Lawmakers see budget challenge with healthcare
BEMIDJI - Rural hospitals and nursing homes face compounded budget problems under Gov. Tim Pawlenty's budget, but lawmakers don't know how to correct them.
Pawlenty's budget proposal cuts health and human services spending by about 15 percent from projected growth levels, although he increases the HHS budget by 9.6 percent in actual dollars from this biennium to the next.
"This is a budget we're going to cut across the board," Sen. Rod Skoe, DFL-Clearbrook, said Friday night at a meeting of North Country Health services officials and board members, plus several doctors representing MeritCare Clinic-Bemidji.
Skoe said the governor, while holding down health spending, would increase K-12 education spending, but that portion is 40 percent of the total state budget. Senate Democrats will put all spending on the table, meaning K-12 will also see cuts, Skoe said.
"It's going to be really, really difficult tough sledding," Skoe said, "but we have to figure out a way to do this that we don't do irreparable damage, and that when we come to some economic upturn, that we can start seeing some better times. It's just plain daunting."
Skoe was joined by Sen. Mary Olson, DFL-Bemidji, and Reps. Brita Sailer, DFL-Park Rapids, and John Persell, DFL-Bemidji, in the briefing at North Country Regional Hospital.
Jim Hanko, North Country Health Services CEO, told of problems NCRH faces in the high number of public assistance patients it cares for -- the highest percentage of any hospital outside the metro area -- and a reimbursement rate that doesn't meet expenses.
Sandy Bensen, NCHS vice president of senior and community living services, told of Neilson Place facing frozen reimbursement rates that will would be lowered by 1 percent if a temporary increase from last session is rolled back. Also, Pawlenty would put off rebasing, or setting a new reimbursement base, which would further the gap between rural and metro facilities.
"People all want us to work in a bipartisan manner, put aside everything and move ahead," Sailer said, "and I want to do that, too. I am really upset with the budget proposal. ... It hasn't been even between education and health care."
Pawlenty proposes increasing K-12 spending by 1.9 percent, mostly through his teacher pay for performance program, giving participating districts more per pupil funding.
"It hasn't been even between education and health care," Sailer said. "It is misleading the education community to think that is how we are going to be balancing this budget. We aren't going to end up that way. But it sets the stage for pitting the education community against the health care community, and we can't do that."
Sailer said the governor's proposals for health and education spending "is not fair to either of our two largest components of state spending."
Persell called the governor's budget "smoke and mirrors," but added that he's a pragmatist who wonders where the money would come to prop up health and human services spending.
"This issue of negative numbers on your (NCHS) balance sheet is a big concern, and I'll work as hard as I can to try and make that go the other way," Persell said. "But we have to figure out how to pay for it. We don't have printing presses in the state" to print more money.
Dr. Mark Dwyer, a MeritCare ophthalmologist, and Persell sparred over the idea of a single-payer health care system, with Dwyer calling the current reimbursement system for public assistance a form of single payer, one that doesn't work because reimbursements don't cover expenses.
"It's not meeting our costs," Dwyer said. "It's handcuffing us to deliver our care. ... We have a certain fixed amount of costs to be able to provide the care, and we expect cost of living increases for our employees and other things. When the state does not keep up with the cost of living and fails to rebase the reimbursement as time goes on, you're in a situation where you're constantly need some money to support these services."
If rates are cut, facilities even lose more, Dwyer said. It's a system that guarantees losses.
"I'm not convinced that it's the single-payer system itself," Persell responded. "Some of the costs of living that we expect might be a little bit beyond what we should be expecting. Everybody wants that 2-3-4 percent, but we got where we are in the country because we've expected that ... we're owed this. I don't think it's realistic."
"With 58.5 percent of the nursing homes in northwest Minnesota having a 5 percent or more operating deficit, it's pretty obvious that they aren't all operating extravagantly, and very likely we're not funding the reimbursement rates high enough," said Skoe.
Olson said compounding that is a disparity between the rural and metro area, once done to account for the higher cost of providing health care in the metro area. Not so today, she said, as it costs as much for care in rural facilities as in metro ones.
"It's one of the reasons we want to correct through rebasing," she said.
Both Olson and Skoe said the DFL Senate will oppose Pawlenty's proposal to move Health Care Access Fund surpluses into the General Fund. The health fund, raised through a tax on health care providers, should be used on health-related programs, they said.
"It becomes just another surtax raised to support the General Fund," Olson said of the proposal. Also, eligibility changes Pawlenty proposes in programs such as MinnesotaCare subsided health care "will affect a lot of people and a disproportionately high percentage of people in our area."
Pawlenty's budget also eliminates state reimbursement add-ons for critical access facilities serving low-income people, Olson said, a move that would affect the revenue stream at the new Bemidji critical access dental clinic.
Olson, who sits on a Senate health care panel, said the committee is working through Pawlenty's budget and its affect on a number of programs that deliver services to Minnesotans. "We have a few that are really important to rural Minnesota health care facilities," she said.
"We have disparities -- significant disparities -- in reimbursement rates for long-term care facilities and some of the funding streams for hospitals," Olson said. "Basically, the governor cuts those funding streams or eliminates them."
Hanko said uncompensated care at North Country Regional Hospital has grown more than 60 percent from $2.97 million in 2004 to $4.74 million in 2008. The hospital receives 82.6 cents for every $1 of care provided to Medical Assistance or Medicaid patients.
Pawlenty's budget, if it passed, would see in 2010 $1.8 million in losses indirectly through changes in eligibility and $2.9 million in direct losses through hospital payment reductions.
Three ratable reductions totaling 14.96 percent will cost NCRH $2 million a year, Hanko said, and delayed rebasing will cost $900,000 a year.
Because public assistance losses must be shifted to private pay and insurance, the gap in revenues and expenses is narrower than Hanko wants to see for growth and financial viability, he said. For fiscal 2008, reimbursements were $80.8 million verses $80.35 million in expenses for net income of $457,875.
Overall, the corporation sustained a net operating loss of $201,113 in fiscal 2008, he said. Sixty-six percent of the revenue to the hospital comes from public assistance reimbursements.
"The average wage is $24 (an hour) throughout North Country Health Services," Hanko said of wages of 950 employees. "When we create a job, we create a real job that supports families and obviously we're probably the economic engine" in the local economy.
Neilson Place received $6.77 million in reimbursements for fiscal 2008 and had expenses of $7.8 million, leaving a net loss of $1.04 million, Bensen said. It has an extremely high census of public assistance patients -- 66 percent on long-term stay Medicaid and 19 percent on short-term stay Medicare. Only 10 percent are private pay and 5 percent insurance.
Nursing home beds are decreasing while demand for services is increasing, Bensen said. And there are fewer beds because facilities are closing that can't make it on the state reimbursements.
"Thirty percent of facilities in Minnesota have an operating loss of 5 percent or more," Bensen said. "In northwest Minnesota, 58.8 percent have an operating loss of 5 percent or more. Neilson Place has an operating loss of 15.9 percent."
The local loss amounts to $20.46 per resident each day, she said.
"We're going to stand firm and try to minimize the cuts in health and human services," Skoe said. "We're going to make an effort to not eliminate the Health Care Access Fund, but we have to find resources to offset somewhere."