The 2023-2024 executive state budget released by Governor Hochul on February 1, 2023 proposes policies and programs that amount to a mixed bag for hospitals and health systems. The Hochul administration laid out its policy agenda in documents accompanying last month’s State of the State address with the stated intent of strengthening New York’s healthcare system. Items in the proposed state budget might make this a harder goal to achieve, when we look deeper into the details. I’ll touch on just a few.
Overall, despite a proposed five percent increase in Medicaid inpatient rates, the budget does not fully address the dire fiscal condition our hospitals face. As I mentioned in my last blog post, hospitals in our suburban counties endure a shortfall between what Medicaid pays for the cost of care and the actual cost of care. Medicaid pays 60 cents on the dollar. And while a five percent increase sounds good, it is well below what’s needed to close the payment gap. In fact, it doesn’t even keep up with the inflationary pressures of the last year. The state is supposed to keep Medicaid rates current with rising costs through what is known as the Medicaid trend factor, an annual adjustment to rates. However, state budgets for more than a dozen years have rejected the implementation of this annual adjustment, and rates have otherwise only increased by 1 percent over this time period.
Is It a True Increase?
Further, the five percent increase will likely be obliterated, or nearly so, for many hospitals by the administration’s desire to move ahead with a controversial policy change in the Medicaid pharmacy benefit program. The governor is committed to moving forward with implementation of a provision from 2020’s Medicaid Redesign Team II reforms that carves the pharmacy benefit out of Medicaid managed care plan coverage. The state would instead manage the pharmacy benefit for Medicaid beneficiaries directly. That will have a profoundly negative impact on hospitals participating in the federal 340B program. The 340B drug program allows hospitals to purchase certain drugs at deeply discounted rates. The resulting savings help hospitals reinvest in community benefit programs. Under this proposal, the savings on 340B drugs would accrue to the state, not providers. This policy becomes effective April 1, 2023, after having been delayed two years. Obviously, hospitals want this policy delayed once again or to go away completely.
More Cuts, More Taxes
The Medicaid payment increase is further eroded by a proposed reduction of $85 million in the indigent care pool to voluntary hospitals and an increase in the MTA payroll tax on downstate employers, including hospitals. Hospitals are major employers in their communities. The indigent care pool provides funding to hospitals to assist in paying for the cost of care for low income/uninsured individuals. In New York, 5.2 percent of the population remain uninsured. The proposed cut would disproportionately impact hospitals in the suburban regions.
The metropolitan commuter transportation tax, otherwise known as the MTA tax, was enacted in 2009. Hospitals in Rockland, Orange, Putnam, Dutchess, Westchester, Nassau and Suffolk counties pay this payroll tax. The current rate is 0.34 percent and the state proposes to increase that nearly 50 percent to 0.5 percent. The education sector has been exempt from this tax; hospitals have sought exemption and will continue to do so. There is little appreciable benefit to our regions from this tax. It is a tremendous burden on suburban hospitals and all employers in our regions.
Addressing the Workforce Shortage
There are a number of proposals in the governor’s budget designed to alleviate the workforce shortage that is crippling our hospitals. Our institutions need flexibility in order to meet staffing demands in the midst of this severe workforce shortage. We hope that New York will be given the green light to join the medical and nurse interstate licensure compacts, as proposed by the governor, and that scope of practice expansions for physician assistants, nurse practitioners, emergency medical services, pharmacists and others become a reality. Even if enacted in this budget, it would take some time for these programs to be implemented on a permanent basis, so we are also advocating that the state retain these provisions via executive orders in the interim.
We are also pleased to see proposals aimed at providing transparency into the practices of nurse staffing agencies. Many hospitals have had to turn to these agencies to fill positions on a temporary basis, often paying exorbitant fees for personnel. The governor’s proposals would establish minimum standards, impose penalties for non-compliance, and require quarterly reporting.
Health Plan Accountability
Hospitals have long sought reforms to managed care practices that are unfair to patients and providers. There have been successes along the way. One proposal forwarded by the governor in this budget would ensure hospitals are paid for services in emergency situations before an insurance company performs a case review. In what’s called a pay and resolve approach, payment remains with the hospital throughout the review process. That process involves time limits for delivery of case documents, a post-payment audit conducted by a joint committee and, if necessary, review by a mutually-agreed upon third party reviewer. Lots of steps, but the important point here is that payment for services is upfront and not delayed for a protracted period of time.
Our suburban hospitals are especially pleased to see the proposal to establish a health insurance guaranty fund. When insurer Health Republic collapsed in 2015, it took until 2023 for the bankruptcy proceedings to conclude. A sizable percent of Health Republic’s business was with providers in our suburban regions, resulting in loss of funds to hospitals. The guaranty fund would pay claims to providers in the event of a health insurance plan’s insolvency. Many states have such a fund. Typically guaranty funds require all licensed insurers to contribute to a fund to make providers and consumers whole.
Behavioral Health Investment
Proposals in the budget seek to address the seemingly intractable mental health crisis in which we find ourselves. Insurance reforms that expand access to school-based mental health clinics, mobile crisis intervention, and opioid overdose reversal medication are all positives. Other provisions related to payment parity enforcement, removable of utilization review obstacles, and making telehealth services permanent will all help patients and providers.
What’s Next
The Assembly and Senate one-house budget bills are expected mid-March. In my next blog post, I will take a look at those proposals. The legislature is required to pass a budget by April 1, 2023.
About the Suburban Hospital Alliance of New York State
The Suburban Hospital Alliance of New York State advocates on behalf of hospitals in the Hudson Valley and Long Island regions. It engages key lawmakers and regulatory decision-makers in Albany and Washington to ensure reasonable and rational health care policy prevails.
About the Nassau-Suffolk Hospital Council (NSHC)
The Nassau-Suffolk Hospital Council represents the not-for-profit and public hospitals on Long Island. It works in conjunction with the Suburban Hospital Alliance of New York State to advance legislative and regulatory priorities. NSHC serves as the local and collective voice of hospitals on Long Island.
About the Northern Metropolitan Hospital Association (NorMet)
The Northern Metropolitan Hospital Association represents the not-for-profit and public hospitals in the Hudson Valley region. It works in conjunction with the Suburban Hospital Alliance of New York State to advance legislative and regulatory priorities. NorMet serves as the local and collective voice of hospitals in the Hudson Valley.
Darwell Dose 