Hospitals throughout Massachusetts may receive additional federal funding over the next five years, thanks to a proposed change to how the state collects fees from hospitals.
The new measure, included in Governor Charlie Baker’s 2023 budget, allows the state to assess hospitals at higher rates to earn more matching funds from the federal government.
Under the proposal, hospitals with high numbers of patients on government insurance will pay less than those that treat high numbers of privately insured patients. Those so-called safety net hospitals will also receive more of the funding.
The influx of federal money may prove critical to smaller institutions coming out of the latest phase of the pandemic.
“It’s a historic investment in community providers that will have a stabilization effect over the next five years,” said Steve Walsh, president and CEO of the Massachusetts Health and Hospital Association. “We didn’t plan it to come post-COVID, but it may be the thing that saves our community hospitals over the next half a decade.”
Hospitals were already assessed under a previous agreement with the state and federal government. The money is used for a variety of initiatives to reform state health care, but a substantial portion ultimately goes back to hospitals.
Between the assessment, state financing, and the federal match, hospitals currently contribute $428 million in fees and receive $705 million annually. Under the proposal, hospitals would contribute $880 million and receive $1.8 billion annually for five years.
Distributions will be focused on raising Medicaid rates for hospitals. The proposal also includes incentives for performance on certain clinical quality and health equity goals.
Funding will also be used to support some longstanding priorities of the administration, including investments in primary care, funding to help hospitals manage the care of complex patients, and money for housing and nutritional support for patients.
“It’s all about bringing federal dollars in to support safety net hospitals,” said Dr. Eric Dickson, chief executive of UMass Memorial Health Care and the former chair of the Massachusetts Health and Hospital Association, who has worked for the last year to increase the federal reimbursements. “Other states figured this out years ago.”
If approved by the federal government, the increased assessments will come just as hospitals begin to recover from the latest surge of the pandemic. Hospitals have had to spend millions to hire temporary staff to deal with the onslaught of patients, coupled with inflation kicking up costs for everything from supplies to medicines.
Additional funding will be on top of money the state has committed to hospitals from the federal American Rescue Plan Act funding.
“(Hospitals) will come out of this financially weaker, and this is an opportunity to stabilize hospitals moving forward,” Walsh said. “We felt it was a critical time and the state was a tremendous partner in trying to understand the needs of each hospital and see if we could crack the waiver accordingly.”
While all hospitals that treat Medicaid patients will benefit from the increased federal funding, independent hospitals that treat high numbers of patients on government insurance have the most to gain.
Walsh said many of these institutions financially struggled before the pandemic, and their situations have only worsened under recent pressures.
“Those operating on thin margins, it may be that $2-3 million is the difference of survival,” Walsh said.
An earlier version of this story incorrectly stated the amount of money hospitals receive back from the government after paying their annual assessments. Hospitals currently receive $705 million annually. Under the new proposal, hospitals would receive $1.8 billion annually for five years.