Medicaid Pain For Smaller Hospitals

October 15, 2002
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He doesn’t like it. But, for the good of the industry, he won’t fight it.

So Henry Veenstra will good about looking at how Zeeland Community Hospital will absorb a $216,355 financial hit over the next two years that will result from a state initiative designed to bring more federal Medicaid money to Michigan hospitals.

Zeeland Community, one of the smallest hospitals in the West Michigan market, is among those that will come out on the losing end of the Medicaid Quality Assurance Assessment Program. From a philosophical viewpoint, Veenstra doesn’t like the idea of taxing nonprofit hospitals in order to address problems in Medicaid funding, though Zeeland Community won’t oppose the program during an upcoming public comment period.

“Unfortunately, under the rules of this scheme, there are hospitals that have to be disadvantaged,” said Veenstra, Zeeland Community Hospital’s long-time president. “But we understand. We will bite the bullet for the good of the providers in the state.”

The two-year Medicaid assessment is designed to generate additional funding for hospitals with high Medicaid patient populations. As a result, hospitals that serve a small number of Medicaid recipients would pay more into the program than they receive.

“It’s written to benefit those hospitals that serve our Medicaid clients the most. Those that serve a larger number of Medicaid patients receive a larger share of the pool,” Department of Management and Budget spokeswoman Kelly Chesney said. “We think we have a fair way for distributing the dollars.”

Zeeland Community Hospital, with a Medicaid population between 2 percent and 2.5 percent, would pay $125,319 more into the fund than it receives during the state’s 2003 fiscal year and $91,035 in 2004, for a total net loss of $216,355. The 57-bed hospital has annual patient revenues of about $22 million.

Another small hospital in the region with a low Medicaid patient population, North Ottawa Community Hospital in Grand Haven, would take a two-year hit of $118,801. The 81-bed North Ottawa has a Medicaid population of about 4 percent. The hospital posted FY2002 revenues of $36.9 million.

On the positive side of the assessment, Grand Rapids-based Spectrum Health — with seven hospitals in the region, projected FY2003 revenues of $1.4 billion and a Medicaid population of 18 percent — would receive one of the largest sums in the state: $14.75 million over two years, according to a recent analysis from the DMB. Spectrum would receive $6.97 million in the first year and $7.77 million in the state’s 2004 fiscal year under the Medicaid assessment program.

The payments would help to offset what Spectrum, in a well-publicized dispute in August with Blue Cross Blue Shield of Michigan over reimbursement payments, claims is a $30 million loss annually in indigent care. The health system’s Medicaid population accounts for about 30 percent of the loss, Spectrum Chief Financial Officer Mike Freed said in August.

The Medicaid Quality Assurance program would levy a 1.2 percent assessment in 2003 and 1 percent in 2004 on hospitals’ non-Medicaid revenues. The state would use the proceeds to leverage additional Medicaid money from the federal government and increase payments to hospitals by 10 percent, or $58 million in FY2003 and 13 percent, or $77 million, in 2004, according to DMB estimates.

The state would then distribute funds back to hospitals based on their Medicaid patient populations.

The program still needs to go through a 30-day public comment period and receive approval from the federal government, Chesney said. She anticipates the federal government will approve, as it did earlier this year for a similar initiative to leverage additional Medicaid money for nursing homes and HMOs.

Of the other hospitals in the West Michigan market, Metropolitan Hospital in Grand Rapids would get an additional $320,443 over two years and Holland Community Hospital would see a net benefit of $650,039.

Trinity Health, the Detroit-based parent company of Saint Mary’s Mercy Medical Center in Grand Raids and Mercy General Heath Partners in Muskegon, would see a two-year net benefit of $5.09 million for its hospitals in Michigan.           

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