Health Department Announces Contingency Plan for Hospital Financing
Albany, May 3 -- New York State has announced its contingency plan for hospital financing should its reimbursement system expire without a statutory replacement. The State plans to open negotiations now on payments for hospital services provided to Medicaid recipients after July 1.
Hospitals were notified of the State's intent yesterday, 60 days before the expiration of New York's Prospective Hospital Reimbursement Methodology (NYPHRM), the system by which the State has set hospital reimbursement rates since 1983. DOH has taken this action to avoid the serious situation that would arise if NYPHRM expires without the State being prepared to act. If NYPHRM expires without statutory replacement, the Health Department must set Medicaid reimbursement rates based on unexpired provisions of Article 28 of the Public Health Law, and give hospitals 60 days notice of rate changes.
Governor George E. Pataki has proposed the Health Care Reform Act of 1996 to replace NYPHRM. The Reform Act would end the State's practice of setting hospital reimbursement rates for all payers, and would target funds to expand State-subsidized health insurance for the working poor and more fairly compensate for care to indigent people. Negotiations are under way with the Legislature on the Health Care Reform Act.
"We are obligated to notify each hospital of our contingency plan and the Medicaid default rates that the State would pay if NYPHRM expires with no statutory replacement," said Health Commissioner Barbara A. DeBuono, M.D. "Our preference is enactment of the Health Care Reform Act. But if no action is taken, we would prefer to negotiate with the hospitals, and use the default rates only if a hospital refuses to negotiate or fails to reach agreement."
If NYPHRM expires with no replacement, insurance companies, managed care plans, self-insured funds, workers' compensation and no-fault insurance plans would be allowed to negotiate rates with hospitals instead of relying on the State to set rates. Because State government is a large purchaser of hospital care for Medicaid patients, it is appropriate for the State to negotiate rates as well. This is consistent with the Health Care Reform Act's thrust to get New York State out of the business of regulating hospital rates.
The Health Department will set a plan in motion to open negotiations, and will seek approval of the default rates from the State Hospital Review and Planning Council at its next meeting.
The default rates will eliminate the partial reimbursement for hospitals' bad debt and charity care costs; public health initiatives; costs associated with legislatively authorized health training programs and workforce demonstration projects; funds supporting merger, consolidation and acquisition projects; and graduate medical education. The default rates will be reduced 10 percent as an incentive for hospitals to continue their efforts to reduce costs, and to reflect ongoing health care market changes, such as mergers, network development and other rate negotiations. Dr. DeBuono said she anticipates that hospitals will prefer to negotiate these components of Medicaid reimbursement rates with DOH rather than use the default rates.
While the State would no longer have the authority to collect and pool monies to fund certain health program priorities if NYPHRM expires without a statutory replacement, Governor Pataki intends to continue Child Health Plus and the insurance pilot programs with capped enrollment for as long as funding can be found. More than 112,000 New Yorkers are served by these programs, which provide health insurance for outpatient services rendered to income-eligible children through age 15 and low-cost health insurance to employees of small business. These programs are currently scheduled to expire June 30.
Under the Health Care Reform Act of 1996, these programs would be expanded: Child Health Plus coverage would be increased through age 18 and include hospital inpatient services, and a new Small Business Insurance Partnership Program would be created to offer subsidized health insurance to employees of small business.
Because funds cannot be pooled for bad debt and charity care funding once NYPHRM expires, hospital Medicaid rates will be adjusted in the coming months in accord with federal requirements to provide compensation for services provided to the medically indigent. DOH is developing a rate adjustment methodology to ensure that the federal requirements governing the Medicaid program will be met. The adjustment for "charity care" will be added to the default rates.
Hospitals were notified in July 1995 that the NYPHRM statute would be extended for six months past its December 31, 1995 expiration date to give lawmakers time to enact reform and for hospitals to begin the transition to a negotiated-rate system. A task force presented recommendations in December 1995; Governor Pataki announced the Health Care Reform Act of 1996 in March.
"I believe the Health Care Reform Act is the right prescription for New York's ailing health care delivery system," Dr. DeBuono said. "But until there is legislative action on reform, the Health Department is obligated to serve New Yorkers by using its statutory authority to set up this contingency plan."
5/3/96-55 OPAContact: Claudia Hutton, Director, Public Affairs (518) 474-7354
New York State Department of Health Posted 5/10/96