Drop in Demand for Charity Care Contributes to Lower Government Subsidy

But University Hospital in Newark and RWJ-Hamilton will still see multimillion-dollar increases in overall funding

RWJ University Hospital-Hamilton
New Jersey hospitals would see a $25 million reduction in the government subsidy to provide charity care in 2015, based in part on a drop in demand for these services that started occurring even before the expansion of medical coverage under the federal Affordable Care Act.

Government support for charity care would drop from $675 million in the current fiscal year to $650 million under the budget proposed by Gov Chris Christie for the fiscal year starting on July 1.

To determine the subsidy, state officials drew on a state report] showing that expenditures for charity care provided by the state’s hospitals fell from $1.03 billion in 2010 to $997 million in 2012. It’s not entirely clear what drove the decline, which occurred before most of the expansion in insurance coverage under the federal Affordable Care Act.

Overall state and federal spending on hospitals isn’t changing.

The state’s hospitals are slated to receive the same $985.1 million in combined state and federal payments as they received last year. This includes $100 million for graduate medical education; $166.6 million for initiatives for hospitals to reform their healthcare delivery systems; and $24.7 million for hospital mental-health care.

“Equity, transparency, predictability and accountability continue to be the cornerstones of hospital funding,” Health Commissioner Mary E. O’Dowd said in a statement.

University Hospital in Newark will actually have $25 million added to the $18.3 million it received in the current budget, as part of its move from the University of Medicine and Dentistry of New Jersey to its current status as a standalone institution under direct state control.

However, while the state plans to increase its direct subsidy to University Hospital by $25 million, it’s cutting the hospital’s charity care funding by $22.8 million, leaving the institution with a net increase of $2.2 million. University Hospital serves as the level 1 trauma center for Newark, handling the region’s most urgent cases.

The hospital with the largest proposed increase in charity care subsidy would be Robert Wood Johnson University Hospital-Hamilton, whose subsidy would increase from $564,000 to $2.91 million, a 416 percent increase. That’s due to the steep increase in documented charity care that it provided to its patients, which rose from expenditures of $2.73 million in 2011 to $8.39 million in 2012, according to a state report.

While the largest factor in determining hospitals’ proposed charity care subsidies is the amount they received in the current budget, one-fifth of the formula is based on the change from 2011 to 2012 in the amount of charity care they provided.

The largest proposed increases in graduate medical education support are going to Cooper University Hospital, which had a $1.05 million increase from $11.27 million to $12.32 million, and Inspira Medical Center Vineland, increasing from $297,000 to $885,000. The growth in those hospitals’ doctor-training programs came at the expense of programs that aren’t growing, since the state held graduate medical education funding steady.

The delivery system reform incentive payments (DSRIP) program will also have stable funding. This program replaces a fund that subsidizes hospitals based on the number of Medicaid and uninsured patients they treat. It will be awarded based on hospitals’ ability to develop innovative approaches to treating specific conditions, such as diabetes. Fifty-six hospitals have submitted DSRIP plans to the federal government but don’t yet know whether they’ve been approved.

The changes in state government funding for healthcare under the spending plan are dwarfed by increases in federal spending as the Affordable Care Act is rolled out. Federal spending for the state Department of Human Services – which largely is devoted to the Medicaid program – would increase from $7.76 billion in the current budget to $9.22 billion, after another large increase from $5.97 billion in the fiscal year that ended June 30, 2013.

This 54-percent increase over two years is driven by the expense of having the federal government cover most of the the cost of expanding Medicaid eligibility in the state, as well as a two-year program aimed at equalizing doctors’ Medicaid and Medicare reimbursements .

The rising cost of healthcare also factored into the federal spending increase, according to healthcare experts.