Cost Shifting To Be Long-Term Issue

January 9, 2004
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GRAND RAPIDS — At one time, the subject was rarely discussed in public.

Not anymore. And executives at Spectrum Health wouldn’t have it any other way.

Feeling they have no other choice, the health system’s top brass spent 2003 trying to bring as much attention and discussion as possible to chronic underfunding of Medicaid, and to a lesser degree Medicare, which forces hospitals and care providers to shift the cost of care for the indigent onto private payers in order to offset the losses.

The shifted costs are an important component of escalating health premiums that employers and employees must pay for employee health benefits — in effect in a hidden state tax on the private sector, which maked it one of the Business Journal’s Newsmaker of the Year finalists. (DeVos Place received the award on Monday.)

Spectrum Health Chief Financial Officer Mike Freed says the health system owes it to the business community to generate awareness about cost shifting.

He said this is particularly true during a difficult economic period and when the cost of employee health coverage is skyrocketing.

“It’s that much more pressure on the business community that doesn’t need any more pressure as they fight to compete,” Freed said. “It’s a major focus for us the balance of this decade.”

In its 2003 fiscal year that ended June 30, Spectrum Health — the second-largest provider of Medicaid care in Michigan — lost $34.4 million in providing care to Medicaid and Medicare recipients.

That amount could grow substantially higher under a plan by the state to impose a $900 cap on the amount it pays for Medicaid patients’ hospital stays, regardless of length of stay or extent of treatment and therapy.

Michigan state government already under-funds Medicaid by an estimated $950 million annually based on the cost of delivering care, according to a research report issued last spring by Lansing-based health care consultant Health Management Associates.

The report concluded that the situation has weakened Michigan’s entire health care system.

“It is clear that Michigan’s Medicaid program is currently under-funded and that inadequate Medicaid reimbursement has been a significant contributor to the current turmoil in the health care industry in Michigan,” the report stated.

“Medicaid reimbursement simply has not kept up with the actual costs of health delivery in Michigan,” it notes.

Further data showing the toll the underfunding of Medicaid has taken on hospitals came in early December.

That’s when the Citizens Research Council of Michigan issued a report showing that margins at hospitals across the state fell from an average of 6.3 percent in 1998 to 1.1 percent in 2002. The report partially blamed Medicaid underfunding.

Compounding the problem for West Michigan’s largest health system and tertiary care provider is that Spectrum Health receives disproportionately lower Medicaid payments than hospitals in southeast Michigan.

To make up for the Medicaid loss, Spectrum will have to keep looking at shifting the Medicaid costs onto private payers, an issue that was at the heart of 2002’s highly public disagreement with Blue Cross Blue Shield of Michigan over reimbursement payments.

The issue in 2003 took on heightened importance since Spectrum Health is under the final year of a price cap imposed under the 1997 consent decree that allowed the creation of the health system.

“If the state cuts further into Medicaid, then that’s going to promote more cost-shifting” to commercial health insurers, Freed said during Spectrum’s Health annual public meeting in June.

“I have to make the losses up somewhere else and I only have one place to get it, and that’s the business community,” he told lawmakers at a September gathering to discuss the problem.

At that meeting, Spectrum Health CEO Rick Breon said the health system for now seeks to position itself on the issue for inclusion in future deliberations of Medicaid budgets and is willing to accept its “fair share” of caring for indigent patients and the resulting losses that go with it.

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

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