Testimony of the Iroquois Healthcare Alliance. New York State Senate Finance Committee and New York State Assembly Ways & Means Committee

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1 Testimony of the Iroquois Healthcare Alliance presented to the New York State Senate Finance Committee and New York State Assembly Ways & Means Committee regarding Executive Budget Proposal on Health by Gary J. Fitzgerald President, Iroquois Healthcare Alliance March 3, 2011

2 Good afternoon Chairman DeFrancisco and Chairman Farrell, legislators, and staff. I am Gary Fitzgerald, President and CEO of the Iroquois Healthcare Alliance, a membership organization representing 57 hospitals and their affiliated organizations in 31 upstate counties. IHA s membership is diverse in that it comprises 32 rural hospitals including 5 Critical Access Hospitals, and represents the smallest hospitals in the state as well as some of the largest teaching hospitals in Upstate New York. I want to thank you for conducting this public hearing regarding the Executive s proposed healthcare budget. My colleagues from HANYS and GNYHA have given you extensive and thorough testimony as to the problems of the New York State Medicaid system. They have also presented rational solutions that they agreed to as members of the Medicaid Redesign Team to reform Medicaid. The Iroquois Healthcare Alliance supports many of the recommendations made by HANYS and GNYHA, and will work with them, and with you, to see that these reforms become reality. I will not repeat their testimony, but would like to speak briefly on the concerns of Upstate hospitals, nursing homes, and physicians. The Cap The creation of the Voluntary Health Care Cost Containment Initiative, to enforce the global spending cap, has many elements of concern for Upstate providers: Under the initiative, DOH will be given the authority to implement utilization controls and rate reductions if Medicaid expenditures exceed the cap agreed to by the MRT. IHA believes that the Legislature should be actively involved in monitoring Medicaid utilization and expenditures. The Legislature should provide input into any implementation of controls or rate reductions. The initiative provides an incentive for providers to work collaboratively to find efficiencies. However, if the cap is pierced, the reason for the spending growth should be 1

3 examined for regional and sector impact, and there should not be across-the-board responsibility for additional cuts or taxes. The language that we received late yesterday does not reference geographical differences. There are many variables that can impact the cap, including enrollment. Enrollment in Medicaid is expected to increase. The MRT did not propose any eligibility cuts, and there is limited change in optional benefits. The Commissioner of Health should not be given unilateral authority to set Medicaid rates, or to tax health care providers. Medicaid cuts The Governor has proposed a 0% trend factor increase and a 2% across-the-board cut for hospitals, nursing homes and home care. This is regardless of the increased costs for labor, pharmaceuticals, enrollment and other costs. Hospitals can not sustain cuts to Medicaid while the patient population and utilization increases. According to the New York State Health Foundation, New York State s Medicaid enrollment will increase by 150,000 to 500,000 enrollees due to the implementation of federal health care reform enacted in The cap essentially represents additional cuts. Hospital CFOs are faced with the dilemma of preparing budgets budgets that determine which services they can provide to their community. Without knowing the detail of how the industry would be held accountable to piercing the cap, CFOs will be forced by their auditors to establish additional reserves. Efficiency Within the health care sector, Upstate s hospitals are the most efficient in the nation. The federal government recently rewarded hospitals for their efficiency. Forty-nine hospitals in New York 2

4 State, all of which were located in Upstate New York received awards. New York ranked first in the nation for the number of hospitals qualified and also ranked first in award value. Using a national measurement for efficiency it is clear that Upstate hospitals are among the most efficient in the nation, and Medicaid should follow the lead of the Medicare program and reward hospitals for their efficiency. Financially Fragile Upstate Nursing Homes Currently, 26 of Iroquois members operate hospital-based nursing homes. Nursing homes in Upstate New York can not sustain additional cuts or taxes. The Upstate nursing home industry was not represented on the MRT. Two years ago, the Legislature recognized the financial problems of nursing homes by enacting legislation which created a new base year for rate calculations. This has not been implemented by DOH. Safety Net As the term Safety Net is being defined, it should include Sole Community Providers and Critical Access Hospitals, and recognize geography and outpatient volume, not just Medicaid inpatient volume. Personal Care The MRT proposes new controls in personal care and home health to reign in unsustainable growth in these programs. IHA believes that even more controls and limits are necessary. From , the number of patients receiving long term care has remained flat, while total Medicaid spending on long term care rose, largely due to rising per-patient cost of at-home care in New York City which rose by 89.5%. 3

5 In 2008, New York spent $2.3 billion on its personal care program; with $1.9 billion of that spent in New York City alone. That amount spent on the program in New York City is 4.5 times more than in the rest of New York State. New York City does have more personal care recipients, but adjusting for the number of recipients do we really believe that Medicaid patients in New York City are 2 times sicker than Medicaid patients in the rest of New York State? In 2006, according to the Kaiser Commission, the State spent $25,896 per personal care recipient while the national average for that same type of patient was $9,637. Another report by the New York City-based United Hospital Fund reported that New York City spent $28,804 on each personal care Medicaid recipient (elderly duals) while Upstate spent $7,878 per recipient. The MRT began deliberations on changes in the personal care program which would have resulted in $242 million in State Medicaid savings; the final package only results in $57 million in State savings. Living Wage There is statutory language in the MRT proposal which mandates that home care providers pay a living wage to their employees. There are only a few municipalities that have a living wage law and they are New York City, Westchester, Nassau, and Suffolk counties. This unfunded mandate could impact other counties in the future. This proposal does not save any money for the Medicaid program. Medical Malpractice Reform To reduce Medicaid costs and health care costs in general, New York State s medical malpractice system must be reformed. The MRT proposal begins this process; however, if an 4

6 increase in trial lawyers contingency fees is added to this proposal as the budget is negotiated, it will negate any savings to the health care system. Health Provider Gross Receipts Tax Although an increase in the GRT is not part of the MRT proposal, legislators must be attentive that a GRT not be added during the budget negotiations. The GRT is a tax on hospitals revenues. The GRT combined with cuts to Medicaid reimbursement leads to cost shifting to private insurance. To maintain as many services as possible, hospitals must negotiate higher rates from private insurance companies to offset government underpayments. In turn, the insurance companies impose higher premiums for employers and individuals. Physician Recruitment Weakening the hospitals finances with additional cuts and taxes limits Upstate hospitals ability to invest in physician recruitment. At a time of a shortage of physicians in Upstate New York, hospitals can not afford to have less available to recruit more. Communities in Upstate New York desperately need to recruit new physicians. IHA members are struggling with recruitment of physicians primary and specialty. Physicians of all types are needed and in short supply, and in some cases non-existent in many Upstate communities. The most recent study form the SUNY Center for Health Workforce Studies shows that the average age of a physician in New York State is 52, and slightly older in rural counties, with 15% over the age of 65 in rural counties. The aging physician population and the need for additional health care services in Upstate due to its aging general population, creates a challenging environment. 5

7 And, although medical malpractice is not the only challenge for recruitment, as more of our Upstate hospitals must employ their physicians, the cost of medical malpractice has become a growing cost to hospitals. Hiring physicians is frequently cited as the only available option of bringing physicians on staff. Physician employment has become an important recruitment and retention tool. The employment of physicians by the hospitals has led to the hospitals assuming more of the cost of medical malpractice insurance of individual physicians. Malpractice reform to reduce that cost would be beneficial to hospitals that continue to struggle financially. IHA supports proposals that improve patient safety, enhance efficiency, and reduce costs for patients and providers, and supports the MRT s recommendation to expand the medical home model. IHA believes the collaborative efforts of the Adirondack Medical Home could benefit more communities. Upstate and rural health care providers need to be included in the Medicaid reform discussions as the MRT continues its work. Thank you again for your time and the opportunity to comment. I hope that during your deliberations you will seriously consider the issues that I have discussed with you today. The members of the Iroquois Healthcare Alliance look forward to working with you in making sure that quality, affordable health care is accessible to all of the citizens of New York State. I am happy to respond to any questions. 6

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