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June 26. 2011 12:34AM

NH Hospitals: State budget cuts ‘devastating'

MANCHESTER — Hospital administrators say $250 million in state funding cuts over the next two years will be disastrous, with the hospitals in essence paying the state more than they receive for treating Medicaid patients.

“It's really a devastating cut for us,” said Dr. John Schlegelmilch, president of Cheshire Medical Center/Dartmouth-Hitchcock Keene,

The hospital is operating at a $900,000 loss so far this year, he said.

“If you add on to that a $6 million tax that we don't get back, that shows you how far we will be behind,” Schlegelmilch said.

Much of the loss from the House-Senate budget passed Wednesday stems from the state's decision not to return to hospitals money they pay in Medicaid enhancement tax (MET). Additionally, $20 million or more results from eliminating state catastrophic payments for the very sick, indirect medical education payments and adjustments to outpatient payments.

For Catholic Medical Center, it's a loss of about $12 million a year; for Elliot Hospital, it's about $17 million a year.

Hospitals said they are looking at: ŸCutting programs and services, in particular to the poor and uninsured. ŸReducing or ending support to community services, such as Elliot's $570,000 a year in contributions to Manchester Community Health Center and Child Health Services. ŸCuts in salaries, benefits and other expenses, if not outright layoffs. ŸCharging higher rates to insurers, who would likely charge higher premiums to businesses.

In his budget address in February, Gov. John Lynch proposed withholding $20 million from the state's 24 hospitals to cover the treatment of patients who don't or can't pay their bills and using the money instead for optional Medicaid services for the poor. Lynch also said the hospitals were doing well enough financially to pay the top 200 executives $60 million in salaries and to launch $500 million in capital projects over the last five years.

But the House-Senate budget cuts $250 million over two years from state reimbursements to hospitals, New Hampshire Hospital Association President Steve Ahnen said.

Lynch said Friday he'll let the budget bill become law without his signature.

Richard Elwell, Elliot Hospital's chief financial officer, said the changes will mean Elliot actually loses money providing care for Medicaid patients.

“We were paid a year ago about $11 million by the state for Medicaid, and if we take a look at the Medicaid enhancement tax, we paid $14.6 million to the state for that, so we would actually pay in $3.6 million to the state for taking care of Medicaid patients,” Elwell said. Other hospital administrators said they would also lose money treating Medicaid patients.

Since the Medicaid enhancement tax was created in 1991, hospitals have paid the state 6 percent at first and now 5.5 percent of net patient service revenue each year. That money was returned to the hospitals, however, because the federal government gave the state the same amount in a matching grant. As a result, the state pocketed the matching funds while the hospitals received rebates based on the amount of charity care each hospital provided.

The federal grant had come from Disproportionate Share Hospital allotments. Last year, those payments were reduced by about $20 million.

“Hospitals have helped the state get over $2 billion and are now being turned on and preyed on,” said Henry Lipman, executive vice president and chief financial officer of Lakes Region General Hospital and Franklin Hospital. “It's not so much about hurting hospitals as it is about hurting communities. In the end, this is going to affect patients unavoidably.”

Hospital Association President Ahnen said, “It's likely going to force negotiations between hospitals and health insurers to increase rates to the private sector.”

Jim Roche, president of the Business and Industry Association of New Hampshire, said a recently concluded series of business roundtables once again showed health care costs among top concerns.

BIA didn't take a position on the state budget, but has been consistently critical of the plan to reduce payments to hospitals for Medicaid.

“That will exacerbate an already challenging situation for businesses of all sizes,” Roche said.

CMC spokeswoman Morgan Smith said, “This is a new tax on hospitals that will have devastating consequences. Until now, this tax was used as a Medicaid enhancement tax that was matched by the federal government and then returned to the hospitals. This has a potential $12 million tax on CMC, which is 10 to 12 times its margin.”

“I have a margin of $1 million, but I'm going to get taxed $12 million; how am I going to manage that?” CMC President and CEO Alyson Pitman Giles said at a scholarship award event on Tuesday. “How many businesses are able to take a tax that is 12 times greater than their earnings?

“Just remember that if you read stories that there are no new taxes, there are huge new taxes on hospitals. It's the biggest crisis I've ever faced in my entire career,” Giles said.

At Southern New Hampshire Medical Center in Nashua, Chief Financial Officer Mike Rose said, “The impact to us is $12.3 million, which is around 6 or 7 percent of our total revenue base. The impact is going to be significant.”

The cuts come as hospitals are crafting their budgets for the next fiscal year, beginning Oct. 1.

“Everyone will have to consider where to cut very soon,” Rose said. “We can't wait till the end of the fiscal year; it's reality today. Everyone has to pay their MET tax the first of October.”

Southern New Hampshire Medical Center will have to consider cutting job benefits and programs such as behavioral health and pediatrics, Rose said.

“Southern New Hampshire Medical Center has a very high Medicaid and self-pay population relative to the average for the state,” Rose said. “We're going to have to look at ways of reducing the volume of self-pay and Medicaid that we can absorb and still maintain our fiscal viability.”

In Keene, Cheshire Medical Center and Dartmouth-Hitchcock Keene reimbursements for Medicaid patients are currently at 54 percent of the cost of taking care of those patients, the second lowest in the country, Dr. Schlegelmilch said. The only lower percentage is in Mississippi.

"In the last two years, we eliminated approximately 100 positions, mostly through attrition,” he said, “and still with that, you can see where our margin is this year.

“You can't try to recoup $6 million by trying to cut expenses in health care; 65 percent of expenses are either salaries or benefits. To eliminate $6 million is just not possible and still have an organization that can take care of your community, so this is devastating for us,” Schlegelmilch said.

"We've been lobbying the governor and the Legislature on these issues for some time, but to no avail.”

Ahnen said hospitals have to provide emergency services and intensive care services, but their ability to provide other specialty care might be compromised.

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On the Net: nhha.org.


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