Medicaid Funding Woes Hit Business

September 22, 2003
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GRAND RAPIDS — Laying the groundwork for future state budget debates, Spectrum Health has become increasingly vocal in recent months about losses incurred providing care to Medicaid recipients.

Part of the firm's complaint concerns wide disparities in state payments to hospitals in western and southeast Michigan.

Executives at the Grand Rapids-based health system this month took their message to those who have the ability to do something about it — some of the legislators who hold key leadership positions, as well as the budgetary purse strings, in Lansing.

At a recent gathering in Grand Rapids, Spectrum Health executives cited the $23.9 million loss, based on cost, that it incurred providing care to Medicaid patients during the most recent fiscal year.

They said the loss resulted largely because of the comparatively low reimbursement rates the heath system receives. Spectrum lost another $10.5 million on Medicare.

In shedding light on the problem, Chief Executive Officer Rick Breon said. Spectrum Health is "not whining" but positioning itself on the issue for inclusion in future deliberations on state Medicaid budgets.

"It's going to be an issue next year, and the year after that, and the year after that," Breon said. "We want to be part of the equation in the discussions of how we distribute those funds."

One net result of Medicaid payment disparities is a "hidden tax" on employers and employees in West Michigan that occurs when Spectrum must shift the cost of Medicaid losses onto private payers, which in turn affects health premiums, Chief Financial Officer Mike Freed said.

Spectrum's Medicaid losses will grow even deeper — by as much as an additional $14.5 million for its hospitals in Grand Rapids and Muskegon — if Michigan receives federal approval to cap adult Medicaid payments at $900 per admission, no matter what level of care they receive or how long they stay in the hospital.

The $900 cap also would increase cost shifting

Spectrum, the second largest provider of Medicaid care in the state after Detroit Medical Center, incurs an average cost of $8,500 to treat a Medicaid patient.

"I have to make the losses up somewhere else and I only have one place to get it, and that's the business community," Freed told lawmakers.

Freed and Breon concede that some losses on Medicaid and caring for indigent patients are inevitable. They want the state to look at adjustments in the complex formula under which Medicaid payments are calculated in order to reduce disparities between hospitals on either side of the state.

Spectrum Health believes it has a strong hand in making that case because, according to data presented to lawmakers, it provides specialized care at costs lower than many other large health systems in Michigan and at a high level of quality, producing a good value for the state.

"We feel we're doing more than our fair share because we're getting better outcomes," Freed said during the Sept. 11 presentation to lawmakers.

"We're willing to do our fair share and challenge ourselves to get better outcomes. We just want to be treated comparably," he said. "What we're saying is we're trying to make sure there is parity across the state and the state will pay its fair share."

Solving the problem is a difficult proposition at best, particularly given the state's budget crisis, the deep financial problems of Detroit Medical Center, and underfunding of Medicaid in Michigan.

Based on cost, Medicaid is already underfunded annually by some $950 million — $410 million by the state and $540 million in federal matching funds — according to a report issued in May by health care consultant Health Management Associates.

The underfunding of payments to care providers and HMOs has "contributed considerably" to financial problems for some hospitals and health systems, resulting in the shifting of losses to private payers, individuals and businesses, the report stated.

"It is clear that Michigan's Medicaid program is currently underfunded and that inadequate Medicaid reimbursement has been a significant contributor to the current turmoil in the health care industry in Michigan. Medicaid reimbursement simply has not kept up with the actual costs of health delivery in Michigan," the report states.

The report was commissioned by the Michigan Health and Hospital Association, the Michigan State Medical Society and the Michigan Osteopathic Association.

In response to the concerns of Spectrum Health, one lawmaker from the area indicated a willingness to try and address the issue.

"We have to bring West Michigan and Grand Rapids into the equation to address some of these inequities," said freshman state Rep. Michael Sak, D-Grand Rapids, and a member of the House Appropriations Committee.

"If one group is going to be funded at one level, another group needs to be funded at the same level," Sak said.

Joining Sak at the session with Spectrum Health were Sen. Beverly Hammerstrom, R-Temperance, chair of the Senate Health Policy Committee; Sen. Tony Stamas, R-Midland, chair of the Senate subcommittee on community health; and Sen. Deborah Cherry, D-Burton, minority vice chairman of the subcommittee on community health and vice chair of the Senate Appropriations Committee.

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