New Jersey’s Charity-Care Hospitals Could Be Battling Budget Cuts

As ACA helps more patients buy insurance, questions arise as to whether safety-net facilities still need the same amount of funding

St. Joseph’s Regional Medical Center in Paterson
As Gov. Chris Christie delivers his annual budget message today, New Jersey’s hospital leaders are bracing for a familiar fight. They need to protect the shrinking pool of public money hospitals are allotted each year to offset the cost of the free care they provide to poor or uninsured patients.

The debate over charity care funding for fiscal year 2017 is further complicated by a fear among urban hospitals that the state is not doing enough to target these payments to the safety net facilities that need it most. They worry that that New Jersey’s current distribution formula — which provides all hospitals with some funding, however small — could cause the state to be penalized in the future by federal funders that help pay for the program.

“We need the dollars to go to the hospitals that need it most,” said Suzanne Ianni, president and CEO of the Hospital Alliance of New Jersey, which represents 17 hospitals that largely serve low-income patients.

Few dollars, spread thin

This year the state provided $502 million in charity care, which was split among New Jersey’s 72 acute-care hospitals to help cover the more than $1 billion in uncompensated claims they generated treating patients without insurance or on Medicaid, for which the federal government reimburses about 70 percent of the full cost.

All hospitals receive partial reimbursement, ranging from 2 percent to nearly 76 percent of their total uncompensated claims, based on the total amount of unpaid claims and other factors. Last year, reimbursements ranged from just under $19,000 for Memorial Hospital in Salem County, which covered roughly 2 percent of its uncompensated costs, to more than $63 million for St. Joseph’s Regional Medical Center in Paterson, or almost 76 percent of its unpaid claims.

“It’s a limited pot of dollars. And it’s still shrinking,” said Sen. Joseph Vitale (D-Middlesex) chairman of the Senate Health Committee. “Charity care can’t alone protect a hospital. It’s not meant to capture all the costs,” he added.

New Jersey’s charity-care pool has declined steadily in recent years and, in fiscal year 2016 dropped a full $148 million from the previous budget year. This trend is likely to continue, as more people obtain health insurance through the Affordable Care Act and hospitals have fewer uncompensated claims to offset. Whatever Christie proposes on Tuesday will be debated during legislative hearings this spring and codified in a final budget signed by the governor before July.

Future-funding fears

Ianni’s concerns are backed by a recent report to Congress that questioned the way states are distributing federal Medicaid Disproportionate Share Hospital Payments — money New Jersey uses to pay for charity care. Findings by the Medicaid and CHIP Payment Access Commission, a federal panel created two decades ago to monitor these health insurance programs, claim some states need to do more to ensure the DSH dollars they receive reach the hospitals that need this funding the most.

The report suggests that these dollars are now distributed based on outdated and incomplete hospital spending data and thus not having the full impact they should on facilities with the greatest need.

“The challenges for safety-net hospitals go far beyond medical care,” Ianni added, noting the extra costs involved with providing transportation, help with housing, or even food assistance for impoverished patients. “Hospitals have to work really hard to solve these social issues,” she said, “and there’s not true reimbursement for these types of programs.”

[related]The biggest concern, Ianni said, is how this disparity could impact New Jersey’s share of Disproportionate Share payments in the future. The federal agency that oversees Medicaid is in the process of revising its regulations and might start in 2018 to reduce the share of payments to states that do not do enough to ensure DSH dollars are reaching the truly needy facilities, she said. The penalty could cost the state hundreds of millions of dollars in federal funding, she added.

DOH spokesperson Donna Leusner declined to comment Friday on the Hospital Alliance’s concerns about Charity Care distribution. In the past, Leusner has underscored that the program, created in 1993, was not designed to offset all claims with a dollar for dollar match.

Costs declining?

A health department report from last year suggests that the state’s charity-care pool will continue to dwindle as more patients obtain health insurance. The uncompensated-care claims submitted by hospitals statewide have declined since 2010 and dropped a whopping 44 percent between 2013 and 2014, when the impact of the ACA started to become evident.

Sean Hopkins, a senior vice president at the New Jersey Hospital Association, the trade association for all 400 of the state’s hospitals, nursing homes, and similar facilities, emphasized that hospitals continue to struggle economically, even as more patients obtain health insurance. “Hospitals aren’t out of the woods by any stretch of the imagination,” Hopkins said. “It would be a wise decision to try and preserve the current level of charity care.”

For example, Hopkins said hospitals saw a 7 percent hike in emergency room visits in 2014, as newly insured patients showed up for routine care that could have been provided at a doctor’s office at less cost. “We need to make sure there is network adequacy,” he said, “so they can take their newly minted Medicaid card and get the right care at the right time with the right practitioner.”