State agrees to seek more funds from feds for hospitals worried about Medicaid formula

The state has agreed to ask the federal government for funds to cover an additional $360 million in hospital Medicaid expenses, resolving a key point of contention while inching toward the redesign of a program that provides critical support to many Illinois medical facilities.

The redesign has prompted concerns about reduced funding to hospitals in poor communities that say they might have to close as a result; collecting as much money as possible from the federal government has been viewed as key to ensuring their survival.

“As new funding comes into the system, we need to be sure that priority is given to high Medicaid hospitals and hospitals that have need across the state that are dependent on these funds,” Rep. Greg Harris, D-Chicago, said during a hearing Tuesday by the House Appropriations-Human Services Committee.

The amount of extra money the state can ask of the federal government was a sticking point during months of discussions about how to distribute $3.5 billion in Medicaid funding generated through the hospital assessment program. The assessment program, which accounts for more than half of hospitals’ Medicaid funding in Illinois, has hospitals contribute money that is then matched by the federal government, and the expanded pool of money is redistributed to the hospitals. No state taxpayer funds are involved.

The state’s Department of Healthcare and Family Services had initially planned to seek a $200 million increase in the spending ceiling, but groups including the Illinois Health and Hospital Association, which represents more than 200 hospitals across the state, and the Association of Safety Net Hospitals, which represents hospitals that see mostly Medicaid patients, pushed the state to seek more money.

The agreement on $360 million is “conservative, reasonable and defensible” as it goes through the federal approval process, said Harris, chairman of the appropriations committee and a member of a bipartisan legislative working group hammering out details of the redesign.

The $3.5 billion assessment program is critical to paying for hospital services for the 3 million people in Illinois on Medicaid, which is a quarter of the state’s population.

Lawmakers are under the gun to draft a bill for the redesigned funding program so that it can be implemented before the current program expires July 1. The measure still has to be approved by the General Assembly, signed by the governor and approved by the federal Centers for Medicaid & Medicare Services. A bill is expected to be presented as soon as next week.

To guard against going off a cliff if the July 1 deadline can’t be met, the crafters of the bill plan to include a bridge provision to extend the current program until the new one is in place.

The revamp of the funding program, which hospitals have relied upon since 1992, will dramatically change how Medicaid funds are distributed. Under the current model, hospitals receive a fixed payment based on inpatient data from 2005 and outpatient data from 2009, using a formula that takes into account the number of Medicaid patients they see and their reliance on Medicaid funding, among other factors.

The proposed redesign, which still has not been finalized, aims to shift away from fixed payments and will instead allocate money based on where people are actually getting care and what procedures they are receiving.

It also would provide additional support for expensive services like trauma care, pediatrics and substance abuse treatment, and for hospitals that provide graduate medical education. The allocations would be based on 2015 data.

At Tuesday’s hearing, A.J. Wilhelmi, president and CEO of the Illinois Health and Hospital Association, said the redesign has to pass muster with the federal government, which for years has expressed concern about Illinois’ reliance on fixed payments to hospitals.

Still, he said the new formula ensures the stability of hospitals in poor communities vulnerable to reduced cuts as a result of the changes. Exactly how much each hospital will receive has not yet been released.

Pressed by Rep. Camille Lilly, D-Oak Park, on whether the redesign will harm or take away resources from hospitals operating in vulnerable communities, Wilhelmi said: “In the totality of the plan we are talking about, the answer is no.”

Part of the plan is to create a transformation fund to help struggling hospitals realign to meet community needs, such as by focusing on behavioral health services.

But Anne Igoe, vice president of hospitals at SEIU Healthcare, a union that represents workers at several Medicaid-reliant hospitals, said she worries about converting full-service hospitals to target narrower needs, as proximity to an emergency room can make a difference in a patient’s outcome.

aelejalderuiz@chicagotribune.com

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