State Medicaid reductions leave hospitals and health care providers struggling over what to cut

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By Julekha Dash

Slashes to the state’s Medicaid budget could mean cuts to jobs and community outreach programs at hospitals, bigger health care tabs and more patients relying on emergency rooms rather than the doctor’s office to get treatment.

Last month, Gov. Martin O’Malley proposed cutting $123 million from Medicaid for the 2011 budget, to help the state plug a $2 billion deficit. The state will likely cut payments to hospitals and require them to pay a fee to make up for the Medicaid funding gap.

The state also cut $179 million out of the Medicaid budget for fiscal 2010, which ends June 30.

The state’s funding for Medicaid is getting squeezed at a time when demand for government health insurance for the poor is growing. The state now has 850,000 Medicaid enrollees — 100,000 more than it did a year ago, Maryland Medicaid Director John Folkemer said. As the economy worsens, more people have lost their jobs and health insurance, qualifying them for Medicaid.

To make up for the $123 million cut in 2011, the state will likely take a two-pronged approach, said Robert Murray, executive director of the Health Services Cost Review Commission. It will allow hospitals to raise the rates they can charge patients with private insurance – or the money to pay bills privately – to generate revenue to offset the decrease in Medicaid payments. Hospitals will also have pay a fee to the state that will come out of their operating budget, said Murray, whose agency sets the rates that hospitals can charge patients.

Murray will meet with hospital leaders, Folkemer and other health care officials in the next couple of months to work out the details of how to make up the shortfall.

“The state government needs to know how to plug this hole,” Murray said. “It’s going to be important to get this resolved.”

The state used a similar approach to make up for cuts in the Medicaid budget in 2010. When the Board of Public Works cut $35 million in hospital Medicaid payments in July, the state allowed hospitals to increase their rates by .15 percent. That brought in $17.5 million. And then the hospitals were asked to pay another $17.5 million, which came out of their operating budgets.

It was the first time that the state had used this approach to make up for a cut in the Medicaid budget, Folkemer said. In the past, the state has limited the number of days Medicaid patients can stay in the hospital in order to cut costs. But limiting the number of days means that the state loses out a big funding source — the federal government. Of the state’s $6.2 billion Medicaid budget, 62 percent comes from the federal government.

To plug the budget hole, the state can’t cut Medicaid benefits or the number of enrollees because of a commitment officials made when they chose to receive nearly $2 billion in Medicaid funding as part of the federal stimulus package. To qualify for the federal assistance, Maryland agreed to continue to offer the same coverage as it did July 2008.

“You can’t change the eligibility rules or you don’t qualify for enhanced federal money,” Folkemer said.
More Medicaid cuts could be on the way. The state’s 2011 Medicaid budget also depends on whether the federal government extends the stimulus funding for the entire fiscal year, which runs from July 1, 2010 through June 30, 2011. If not, Maryland will have to make up another $389 million shortfall.

For some hospitals, having less money for Medicaid will result in job cuts, while for others it might mean cutting such community activities as a smoking cessation program for the public, said Jim Reiter, a spokesman for the Maryland Hospital Association. How each hospital handles the shortfall will depend on their financial situation, he said.

“It’s going to be a struggle” for some hospitals, said Del. Dan Morhaim, a Baltimore County Democrat who sits on the House Health and Government Operations Committee. Morhaim is also an emergency room physician at Sinai Hospital. “There’s no way around it.”

Some hospitals may choose to cut salaries or staff benefits, Morhaim said.

“Hopefully the cuts don’t translate into some failure of care,” Morhaim said “That would be the worst. Hospitals will do all they can to make sure that doesn’t happen. “

For doctors who treat Medicaid patients, the cuts couldn’t come at a worse time, said Gene Ransom, executive director of MedChi, the state medical society.

Physicians anticipate a 21 percent cut to federal Medicare payments in March, and additional cuts to Medicaid will prompt more doctors to turn away Medicaid patients, Ransom said. That will make it more difficult for for patients to find doctors, so many more will wind up in the emergency rooms for routine treatment – the most expensive setting to provide health care, Ransom said.

“The folks who need the care the most are going to suffer the most,” Ransom said. “That’s the concern.”

Some health care advocates are backing a bill that would increase the alcohol tax by 10 cents per drink, raising an estimated $200 million for public health initiatives, including Medicaid.

“We understand there have been some cuts to providers,” said Vincent DeMarco, president of the Maryland Citizens Health Initiative. “We want more money in the Medicaid program.”

Julekha Dash can be reached at .
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