that healthcare is changing rapidly, moving away from a system that pays for each procedure to one that will compensate practitioners for quality outcomes, which requires a different regulatory framework.

Ritter found it “very concerning” when he sees the high salaries of hospital officials and profits of the institutions, as well as increased costs to consumers when hospitals buy the practices of physicians.

He said there is disagreement amount lawmakers on whether hospitals are hurting and he sees lawmakers revisiting the issue in another session.

Short of having them “open their books,” he said there is skepticism over complaints of Medicaid funding given the increased number of patients covered by Medicaid who previously were not covered at all. State Sen. Terry Gerrantano, D-New Britain, Ritter’s co-chairwoman, said the state is “perpetually struggling with Medicaid rates,” which may be adjusted again in the special session to help the hospitals.

But given the amount of financial data on the hospitals collected by OCHA, “they are doing pretty well, by and large,” Gerrantano said. She said “no one is trying to put anyone out of business.”

She said she agrees with the priorities of the budget. “In the scheme of things, I think we have a very good budget,” Gerrantano said.

Of the 29 hospitals in the state, five had negative margins, that is, they showed a deficit in 2014.

State Senate Minority Leader Len Fasano, R-North Haven is very concerned with expansions by the Yale New Haven Health System, as is state Senate President Pro Tem Martin Looney, D-New Haven, who both feel they lead to limited healthcare choices and increased costs.

But Fasano, like all the Republicans, voted against the budget and said the hospital tax hurts these institutions.

He said the question isn’t whether they can afford it, but “what is the policy behind it. It is not a policy, its a money grab,” Fasano said.

The Yale New Haven Health System has announced it will close two clinics, one in East Haven and one in Branford, to save $1 million and to eliminate redundancies.

“Closing the Branford and East Haven clinics speaks to the fact that you can’t have a monopoly,” he said.

As for the cost of salaries and benefits for hospital executives, state Rep. Cathy Abercrombie, D- Meriden, said hospitals paying large salaries to executives should cut there before cutting other direct service personnel. Hartford HealthCare has announced it will cut the full-time equivalent of 335 jobs because of the provider tax and Medicaid cuts.

Abercrombie said she worries about Connecticut’s Children’s Medical Center, which only has revenue from private insurers and Medicaid, which puts it at a disadvantage. She said it has to think outside the box to boost its revenue and she pointed a children’s hospital in Massachusetts that runs a large fundraising campaign.

“I fought very hard for the small hospitals,” she said.

Elliot T. Joseph, president and CEO of Hartford HealthCare, earned $2.1 million in salary, bonuses and incentive cash, according to the Journal Inquirer. It reported 18 executives earned a total of $12.8 million.

At Yale, Borgstrom earned $3.5 million in salary and benefits in fiscal 2014. The top 10 executives, five of whom held positions at both Yale New Haven Hospital and the hospital system, earned $15 million. This included Borgstrom, according to the Office of Health Care Access.

Frayne said the discussion of salaries is “a distraction.”

“If all of the executives at this hospital (Y-NH) or all of the hospitals all worked for free, I can assure you at the end of the day these cuts would go into place,” Frayne said, as a way for the state to raise money.

He suggested the state trim back part of the funds it wants to put into new investments in order to help the hospitals with Medicaid, which will also generate more federal matching funds.

“Don’t you think that money is better used to be spent in this community (New Haven) rather than building roads or giving car tax credits?” he said of the $109 million Yale-New Haven will spend on taxes.

Transportation infrastructure is a priority of Malloy, while Looney sought property tax relief.

Jennifer Jackson, president of the CHA, said compensation is set by community boards. “It’s a tiny fraction of the healthcare costs,” she said Borgstrom defended their profit margin.

“We’re not telling you we are broke. You don’t want us to be broke,” she said of profits that allow investments back into the system, including such things as the Smilow Cancer Hospital.

The Yale system CEO said healthcare is an important economic engine for a state that is in trouble by multiple measures. She said robust hospitals engaged in research are what attract the growing biomedical industry to New Haven.

Ellen Andrews, executive director at CT Health Policy Project, questioned the high salaries and the pricing.

She said 88 percent of the hospitals in the state were penalized an average of .65 percent by Medicare after it evaluated them on their readmission rates.

“I don’t think we are getting our money’s worth,” she said of the cost of administration. She said the readmission rates were the second highest in the country.

Andrews said hospitals also generally enjoy benefits that other industries don’t, particularly the value of the tax exemptions provided for such things as charitable contributions, the value of tax-exempt bond financing and forgone taxes. Those exemptions were estimated at $24.6 billion in 2011 by Health Affairs.

“The economy is contracting. Everyone is getting less,” Andrews said of changes the hospitals also have to absorb, who earn profits higher than the average domestic corporation after taxes, she said.