Weeks of wrangling over special Medicaid payments to Massachusetts hospitals that treat large numbers of patients with government insurance has resulted in an additional $40 million being allocated to so-called disproportionate share hospitals in the state budget now being considered by Governor Deval Patrick.
The money will come from boosting overall Medicaid spending and tapping gambling revenues, not from a distressed hospital fund as envisioned in a Senate plan.
“It’s a good first step,” said Veronica Turner, executive vice president of Local 1199 of the Service Employees International Union in Boston, which lobbied for the funding. “Community hospitals are struggling with Medicaid underfunding. Medicaid reimburses at much lower rates than private [insurance] plans, so many of these hospitals are hurting.”
Disproportionate share hospitals are defined as those that bill at least 63 percent of their medical charges to public health insurance plans such as Medicaid and Medicare, government programs that insure low-income patients and senior citizens.
They include big safety net hospitals such as Boston Medical Center and Cambridge Health Alliance; health care providers in low-income communities, such as Signature Healthcare Brockton Hospital and Holyoke Medical Center; and community hospitals owned by Steward Health Care System, including St. Elizabeth’s Medical Center and Carney Hospital in Boston.
The state Senate raised hackles in May when it passed a budget amendment backed by Steward and Local 1199, which represents workers at Steward’s for-profit hospitals across Eastern Massachusetts. That amendment would have taken $40 million from a distressed hospital fund administered by the new state Health Policy Commission. The fund was created under last year’s cost-containment law to finance health care improvement grants.
The Massachusetts Hospital Association — a trade group that represents some disproportionate share hospitals but also richer hospitals — opposed the Senate amendment. Some of those more affluent providers, such as Partners HealthCare System, Beth Israel Deaconess Medical Center, and Boston Children’s Hospital were assessed by the state to create the hospital fund. Major insurers, including Blue Cross Blue Shield of Massachusetts and Harvard Pilgrim Health Care, also had to contribute money.
Among other issues, the association objected to the Senate overriding a provision in last year’s law that made for-profit hospitals ineligible to tap the distressed hospital fund. While most of its hospitals serve low-income communities, Steward, which does not belong to the hospital group, is owned by a well-heeled New York investment firm, Cerberus Capital Management.
The cost-containment law also restricted teaching hospitals from getting money from the fund. That would have excluded Boston Medical Center and Cambridge Health Alliance. The law also excluded hospitals that charge prices exceeding the Massachusetts median for medical services.
In conference committee deliberations concluded last week, Senate and House lawmakers agreed not to use the distressed hospital fund to bankroll additional Medicaid payments. Instead, they opted for a formula that put an additional $27.7 million into the overall Medicaid budget for the disproportionate share hospitals while using $12.3 million in gambling revenues to fund in-patient and outpatient behavioral and mental health services at those hospitals.
Timothy F. Gens, executive vice president of the Massachusetts Hospital Association, said the trade group was satisfied with the outcome.
“We were strong advocates for the additional funding for disproportionate share hospitals that have great needs,” Gens said. “But we were concerned about the source of the funding. The Legislature decided not to use the distressed hospital fund, and we applaud that decision.”
A spokesman for Steward said executives there weren’t available to comment.
With the distressed hospital fund left intact, the Health Policy Commission will come up with regulations for distributing that money through grants to hospitals that propose ways to improve health care quality and efficiency. The regulations will be unveiled this month.
“We’re moving forward with building out our competitive grant program and hopefully getting the money out soon,” said David Seltz, executive director of the commission.
The distressed hospital fund is expected to total $215.8 million over four years, with about $40 million being allocated for the grants and some other uses in the first year.