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A One-Two Punch To Hospitals: The Proposed Federal and State Budgets

Each day, over 250 people visit the emergency room at Woodhull Medical Center in Brooklyn. And each day the hospital loses more than $75,000 treating them -- adding up to more than $27 million a year. If Governor George Pataki and President George W. Bush have their way with the state and federal budgets, Woodhull will be losing even more -- and it and other New York hospitals might be sent over the edge.

Pataki's proposed budget for New York State, released in January, contains sharp cuts for Medicaid. New York's program is the country's largest, and Pataki argues that costs must be brought under control. His proposals to do so, however, will cost New York City hospitals $341 million next year, according to the Healthcare Association of New York State, a trade association for health care providers. The loss for Woodhull alone could be $15 million (on top of the $27 million.) The association says these costs would be devastating to a struggling industry in which eight hospitals already have been forced to close in the city since 2003.

Pataki's plans are not the only thing worrying health care advocates, though, nor is Medicaid the only concern. Decisions about New York City's public health insurance programs are made at the state and federal levels (the city, while it does foot a portion of the bill, has essentially no say over how these programs are run; its own budget will not really affect them.) So it was another blow when President George Bush laid out his budget for the forthcoming fiscal year earlier this month: he called for significantly reduced funding for Medicare, the country's other major public health insurance program.

"This year our concern is the governor's budget in relationship with the president's budget," said William Van Slyke of the Healthcare Association of New York State. "It's a one-two punch to hospitals."


When he presented his budget, Governor George Pataki proclaimed his dedication to health care: "[New York] must continue to invest in a health care system that is second to none," he said. "And as part of that endeavor, we have to redouble our efforts to control the growth of Medicaid spending." At an annual cost of $44.5 billion, New York's Medicaid program is the single most expensive item in the state's budget. Unlike other states, New York's Medicaid program also affects local governments, which Albany asks to share the costs. When Mayor Bloomberg complains of uncontrollable items in the city's budget, Medicaid ranks high on the list.

The governor wants to continue a program he started last year that caps the amount local governments contribute to Medicaid. He estimates that this will save New York City $750 million this year alone.

Shifting costs from local to state government, however, does nothing to address the overall cost of Medicaid. For that, Pataki hopes to cut down on widespread fraud by setting up an independent office where 600 people will work full time investigating it. While establishing this office will cost $15 million, Pataki thinks it will end up saving the state money.

The governor's budget also includes $1.3 billion in cuts to Medicaid, and health care advocates are particularly concerned with his plan to change the way that hospitals are reimbursed for providing care to patients in the program.

For years, hospitals have argued that they are losing money each time a Medicaid patient shows up in the emergency room, because it costs more to treat him or her than the hospital is paid to do so. At Woodhull, for instance, the average cost of an emergency room visit is $411. But the maximum reimbursement the hospital can get for a Medicaid patient is only $95. The governor's budget would make the problem even worse, say health care advocates.

The Healthcare Association of New York State estimates that hospitals in the state will lose $431 million if the proposed budget is approved. New York City, which has a disproportionate amount of Medicaid patients, will be hit hardest: the city's hospitals will have to absorb 80 percent of the statewide losses.

This comes at a time when hospitals are already struggling. "Statewide, they have lost money for targeted investments in emergency room, outpatient, and long term care services," he told state lawmakers earlier this month.

A state commission is already looking at how to address the poor financial performance of the industry, and will almost surely recommend closing hospitals at the end of the year.

More cuts could cause some hospitals to cut back on services or shut down entirely.


President Bush seems even more concerned about the cost of public health care programs than Pataki. His budget calls Medicare and Medicaid (along with Social Security) "the greatest threat to our fiscal health over the long term."

The proposed federal budget mixes spending cuts with tax incentives that Bush hopes will help lead the country towards a more market-based health care system.

The president's budget proposes $36 billion in savings to Medicare. Joshua Bolton, his budget director, was careful to say that these savings will not be cuts but a "reduction in the rate of growth." Still, the impact on New York City hospitals is slated to be $356 million over the next five years, according to the Healthcare Association of New York State.

This budget also hints at a more fundamental shift in the way the government helps provide health insurance by including tax incentives for health savings accounts. The White House estimates that these incentives will cost the federal government $59 billion over the next five years. But by allowing people to put money away tax-free to pay for health care, the Bush administration argues, health savings accounts will eventually lower overall health spending by encouraging people to make smarter decisions about seeking health care. Critics, however, believe that these savings come by encouraging people to skip necessary health care.


"If both these budgets were enacted as proposed," said Van Slyke of the Healthcare Association of New York State, "we would absolutely lose more hospitals. There is no doubt about it."

Of course, the chances that either budget will be enacted as proposed are slim. The governor and the president have made their opening volleys; they will now spend the next several months negotiating with lawmakers about which provisions stay and which are removed.

At both the federal and state levels, it doesn’t seem as if reductions in health care costs will be easily approved. Pataki's proposals are similar to those he has made in recent years, which the state legislature has regularly rejected. Further, many are saying that the president will also have a hard time trying to get Congress to agree to reduce spending on popular programs. It is, after all, an election year.


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