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North Country Health Services President Jim Hanko holds a chart showing that uncompensated care in Minnesota hospitals rose 132 percent in five years, contributing to higher costs to private pay patients. Hanko spoke at a health care forum Tuesday, with the results to be sent to President-elect Barack Obama's transition team.(Monte Draper/Bemidji Pioneer)

Concern over impact of state budget cuts on hospitals

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Minnesota's hospitals continue to take disproportionate cuts in state aid to solve the state's budget woes, says Jim Hanko, president and CEO of North Country Health Services.

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In order to meet a projected $426 million budget shortfall in the current biennium which ends June 30, Gov. Tim Pawlenty earlier this month said he would unallot $271.4 million in state spending, including $73 million in health and human services spending.

Hanko said Tuesday that "$38 million of that (health and human services) unallotment -- greater than half of that unallotment -- came at the expense of hospitals."

Pawlenty took $10 million from add-on payments to hospitals to treat Medical Assistance patients, a reduction that the Republican governor said would not affect base payment rates to hospitals.

He also took $28 million from the Medical Education Research Costs account. The account receives $51 million a year from the state's general fund to provide funding for clinical training of selected medical professionals by compensating teaching facilities for a portion of the costs of clinical training provided in patient care settings.

Funding to hospitals account for 15 percent of the state's health and human services budget, "but we were asked to bear 50 percent of that unallotment cost," said Hanko, who heads North Country Regional Hospital. "This is the fourth time the state has come to hospitals, specifically, and have asked them to take the cut."

Hanko commented on the governor's budget cuts to hospitals during a health care forum hosted by state Sen. Mary Olson, DFL-Bemidji, on health care reform issues to be presented to President-elect Barack Obama's transition team.

In addition to the short-term budget problem, legislators who convene the 2009 session next week face a potential $4.8 billion budget hole for the next two-year budget, a hole that could grow larger.

With four cuts in state reimbursement rates for care to Minnesota hospitals since 2002, the hospitals are only be reimbursed at a base figured on 2002 costs, Hanko said. And that's reduced by 14.92 percent, he added.

For hospitals in poorer rural areas, such as Bemidji, state reimbursements are important as they involve patients on state public assistance programs, such as Medical Assistance, Medicaid and MinnesotaCare.

The state may save $100 million in Medicaid expense by reducing reimbursements to hospitals, Hanko said, but the hospitals see a $200 million loss because of a 50/50 share with the federal government.

Minnesota is not taking advantage of federal matching dollars in health care, as it does in education or transportation, he said.

Pawlenty has said his cuts in reimbursement add-ons and medical education funding won't affect direct patient care, "but I'm hear to tell you today that is a disingenuous remark," Hanko said. "Anybody who could think taking $38 million out of hospital revenue streams will not impact direct patient care is disingenuous."

Hanko disagrees that the current unallotment choices came as a difficult and tough decision. "K-12 represents 40 percent of the state budget, and K-12 was entirely exempted from the unallotment process."

To not look at all parts of the state budget in making unallotment decisions isn't fair, Hanko said.

Unless the option of increasing state revenues, such as income taxes, is put on the table, then state officials need to "tell hospitals and their medical staffs who work very hard on behalf of its region like in Bemidji, these are the things you no longer have to do in terms of patient care. These are the services you no longer have to provide, because we (state officials) realize we're only paying you less than 80 cents for every $1 worth of cost unit for Medicaid patients."

Minnesota hospitals are also seeing huge increases in uncompensated care, or so-called "charity care" plus bad debt, Hanko said. There has been a 132 percent increase in uncompensated care in the last five years, from $258.2 million in 2003 to $601 million estimated for 2008.

The state's health and human services budget is growing faster than any other part of the state budget, Sen. Olson said, but that part of the budget has also experienced more cuts than any other part of the budget.

"It is growing substantially primarily because of our demographics," she said. "Most health care costs are incurred by people toward the end of their lives. We are just on the brink of a demographic that is going to see a 50 percent in the number of people who are retired over the next 20 years.

"As a result, as we continue to see health care costs continue to increase at their present rate, and with that changing demographic, if we were to remain revenue neutral in the state, within 15 years health care costs would consume our entire state budget," the Bemidji Democrat said.

At the federal level, there are similar gaps in reimbursement levels for Medicare patients, much of it on a regional basis unrelated to costs, Hanko said. As a result, larger metro areas receive higher payments even though costs are the same in rural areas.

There, too, the federal government reimburses at about 80 cents for every $1 in costs, Hanko said.

"As a result, we have to shift those costs to private health insurance," he said, "mostly through employment."

Within Medicare, there are huge disparities in the amount of money the federal government spends on Medicare in Miami, Los Angeles and San Francisco than what is spent in Minneapolis, he said, and certainly what is spent in Bemidji.

"I can tell you with assurance that the care provided in Bemidji is better quality and should be more highly rewarded than some of the care providers in Miami, Los Angeles or San Francisco," he said.

There are differences among hospitals in the same community in terms of the quality of care they deliver, he said. A Congressional Budget Office study showed in one community a hospital provided excellent outcomes at $25,000 cost while another hospital down the street provided less adequate care at twice the cost.

"Certainly we need reform in health care when we have those kinds of things," he said.

"If North Country Regional Hospital realized a dollar reimbursement for every dollar in costs it incurs on behalf of Medicaid and Medicare beneficiaries, we could reduce our charges 40 percent," Hanko said.

There are huge demands on federal and state dollars for health care, but there is also competition from education and social services for dollars, Hanko admitted. "But we need to have adequate financing of health care, and we need to build incentives into that financing."

Most federal health care dollars are now spent in the beneficiary's final years of life, he said. "We have to come to grips with that."

People need to take more responsibility for their health outcomes and be accountable for those decisions, he said. Preventive care now could stave off expensive care in later years of life.

There are larger numbers of Americans today who are obese, compared to 10 or 15 years ago, he said. "Diet, lifestyle choices, smoking, alcohol, other risky behavior, do impact our costs, so we need to have people become more accountable."

High deductible health plans are an option, he said, which in exchange for a lower health insurance premium, there is a higher deductible and higher co-payments. "The thinking is that will help us as patients and consumers of health care ... we'll be making more careful decisions about the care we receive."

With employer-provided health plans, many people are insulated from health care decisions and seek care not taking cost into consideration, he said.

Hanko believes the notion that health care comes with employment needs to be disconnected. "We need to get away from that to really move forward with reform."

Also needed are best practices principles, whereas as now care is provided differently among providers and physicians. "These need to be developed as a result of clinical research that's been rigorously tested and implemented," Hanko said.

Organizations that have done well should receive incentives, he added, such as achieving good outcomes.

Using mid-level practitioners could also save health care costs, he said. The most common admission to a hospital is for childbirth, he said.

"We have a more economical option in using mid-level health providers in many instances in our institutions," Hanko said. "We already have mid-level practitioners working in our Emergency Department. ... A lot of hospitals have mid-wives. We can get a handle on some of our costs by using those folks who are extremely well trained and have prove time and again they can provide the high quality care."

Another reform often cited is to extend health care coverage to more people, Hanko said. Obama "wants to make sure that more people are provided health coverage through insurance or Medicaid or Medicare."

That coverage should be provided to people up to incomes reaching 200 percent of poverty level, he said, a spot where Minnesota is already at.

"My biggest fear is that, as our well-intended regulators in Washington, D.C., begin looking at that, are they going to take away from Minnesota?" Hanko wondered. "I would hope what we've done in Minnesota in terms of being on the leading edge of health reform, that we aren't punished."

Raising health technology could also help curb costs, he said. "Health information that is readily available to physicians from setting to setting" would help health care delivery. "Nobody yet, except in a very few places that are very large, have been able to blend the inpatient care and the outpatient data together in a coherent way so that it benefits the patient and the physician and extenders as they provide patient care."

But none of health technology reform comes free, Hanko added, stating that a hardware and software tech upgrade at NCRH will cost $5 million.

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