Proposal seeks to end Albany's annual fight over imperiled 'safety net' hospitals

The Buffalo News

Chris Bragg

In the final days of state budget negotiations, more than a dozen Democrats in the State Senate have begun pushing a proposal that would upend how hospitals serving large numbers of low-income patients are funded.

For years, the level of support for those financially struggling “safety net” hospitals has been subject to the whims of those negotiations. Last year, Gov. Kathy Hochul and the State Legislature agreed on $700 million to keep them afloat.

This year, Hochul’s budget proposed no new funding, while the Legislature is seeking up to $1 billion. Negotiations have grown contentious: Hundreds of members of 1199SEIU, the major health care workers union, held a funeral procession in front of Hochul’s New York City office on Wednesday – carrying coffins and tombstones, and accompanied by a horse-drawn hearse and New Orleans-style brass band playing a dirge – to illustrate the death that they say would result from Hochul’s proposal. 

A number of Democrats in the State Senate want to end that annual funding “dance” between the executive branch and Legislature, through a proposal recently authored by the chamber's top lawmaker overseeing health matters.

“I've been here for 13 years. I do not recall a single year in which we didn't have to fight,” said State Sen. Gustavo Rivera of the Bronx, the bill’s prime sponsor and chair of the Senate Health Committee. “During the (Gov. Andrew) Cuomo administration, the centerpiece of the way that budgeting was approached for hospitals and institutions – for the Medicaid system, overall – was austerity. Safety net institutions that serve our most vulnerable have had the least resources for that entire time. Many of them – when they find themselves almost going off a literal cliff – are saved by the state on a piecemeal basis. That is something that's not acceptable over a long period of time.”

Rivera's bill seeks greater financial parity between hospitals that treat a significant number of Medicaid patients – known as "safety net" hospitals – and hospitals treating a more affluent customer base more likely to have commercial insurance.

For services provided, commercial insurance reimburses hospitals at significantly higher rates than Medicaid, a low-income health insurance program funded by the government.

Since 2008, the State Department of Health has only marginally increased the amount Medicaid reimburses hospitals for services. At the same time, medical costs have spiked by 43 percent, according to data cited by 1199, necessitating the annual one-shot Albany budget injections for safety net hospitals.

For hospitals that qualify as "safety net" institutions, Rivera’s bill would instead peg the state's Medicaid reimbursement rate to the higher average commercial insurance rate paid to hospitals in the same geographic region. (The formula would consider whether a hospital was in New York City or the rest of the state.) Thirteen Senate Democrats are sponsoring the bill, including Tim Kennedy of Buffalo. Proponents believe the model would allow safety net hospitals to engage in longer-term planning, without the shadow of the annual Albany budget fights, and to finally upgrade older, outdated facilities.

“We think it's time for us to end the onetime deals and look for some structural change,” said State Sen. Zellnor Myrie of Brooklyn, a co-sponsor of the bill. “We have to ask ourselves, ‘Why is it that hospitals that serve predominantly Black and brown people – and in many instances poor people – remain on the bottom of the priority list for this state?’ ”

Thirty-two general hospitals statewide would qualify as safety net hospitals, including nine outside New York City, according to the bill's proponents. In Western New York, both Erie County Medical Center and UPMC Chautauqua in Jamestown would be on that list.

To qualify, at least 36 percent of a hospital’s patients must be covered by Medicaid or uninsured. Hospitals that are part of large, private health systems would not qualify, nor would certain other types, including those operated by the state.

To address concerns about wasteful hospital spending, the bill also includes transparency measures, including requiring hospitals to report on how the funding has been used to improve access and quality of services. The data would then be publicly posted.

Rivera's proposal is a late entry into this year’s budget talks: The bill was introduced in the State Senate on March 16 – after the Senate had released its one-house budget resolution outlining its negotiating priorities. But proponents believe a version of the bill, perhaps simplified, could make it into the final budget.

Twenty-one other states already have similar models in place – and the federal government “looks fondly upon this model,” Myrie said, because it is viewed as helping states spend Medicaid dollars more efficiently. Those states qualify for more Medicaid reimbursement from the federal government, he said.

Rivera believes that if New York adopts this model – and provides $1 billion in state funding this year to safety net hospitals – it would unlock $3 billion in federal funding. He believes that extra federal money will be a major selling point during final budget talks.

Unions supporting the bill so far include the American Federation of State, County and Municipal Employees, CSEA Local 1000 and the New York State Nurses Association.

On Thursday, the fiscally conservative Empire Center for Public Policy released a study highlighting that in 2021, profits surged at a majority of New York hospitals: 61 percent of the state’s hospitals ended their fiscal years in the black, the report found.

But the report also showed a significant disparity in hospitals’ financial fortunes: Western New York was the only region in which hospitals collectively ended the year with a deficit. Five hospitals statewide showed losses of more than $100 million each, including Mercy Hospital of Buffalo, which lost $102 million, according to the report. Hospitals downstate generally showed stronger finances than those upstate, according to the report, which was written by the think tank's senior fellow for health policy, Bill Hammond.

This year, Hochul has proposed a 5%, across-the-board increase in Medicaid reimbursement rates for hospitals – regardless of a hospital’s financial condition. The Legislature wants a 10% increase.

In contrast with those across-the-board increases, Hammond said he liked that Rivera's bill recognized not all hospitals were on the same financial footing.

“The industry usually makes it seem like they are rising and falling together, but in fact, some of the institutions are absolutely thriving,” Hammond said. “This recognizes that not all hospitals are alike, and Albany doesn't always do that. I give them credit for at recognizing that across-the-board solutions are problematic in that way. On the other hand, you're taking about making an already-complicated system even more complicated.”

Hammond argued that the Senate proposal could create a “two-tiered system,” one where a safety net hospitals are much more eager to serve Medicaid enrollees because they will get much greater reimbursement.

Rivera said that irrespective of his proposal, a two-tiered hospital system already clearly existed in New York – with safety net hospitals serving people in their immediate geographic areas who are “poor, working-class people.”

Rivera argued that the state should create the new funding mechanism so that "we can actually have that two-tiered system work a little bit better for the institutions that are going to have to continue to serve those populations."