Crain’s New York

New York, NY

http://www.crainsnewyork.com/article/20100212/FREE/100219959

Controversial system allows hospitals to dip into $1 billion state fund without verifying they actually provided service; change was opposed by powerful hospital lobby.

By Barbara Benson

New York’s powerful hospital lobby quietly prevailed in pushing Gov. David Paterson to drop a reform of charity-care payments from his proposed executive budget. If implemented, the reform would have overhauled a controversial 27-year-old system that determines how hospitals are paid for caring for poor or uninsured New Yorkers.

Since 1983 hospitals have received funding from a special state pool that pays for treating the uninsured and underinsured. Advocates for the poor have long pointed out that tapping the $1 billion pool was far too easy since hospitals had never been required to show that they were actually providing care for the uninsured.

Tentative steps toward an overhaul were taken two years ago, when hospitals were required to start keeping better charity-care records. Currently, 10% of the charity care pool is distributed based on hospitals showing they actually treated the poor or uninsured. The vast bulk of the money, however, is still distributed under a system that largely lets hospitals estimate their uncompensated care costs, and one in which the state does not verify that charity-care payments actually are tied to treatment.

In his executive budget unveiled last month, Mr. Paterson proposed an overhaul that called for determining all of the state’s charity-care payments to hospitals solely based on the costs of services provided to the uninsured. The move would discontinue the practice of making payments based almost exclusively on a hospital’s accounting of bad debts.

While consumer advocates cheered, hospital lobbyists went into high gear. Days later, when Mr. Paterson introduced his 21-day amendments to this budget, the reform had vanished.

“We are truly disturbed by the governor’s backing down so quickly on the need to make changes in charity-care distribution,” said Judy Wessler, executive director of the Commission on the Public’s Health System, an advocacy group.

Indeed, the governor’s policy change has stunned health advocacy groups, who suspect that the state’s powerful hospital trade associations are behind Mr. Paterson’s about-face.

“We are now mystified as to why he would pull back from that effort when it comes to spending nearly $1 billion that should be directly tied to patient care, not providers’ costs of doing business.” said Bob Cohen, policy director at Citizen Action of New York.

A spokesman for the governor said the move was “to give hospitals a greater opportunity to adjust their operations in light of proposed state savings actions.”

Hospitals argue that by dropping the reform, the governor avoided unnecessary chaos with payment redistributions that would have produced no state budget savings.

According to an analysis by the Greater New York Hospital Association, for example, Montefiore Medical Center would have had its charity-care payments plummet by $20.8 million if the governor had not changed his mind about reform.

Now advocates say New York is stuck with a current system that allows inexplicable variations in charity-care payments. New York-Presbyterian’s allocations, for example, fell from $59.8 million to $35.5 million over a single year, while North General Hospital, with a high volume of indigent care, got one-fifth the amount of Beth Israel Medical Center.

“That $847 million is going out the door unaudited is a travesty in these fiscal times, when the number of uninsured is rising,” said Elisabeth Benjamin, vice president of health initiatives at the Community Service Society.