Cuts in Hospital Subsidies Threaten Safety-Net Care

Stephen Morton for The New York Times

Donna Atkins has no insurance and went two years with what she thought was a sore throat. She recently had cancer surgery.

By SABRINA TAVERNISE

Published: November 8, 2013

SAVANNAH, Ga. — The uninsured pour into Memorial Health hospital here: the waitress with cancer in her voice box who for two years assumed she just had a sore throat. The unemployed diabetic with a wound stretching the length of her shin. The construction worker who could no longer breathe on his own after weeks of untreated asthma attacks and had to be put on a respirator.

• Obama, Under Health Law Cloud, Hits Road to Push New Public Works (November 9, 2013)

• A White House in Crisis Mode, but Some Allies Prod for More Action (November 9, 2013)

Enlarge This Image

Stephen Morton for The New York Times

Dr. Guy Petruzzelli at Memorial Health hospital in Savannah, Ga. Memorial provides care for many patients who fail what Dr. Petruzzelli calls “the wallet biopsy.”

Many of these patients were expected to gain health coverage under the Affordable Care Act through a major expansion of Medicaid, the medical insurance program for the poor. But after the Supreme Court in 2012 gave states the right to opt out, Georgia, like about half the states, almost all of them Republican-led, refused to broaden the program.

Now, in a perverse twist, many of the poor people who rely on safety-net hospitals like Memorial will be doubly unlucky. A government subsidy, little known outside health policy circles but critical to the hospitals’ survival, is being sharply reduced under the new health law.

The subsidy, which for years has helped defray the cost of uncompensated and undercompensated care, was cut substantially on the assumption that the hospitals would replace much of the lost income with payments for patients newly covered by Medicaid or private insurance. But now the hospitals in states like Georgia will get neither the new Medicaid patients nor most of the old subsidies, which many say are crucial to the mission of care for the poor.

“We were so thrilled when the law passed, but it has backfired,” said Lindsay Caulfield, senior vice president for planning and marketing at Grady Health in Atlanta, the largest safety-net hospital in Georgia.

It is now facing the loss of nearly half of its roughly $100 million in annual subsidies known as disproportionate share hospital payments.

Memorial is also facing steep reductions in the subsidies. Cancer care may be among the services reduced, administrators here said. Memorial is now one of only a few hospitals in the state with a tumor clinic that accepts poor patients without insurance. Many show up coughing blood or having trouble breathing because their cancers have gone untreated for so long.

On a recent afternoon, Dr. Wade Fletcher, who practices at the hospital, thumbed through a stack of patient intake forms. The sections on payment contained the same refrain: No insurance. No money.

Even so, many of the patients work, often in Savannah’s huge hotel and restaurant industry. Late last month, Donna Atkins, a waitress at a barbecue restaurant, learned from Dr. Guy Petruzzelli, a surgeon here, that she has throat cancer. She does not have insurance and had a sore throat for a year before going to a doctor. She was advised to get a specialized image of her neck, but it would have cost $2,300, more than she makes in a month.

“I didn’t have the money even to walk in the door of that office,” said Ms. Atkins, speaking in a low, throaty whisper.

Dr. Petruzzelli has a phrase for her situation: “She failed the wallet biopsy.”

Ms. Atkins had surgery last Friday, two years after her first symptoms. It is unclear whether Ms. Atkins, whose income is right around the poverty line, will be left without Medicaid, or if she earns enough to qualify for subsidies to buy private insurance on the federal exchange. She appreciates the intent of the health law, but does not like the outcome: Her hours are being cut so her employer can count her as part-time to avoid having to offer insurance.

As she juggled takeout orders at the restaurant, Ms. Atkins said she would have to try to find a second job. “I’m 53,” she said. “Not too many people want to hire someone my age.”

Patients with chronic conditions like hers often go in and out of emergency rooms for years without treatment because doctors are only required to treat immediately life-threatening conditions. Dr. Christopher Senkowski, a surgeon at Memorial, recalled examining a farmer with pancreatic cancer that had spread throughout his body after months of referrals to specialists that he could not afford.

The cuts in subsidies for safety-net hospitals like Memorial — those that deliver a significant amount of care to poor, uninsured or otherwise vulnerable patients — are set to total at least $18 billion through 2020.  The government has projected that as much as $22 billion more in Medicare subsidies could be cut by 2019, depending partly on the change in the numbers of uninsured nationally.

The cuts are just one of the reductions in government reimbursements that are squeezing hospitals across the country. Some have already announced layoffs. In Georgia, three rural hospitals have closed this year.

Medicaid expansion may not have replaced all of the lost subsidies, but it would have helped, hospital administrators said.

“I understand that the state needs to balance its budget, and control the runaway costs of Medicaid, but to turn a blind eye and say, ‘Let the chips fall where they may,’ you’ll end up with a gutted health care system,” said Maggie M. Gill, chief executive at Memorial Health.

Traditionally, safety-net hospitals have played a special role in caring for poor people. They make up just 2 percent of acute care hospitals in the country, but provide about a fifth of all uncompensated care, according to Dr. Arthur Kellerman, dean of the F. Edward Hébert School of Medicine in Bethesda, Md. The subsidy was created in the 1980s to help hospitals with large shares of patients who were uninsured or had government insurance that did not pay very much. Many hospitals came to depend on it.

A full third of Grady’s patients have no insurance, and, if that does not change, the hospital will have no choice but to cut services, said John M. Haupert, Grady’s chief executive. The hospital’s large outpatient mental health program, which handles 58,000 visits a year and is critical to keeping poor patients with behavioral problems from seeking treatment in the emergency room, would most likely be hit, Mr. Haupert said.

Some experts say the cuts in hospital subsidies are part of a larger problem: government programs like Medicaid do not pay enough to cover the actual costs of care. The cheapest private insurance on the new health care exchanges, the Bronze Plan, covers just 60 percent of costs, leaving low-income people who buy it with a lot of out-of-pocket costs that hospitals worry the patients will not be able to pay.

A spokeswoman for the Centers for Medicaid and Medicare Services said that some of the reductions in the subsidy should not hurt safety-net hospitals because states have discretion over how the money is distributed and should be focusing on hospitals with the most uncompensated care. And while there is no special exception for states that did not expand Medicaid, federal officials have said they will revisit that in 2016.

But experts and hospital administrators said it was unlikely that the federal government would make adjustments that would reward states that refused to expand Medicaid. And the health care landscape is changing so rapidly, they say, that the subsidies are crucial to keep going over the next few years.

Hospitals in Georgia are trying to hang on. Rural hospitals rely heavily on the subsidies and as many as 15 could close in the coming months, their trade association estimated, costing jobs in economically depressed parts of the state.

Georgia hospital officials hope that the plight of rural hospitals may eventually cause Gov. Nathan Deal to opt for some version of a Medicaid expansion. The state’s politically powerful hospital association late last month called for expansion.

But for now, the governor is holding firm. His spokesman, Brian Robinson, said Mr. Deal’s opposition to expanding Medicaid was driven by simple math: Georgia cannot afford it. Though the federal government is paying the full costs of the expansion for the first three years, states will have to pay up to 10 percent in later years. States that do not expand should be spared cuts in hospital subsidies, Mr. Robinson said.

The federal government, not Georgia, is to blame for the predicament, he said.

“The state is sitting here, a victim of a crime, and you’re asking the victim, ‘Why did you let yourself get mugged?’ ” he said.

Hospitals are trying to get Congress to delay the subsidy cuts by amending the health law, but House Republicans in Washington have thus far refused.

“The conversation we are having with the congressional delegation goes like this, ‘If we don’t expand Medicaid, what is the Georgia solution to indigent care?’ ” said Matthew Hicks, vice president for government relations at Grady. “So far they don’t have an answer.”