EVEN AS DEBATE continues in the Legislature over how best to help community hospitals in the long term, a technical provision included in Gov. Charlie Baker’s state budget proposal could result in a $600 million annual windfall to the state’s hospitals, with an emphasis on those that serve more low-income patients.
Baker officials wrote in a budget summary that the proposal would “significantly expand investments in acute care hospitals, preserve critical payments to safety net hospitals, and ensure ongoing sustainability for all hospitals.”
Massachusetts, like many states, uses a hospital assessment to draw down federal money to its hospitals. The way it works is all hospitals pay an assessment, or tax. Then the state distributes the money back to hospitals through the Medicaid program, which is accompanied with a federal match. So, as an example, for every $100 the hospitals pay the state, the state gets another $100 from the federal government and returns $200 to the hospitals.
The money is collected based on how many commercial payers a hospital serves, so higher-cost hospitals with more commercially insured patients pay the most. It is returned through Medicaid, which mostly helps the safety net hospitals, who have more patients with public insurance. In other words, wealthy hospitals are subsidizing poorer hospitals.
However, the current tax scheme, which involves a $428 million assessment, expires at the end of September. If the state does not put a new one in place, the assessment will automatically drop to $160 million, and the hospitals risk losing a huge chunk of federal money.
The administration has spent the last several months working with the Massachusetts Health and Hospital Association to develop a new assessment, which would go into effect October 1. The proposal, which the association and all its member hospitals support, was included in Baker’s budget, and a version was also in the House Ways and Means budget that was released from committee this week.
Baker’s proposal would more than double the assessment, to $880 million. According to administration officials, that would bring in an estimated $600 million more a year in federal reimbursements, or around $3 billion over the five years the new system would be in place.
The proposal would also change how hospitals are taxed. Now, the tax is levied in a broad-based way, with all hospitals paying 1.5 percent of their commercial revenue. Baker’s proposal would split hospitals into five classes – for example, separating safety net hospitals from academic medical centers – and each type of hospital would be taxed differently. The goal is to make sure that each hospital gets a sufficient amount of money. So the safety net hospitals would be taxed at the highest rate, but the tax applies to only a small portion of their revenue (since so much of their money comes from Medicare and Medicaid), and the safety net hospitals get the most money back. The teaching and specialty hospitals would be taxed at a lower rate, but they pay taxes on a large portion of their revenue and get the least money back.
The money would go toward a range of expenditures. A large portion would go toward incentive payments, where the state sets targets for quality and health equity and pays hospitals that are doing a good job providing high quality care and reducing disparities in health care access across areas like race, ethnicity, and disability. There would be money set aside to help safety net providers (who serve large numbers of uninsured and publicly insured patients) and to reimburse the care provided to uninsured individuals. Another pot would simply increase the rates paid for Medicaid services, since Medicaid typically pays a lot less than commercial insurers.
There is also money earmarked for non-acute hospitals – for example, psychiatric and rehabilitation hospitals. Money would also go into a new fund for population health, which would pay for such things as primary care, care management for complex patients, and housing and nutrition supports.
According to the Massachusetts Taxpayers Foundation, there are slight differences between the governor’s and the House’s plans in how the money would be spent. For example, the House would require the population health fund to spend $255 million a year, and the governor would have it spend $290 million. But overall, the two plans are similar.
The new assessment must be approved by the Legislature, then get approval from the US Centers for Medicare and Medicaid Services.
House Speaker Ron Mariano said if CMS approves the change, “it will significantly change the funding structure for community hospitals.” He added: “If not, we’re in for some tough times.”