Small Issues with Big Impacts: 2018-19 New York State Hospital Budget Highlights
April 12, 2018
There are probably few in the healthcare community in New York State who would disagree that, among provider types, hospitals have typically received the most attention from policymakers. The hospitals themselves might argue the point, or point out that having the attention of policymakers is not always a good thing (e.g., the attention on pharmaceutical manufacturers in this year’s budget, discussed here). Payors might argue that they are more frequently the focus of policy efforts. And of course, patient advocates would be quick to point out that the real focus of healthcare policy should be on patients (a principle with which no one disagrees, at least in theory). But it is hard to argue against the contention that, more than any other provider, hospitals have been the focus of policy reform efforts since there was such a thing as healthcare policy.
With that in mind, one of the more interesting aspects of the 2018-19 New York State Enacted Budget is the relative lack of hospital-focused reform efforts. To be sure, hospitals were, as always, a significant part of the debate, and several hospital reform initiatives were discussed that did not make it into the final budget agreement. And, of course, the hospitals were a major force behind, and are expected to be major beneficiaries of, two huge funding pools established in the final agreement: the third iteration of the Statewide Health Care Facility Transformation Program (discussed here) and the Health Care Transformation Fund being funded in connection with the acquisition of a New York-based payor (discussed here). But beyond that, there are no huge system-wide reforms in the Enacted Budget that directly impact hospitals.
However, there are two relatively small items that are likely to have significant long-term impacts: a series of provisions related to indigent care funding, and a new requirement regarding sexual assault kits. Both are discussed below.
Indigent Care Funding: DSH and ICP
2018 began with a great deal of uncertainty regarding the fate of New York’s safety net hospitals. This uncertainty was fueled in part by wariness over potential cuts to Medicaid Disproportionate Share Hospital (DSH) subsidies at the federal level, as well as sustained pressure from advocacy groups demanding changes in the state’s Indigent Care Pool (ICP) reimbursement methodology, which opponents claim inequitably favors large financially stable providers serving predominantly insured patients over hospitals that provide the greatest amount of charitable care to the neediest populations. Thanks in part to a last-minute decision by the Federal Government not to cut DSH payments this year, the Enacted Budget largely maintains the status quo with respect to DSH payments and the ICP methodology – however, the Department of Health has agreed in a side letter with Senate Health Committee leadership to convene a working group on DSH reform. The Enacted Budget also provides $100 million dollars in enhanced Medicaid payments to a specific subset of safety net hospitals.
Critics claim that the current ICP reimbursement methodology, which reimburses hospitals for charitable health spending through a combination of state surcharges on health insurance and a portion of federally funded Medicaid DSH dollars, has consistently failed to adequately reimburse the institutions which actually provide the most free care to the poorest populations. Part of the reason for this imbalance is the formula used to calculate ICP distributions. The ICP, and its prior iteration, the Hospital Bad Debt and Charity Care Pool, traditionally allowed hospitals to seek reimbursement for both “charity care” (free medical services provided to the poor) and “bad debt” (including unpaid copayments and deductibles of commercially insured patients). Challengers of the current system claim that this results in some of the largest reimbursement payments going to the least charitable hospitals.
In 2013, and in response to provisions in the federal Affordable Care Act penalizing states that allowed DSH dollars to be used for the reimbursement of bad debt, the Legislature amended the ICP’s reimbursement formula to a “needs based calculation.” However, the 2013 amendment also included a “transition adjustment”, which severely limited the amount each hospital’s grant could be increased or decreased from its pre-2013 levels – in its current version payments may not decrease by more than 2.5% year over year. As noted in a September 2017 Report by the Empire Center, the transition adjustment has stymied the intended redistributive effect of the needs based formula, and “[t]here [remains] a negative correlation between the overall poverty of a hospital’s patients and the relative size of its indigent care grant.”
The Enacted Budget does not alter the current ICP or DSH frameworks, but rather extends the existing framework through March 31, 2020, and maintains previous funding rates through 2019 of: (a) $139,400,000 as Medicaid DSH payments to major public general hospitals; and, (b) $994,900,000 as Medicaid DSH payments to eligible general hospitals other than major public general hospitals. Additionally, the Enacted Budget increases the cap on reductions in ICP payments for the calendar year beginning January 1, 2019 from the prior rate of 15% to 17.5%. In a side letter agreement with Senate Health Committee Leaders, the Department of Health has agreed to establish a temporary workgroup on hospital indigent care methodology which will make recommendations regarding DSH and ICP funding. The workgroup will convene no later than June 1, 2018 and create a report on its findings no later than December 1, 2018.
While the Enacted Budget does not tackle the larger issues plaguing the ICP methodology, it does provide for $100 million in enhanced Medicaid rate payments – which are administered outside of the ICP and DSH – to a newly-designated class of Enhanced Safety Net Hospitals (“ESNH”). A hospital will qualify as ESNH if it falls into any of the following categories:
It serves a high percentage of Medicaid and uninsured patients (specifically, in any of the last three years: (a) not less than 50% of the patients treated receive Medicaid or are medically uninsured; (b) not less than 40% of its inpatient discharges are covered by Medicaid; (c) 25% or less of its discharged patients are commercially insured; (d) not less than 3% of the patients it provides services to are attributed to the care of uninsured patients; and, (e) it provides care to uninsured patients in its emergency room, hospital based clinics and community based clinics including the provision of important community services such as dental care and prenatal care).
It is a public hospital (operated by a county, municipality, public benefit corporation or the State University of New York).
It is a federally-designated Critical Access Hospital (CAH).
It is a federally-designated Sole Community Hospital (SCH).
Payments made under the ESNH program may be added to rates of payment or made as aggregate payments to eligible general hospitals. The 2018-19 Enacted Budget appropriated $50 million under the ESNH program for high Medicaid/uninsured and public hospitals, and another $50 million for CAHs and SCHs.
It remains to be seen how the current ICP framework will hold up in the event that Federal DSH payments are cut at the federal level, whether the $100 million ESNH program will provide sufficient funds to shore up the state’s most vulnerable facilities, and what the indigent care workgroup will recommend for a more permanent solution. But these various elements could ultimately result in a fundamental change in the way indigent care is reimbursed in New York State
Sexual Assault Kits
The Enacted Budget includes significant amendments surrounding the responsibilities of hospitals with respect to the collection and storage of sexual assault evidence. Most significantly, beginning April 1, 2018, hospitals are responsible for ensuring that sexual offense evidence is kept locked and secure – refrigerated where necessary – until April 1, 2021. After April 1, 2021 (or earlier if deemed feasible by the Director of the Budget), the evidence will be turned over to a state appointed custodian. The state appointed custodian will be responsible for storing the evidence until twenty years from the date of its collection. The new provisions also spell out specific chain of custody requirements (marking and identification of evidence). Hospitals will have the option of entering into third-party contracts for the storage of sexual assault evidence off site between now and the appointment of a state custodian. After April 2, 2021, new sexual assault evidence must be transferred to the state appointed custodian within ten days of collection.
The Enacted Budget further mandates that hospitals are responsible for ensuring sexual assault survivors are not billed for sexual assault forensic exams and are notified orally and in writing of the option to decline to provide private health insurance information and have the office of victim services reimburse the hospital for the exam. Nonetheless, a sexual assault survivor may voluntarily assign any private insurance benefits to the hospital, in which case the hospital may not charge the office of victim services for the exam, provided, however, that such health insurance coverage shall not be subject to annual deductibles or coinsurance or balance billing by the hospital. Additional provisions in the Health Insurance Law clarify that such treatments shall not be subject to annual deductibles or coinsurance.
Alone, these changes in the manner in which hospitals handle and are paid for work with sexual assault victims do not seem to have the same kind of systemic impact as changes in the way indigent care is funded. However, they represent the latest addition to the panoply of standards governing hospital record-keeping – and in an area that can have extremely significant consequences if a hospital fails to meet the applicable standard. It is not hard to envision litigation resulting from the mishandling of evidence under the new statute, and the agreed upon need for a more permanent solution in 2021 promises additional regulation in this space in the future.
So in short, while both reforms are relatively small in the short term, they may have significant impacts in the long term. Hospitals are faced with the choice of waiting to see what those impacts might be, working to adjust operations to anticipate those impacts, or actively engaging with the State to try to affect the outcome. If you have any questions concerning either of those issues, or are interested in engaging with the State to impact them, please do not hesitate to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com.