Many Hospitals in New Jersey Would See Deep Cuts in State Funding for Charity Care

Andrew Kitchenman | March 9, 2015 | Health Care
Christie administration asserts Medicaid expansion has drastically reduced need to subsidize costs for treating poor, uninsured

University Hospital in Newark
Many New Jersey hospitals would see steep declines in the amount they’re paid in direct state subsidies under Gov. Chris Christie’s proposed budget, although some would receive more aid.

In releasing hospital-by-hospital aid figures on Friday, state Department of Health officials said the overall proposed 23 percent cut in charity care reimbursements was the result of an even greater decline of 43 percent in the amount of charity care that hospitals provided to uninsured state residents last year.

That decline in charity care is largely due to an expansion in Medicaid eligibility under the Affordable Care Act, which led the state to cover 390,000 more residents under the NJ FamilyCare program in 2014.

University Hospital in Newark would see the largest drop in aid, from $92.3 million in the current fiscal year to $72.7 million in the proposed budget, a $19.6-million decline.

State officials are weighing the future of that hospital, which was recommended for expansion in a study recently completed by consulting firm Navigant.

Saint Michael’s Medical Center in Newark would have the second-largest aid cut, but a much larger one in percentage terms, dropping from $24.5 million this year to $13.8 million, a 44-percent reduction. Prime Healthcare Services of California, a for-profit company, is seeking to buy Saint Michael’s.

Trinitas Regional Medical Center in Elizabeth would have the third-largest drop, from $43.9 million this year to $34.9 million.

St. Barnabas Medical Center in Livingston, Bergen Regional Medical Center in Paramus and the two New Brunswick hospitals, St. Peter’s Hospital and Robert Wood Johnson University Hospital, would each see at least $1 million in additional revenue. In the cases of St. Barnabas, St. Peter’s and Robert Wood Johnson, the increases are driven by an increase in state funding for graduate medical education.

It’s not yet clear how much each hospital will get in additional Medicaid money, nor is it even clear how much the charity care each provided changed from 2013 to 2014. Until these numbers are available, it won’t be known exactly how Christie’s proposed budget would affect each hospital.

While the state used the information it has on 2014 charity care to justify the proposed cut in state aid, officials said they didn’t use these numbers – which haven’t been audited – to determine how the aid would be divided among the hospitals. They also didn’t release hospital-by-hospital charity care figures for last year.

Instead, state officials used the most recent audited data, from 2013. The decision to use only one year of data to calculate the hospital-by-hospital aid numbers was a change from the last several years, when the state used data from multiple years.

“The hospitals have long encouraged the department to base the charity care formula on the most recent year of audited documented charity care – and that’s what we did,” said Donna Leusner, a Department of Health spokeswoman.

Health Commissioner Mary E. O’Dowd said in a statement that the aid proposal reflects the transformation of the healthcare system from one that is shifting from payments based on the amount of healthcare services provided toward a focus on improving patients’ health while controlling costs.

“The results include less need for inpatient services and increased need for outpatient services and wellness initiatives,” she said.

There would be more losers than winners, with 44 hospitals seeing cuts in aid, including 14 that would lose at least a $3 million, while 20 would see increases. In the current budget, only one — Saint Michael’s — saw a cut of more than $3 million.

The largest proposed aid increase would be the $1.6 million for St. Barnabas.

Some hospital groups would see particularly sharp reductions, including the three-hospital for-profit CarePoint chain, which would see its aid drop from $31.6 million to $22.3 million, a 29 percent decline. Hospitals that are owned or operated by for-profit companies generally face steeper proposed cuts.

Some independent hospitals like Trinitas, and smaller hospital chains, would take significant hits, with Deborah Heart & Lung Center in Pemberton Township seeing a $3.6 million cut, equal to 55 percent of its current aid, and Capital Health System seeing a $7.3 million, or 23 percent, cut at its hospitals in Hopewell and Trenton.

Advocates for urban hospitals, which serve a large share of the state’s uninsured residents, said they will press legislators to restore at least some of the proposed cuts.

Suzanne Ianni, president and CEO of urban-hospital group the Hospital Alliance of New Jersey, said it’s unwise to cut charity care aid when the federal government hasn’t cut its dollar-for-dollar match to states, and while it’s still not clear how the Medicaid expansion will affect hospitals’ bottom lines.

Under the Affordable Care Act, the federal match for charity care is scheduled to decline as Medicaid enrollment increases, starting in 2017.

Ianni added that Medicaid funding increases could be a mixed blessing for hospitals, sometimes costing hospitals more than uninsured patients, since those with Medicaid coverage generally seek more healthcare services.

“The reimbursement for that care is inadequate,” Ianni said, asserting that hospitals are only paid 70 cents for every dollar of care they provide Medicaid recipients.

Richard A. Pitman, executive director of the Fair Share Hospitals Collaborative, said he wanted to thank the Christie administration, because the proposed budget “could have been a lot worse.”

But Pitman noted that some hospitals in his group – which represents hospitals with fewer low-income patients than Ianni’s organization – will see as little as 2 cents for every dollar of charity care they provide. He noted that an existing state law requires hospitals to receive 43 cents of government aid for every dollar of charity care. But governors of both parties, citing budget constraints, have largely ignored that law.

Kerry McKean Kelly of the New Jersey Hospital Association, which includes all of the state’s hospitals, said the association was still digesting the numbers on Friday.

“We need time to look at all of those numbers, in the entirety of this budget, to see how it balances out and to determine the full impact on hospitals and their patients,” she wrote in an email. Kelly added that with significant cuts in aid, the state must ensure that overall funding – including Medicaid – is adequate to support “ the important missions of our hospitals to provide care to all, regardless of their ability to pay.”