Health care law creates funding cuts, challenges for Macon hospital

lmorris@macon.comApril 20, 2013 

Central Georgia Health System Inc. in Macon is facing about $200 million in funding cuts over a 10-year period under the new health care law.

It is one of 1,500 hospitals across the country known as “safety net” providers who care for a large number of uninsured patients.

Even though the hospital system will gain a new source of revenue as more uninsured people gain coverage under the Affordable Care Act, the federal government is cutting payments to Medicare and Medicaid programs.

“We are certainly lucky we have a lot of managed care here, but we are the lead tertiary facility for central and south Georgia, and we see a great deal of Medicaid and Medicare business,” said Bryan Forlines, assistant vice president of government relations and reimbursement for Central Georgia Health System Inc., the parent company for The Medical Center of Central Georgia, its rehabilitation facility and home health care program.

A tertiary facility is a regional referral center, and the Medical Center gets patients from smaller hospitals in the area.

“This is a time of uncertainty for (safety net hospitals),” said Stu Guterman, vice president of the Commonwealth Fund. “On the one hand, they should be thrilled because a lot of the patients they treat will have payment attached to them. On the other, they’re losing some of the funding they rely on.”

Cuts for Central Georgia Health System are expected to be significant.

“We are looking at a lot of money over 10 years,” Forlines said. “This year’s impact is about $7 million in total cuts, including the sequester, and then it jumps to about $14 million the next year, and it starts going up pretty fast.”

The sequester, or sequestration, refers to budget cuts of federal spending that began March 1, affecting nearly all entities receiving federal money.

For the hospital, the sequester has caused a 2-percent reduction in Medicare payments beyond all the other cuts, Forlines said. This cut began April 1.

“That’s projected over nine years to be $34 million in Medicare only,” he said.

A report released last week by private consulting firm Alvarez & Marsal warned that the health care law “may actually worsen the status of many safety net hospitals.”

The Affordable Care Act layers three big spending cuts on top of reductions that states have made during the recession.

To begin with, the law will slow the rate of regularly scheduled pay bumps, which are increases to account for inflation of medical services, such as new and expensive technology, higher drug costs and pay increases, Forlines said. For years, these inflation increases from 2 percent to 2.5 percent have been below actual medical inflation rates, but the new cuts will wipe out those increases, he said.

So, just the inflation piece of it alone, “will mean $174 million for us in reduced payments” systemwide, he said. The change in payments began in October.

“I presented this to our board of directors a few weeks ago, and our CEO (Dr. Ninfa Saunders) said it best,” Forlines said. “She said, ‘We are going to take this one year at a time. If you look at 10 years, it’s a daunting number, so we are going to take it one year at a time, and we are going to become more efficient, and we are just going to have to figure it out.’”

In addition, safety net hospitals bear the brunt of cuts in “disproportionate share payments,” which is money the federal government sends hospitals that cover a large number of uninsured patients, such as the Medical Center. These payments, which come from the Medicaid and Medicare programs, will decrease nationwide by more than $30 billion during the next decade.

“We are projected over 10 years to lose $113 million of those payments,” Forlines said.

Health experts initially thought those funds would become unnecessary, as the expanded access to health coverage decreased demand for uncompensated care.

“What the Affordable Care Act really means for the hospitals is going to vary,” said Teresa Coughlin, a health policy researcher at the Urban Institute. “It will depend on whether their states take the Medicaid expansion, how many people are left uninsured and what happens with state and local funding.”

After the Supreme Court declared the Medicaid expansion optional, several Republican governors -- including Georgia Gov. Nathan Deal -- declined to move forward, leaving hospitals worried they will still see high numbers of uninsured patients.

“The hospital industry is concerned about (Deal’s position) ... and it’s something hopefully we will work through,” Forlines said.

Finally, the health care law ties a small portion of hospitals’ Medicare payments to the quality of care they provide and to patient satisfaction rankings. If hospitals don’t hit certain targets, they could lose 1 percent of their Medicare payment.

Safety net hospitals, research has suggested, may have a hard time hitting the goals, because they tend to receive lower patient satisfaction ratings than competitors who treat fewer uninsured people.

But the Medical Center is not expected to lose as much under this part of the law, Forlines said.

“We are projected to lose, on quality of care, about $4 million over 10 years,” he said. “And re-admissions, where people come back too quickly (after treatment), we would lose about $11 million. So, we would lose, over quality of care, about $15 million over 10 years, which is very good compared to other hospitals.”

One of the reasons the hospital would lose that much money is because a great deal of its patients “tend to have a lot of issues, and we tend to get them back no matter what we do to them. ... The patient population we get (is) a very sick population.”

President Barack Obama’s administration has responded to some of the concerns that hospitals across the country have with the new law. In the president’s budget released April 10, the White House proposed delaying some of the cuts in disproportionate share payments by one year, as states continue to debate the Medicaid expansion.

Still, safety net hospitals remain concerned over what lies ahead under the health law.

The Grady Health System in Atlanta estimates 30 percent of its patients lack insurance coverage and an additional 30 percent receive Medicare. It is expected to lose $45 million annually under the new law’s Medicaid cuts to disproportionate share payments.

For patients, the biggest change is “a real shift of patients who had traditional insurance through their employer are going to wind up in health care exchanges that are part of new health care law,” Forlines said. “We feel those exchanges will pay (hospitals) at lower rates than we were seeing on the managed-care agreements.”

Some patients may be faced with high-deductible plans, and the hospital is already seeing an increase in self-pay bills.

The new law is basically an effort by the federal government to force efficiencies on hospitals similar to those that many other businesses have had to make, Forlines said.

Nationwide, and to some extent in Georgia, more hospitals are doing more mergers or affiliations to cut overhead costs, and become more efficient, he said.

“You are going to see a lot of unusual business dealings with hospitals trying to react to this (new law) over the next few years,” he said.

Information from The Washington Post was used in this report.

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