Ritter, JBC back plan to reduce hospital 'cost-shifting'
By Richard Haugh
Gov. Bill Ritter’s administration is rolling out legislation calling for a fee to be assessed on hospitals — a fee that, when matched by federal dollars, could result in as much as $1.2 billion in additional state Medicaid money.
In an interesting twist, the legislation — House Bill 1293, introduced Feb. 26 — provides a pot-sweetener for hospitals that meet certain quality-of-care goals.
Ritter announced the Healthcare Affordability Act at a press conference at Denver Health Medical Center the same day it was introduced with sponsorship of the bipartisan Joint Budget Committee.
As business executives, health care leaders and legislators from both sides of the aisle surrounded him, Ritter said the bill will provide health coverage for at least 100,000 of the 800,000 Coloradans — including 180,000 children — without health insurance.
Although Ritter characterized the bill as a big step toward the goal of covering all Coloradans, he acknowledged that even an additional $1.2 billion won’t solve the problem.
“The needs are much greater than we can address in a single piece of legislation or in any one legislative session,” he said. “But our commitment to high-quality, affordable health care for all Coloradans remains strong.”
For months, the governor’s office has been working on the proposal with the Colorado Hospital Association (CHA) and the Department of Health Care Policy and Financing (HCPF). If it is approved by the Legislature, the plan will be submitted to the federal Centers for Medicare and Medicaid Services (CMS) for final approval.
Here’s how it works.
Most hospitals in the state will be assessed fees. The money from those fees will be pooled and used to draw down matching funds from the federal Medicaid program. Colorado receives a dollar in federal Medicaid funding for each dollar the state spends on Medicaid. That money — as much as $1.2 billion, by some estimates — would be used to expand health coverage for the uninsured through the state Medicaid and Child Health Plan Plus (CHP-Plus) programs. It also would provide enhanced funding for the current Medicaid system and for the Colorado Indigent Care Program (CICP).
If Colorado adopts the provider-fee legislation, it will join 41 other states with similar programs, including 20 states that have hospital-specific provider fees.
Last year, Colorado adopted a similar provider-fee system to help fund nursing homes — House Bill 08-1114, which was co-sponsored by then-Rep. Al White, R-Hayden, and Sen. Jim Isgar, D-Hesperus.
Details on the amount of the fee and how it will be assessed haven’t been ironed out, said Tom Nash, the hospital association’s vice president for financial policy. He doubted the fee will be based on a flat percentage of a hospital’s revenue, but said it could be assessed on “per-click” use based on factors such as a hospital’s patient volume or the number of patients discharged annually. In any event, it will be limited by the federal government, which sets a ceiling for provider fees of 5.5 percent of hospital net revenue.
The amount of new funds hospitals will receive and their distribution also will have to be determined by the agency created by the bill. However, Nash said, no matter how those details are calculated, hospitals will benefit.
“In the end, if a hospital is seeing more Medicaid patients, chances are they’re going to do better,” he said. “If you do a lot of Medicaid business, you’ll do okay.”
Ritter called the provider-fee bill “fiscally responsible,” noting that no general fund dollars will be used. He also said it will address the so-called health-care-cost shift, in which providers (such as hospitals) make up shortfalls in Medicare and Medicaid payments by shifting the cost to insured patients and their insurers.
Colorado hospitals now shift more than $375 million each year in uncompensated costs, said Bob Ladenburger, vice chair of the Colorado Hospital Association and CEO of St. Mary’s Hospital and Medical Center, in Grand Junction. That’s because hospitals are paid less than 55 percent of what it costs to treat Medicaid patients, he said. Last year, he said, Colorado hospitals treated about 80,000 people covered by Medicaid and CICP.
To make up these shortfalls, hospitals pad the bills of insurance companies and individuals. A study in 2008 by the national consulting firm Milliman found that cost-shifting accounts for 15 percent of the amount insurers pay hospitals and physicians.
But when there’s more money in the pot specifically designated for that expense, providers will have less need to pass on costs, Ritter said.
“This plan will slow the rate of growth in health care costs by reducing cost shifting by hospitals,” he said.
Some, however, wonder whether hospitals will continue to pass the fee along to insurers, even with the new system in place. Anthem Blue Cross and Blue Shield, while supporting the provider-fee proposal, warned in a letter to the governor that the provider fee must reduce cost shifting — not add to it.
“Should this fee simply be passed along, undetected, to insurers by hospitals during contract and rate negotiations, the outcome would be higher premiums for insured Coloradans and ultimately increase the number of those without coverage,” said John Martie, Anthem’s Colorado president and general manager.
The business community shares Martie’s concern. In another letter to Ritter, Chuck Berry, president and CEO of the Colorado Association of Commerce & Industry, called for “clear assurances” that the provider fee won’t add to the cost shift imposed on business.
“Employers and their employees cannot afford higher premiums in these times of economic downturn and competition in a global market,” he said. “We hope there will be transparency in the program and evaluation of the fee so that business can be assured that a cost shift of the fee does not take place.”
Language in the bill is designed to encourage such transparency and oversight. Hospitals “shall not include any amount of the provider fee as a separate line item in its billing statements,” the bill states. It also requires annual reporting by hospitals and sets up a process to audit the program. In addition, the bill creates an oversight committee to keep tabs on the program. The committee will comprise hospital and medical representatives, business executives and individuals appointed by the governor.
Hospitals must provide an annual accounting of provider fees paid by each hospital and projected revenue to each hospital from new Medicaid and CICP payments. Hospitals also would be required to furnish estimates of the difference between the cost of care provided and the payment received by hospitals for patients covered by Medicaid, Medicare and other payers.
After the press conference, Ritter brushed off concerns about hospitals shifting the fee to insurers.
“You really have to believe in this bill. It helps hospitals,” he said. “It helps Colorado. It helps consumers. That’s why it’s being done.”
While transparency and audit provisions of the bill provide a stick, other provisions are designed to offer hospitals a carrot. Under the bill, hospitals that provide services that improve health care outcomes for patients will receive additional payments. Health outcomes will be gauged based on standards set by the state, based on nationally recognized performance measures.
Many Colorado hospitals now voluntarily report their performance on a set of quality measures. The results are summarized on the Colorado Hospital Report Card, maintained on the Colorado Hospital Association Web site. At the press conference, Sen. Moe Keller, D-Wheat Ridge, said it may be possible to link the quality measures under the provider-fee bill with the measures highlighted in the hospital report card.
For high-quality providers, the state will pay for the first two years of the program up to an additional 5 percent of total reimbursement as a bonus. In following years, that amount could be as much as 7 percent.
That provision gives the state a chance to drive quality improvements in Colorado hospitals by building in quality incentive payments, Ritter said.
“You can’t tackle cost and access without, at the same time, tackling quality,” he said. “We’re able to do that through some incentives that are built into this (bill).”
Keller said the provider-fee bill is a crucial step toward boosting the number of Coloradans with health coverage and reducing the cost shift to employers.
“We have the option of doing nothing. But ‘nothing’ doesn’t help us with the cost shift that’s going on today,” she said. “This bill will help contain that problem.”