Financial Times May Get Harder for California Providers

The nation’s economic recession and the state’s difficulties in passing a budget are delivering a powerful one-two punch to California’s hospitals, nursing homes and clinics.

Hospitals and community clinics are treating more uninsured patients and those with coverage are having a harder time paying their share.

According to a special recession-related report the California Hospital Association released, 33% of hospitals reported an increase in the number of uninsured patients visiting their emergency departments, and 73% of hospitals said they have experienced a rise in the number of patients having difficulty paying out-of-pocket health care costs.

In addition, elective procedures — one of the few service areas in which hospitals can actually make money — are down at 30% of facilities, the report found.

And all that’s before considering what might happen if the state issues IOUs next month instead of real money. State Controller John Chiang (D) estimates that if a new spending plan isn’t approved for the world’s eighth largest economy, California will have to issue IOUs beginning Feb. 1.

What, exactly, would that mean for hospitals, nursing homes and clinics that rely on state Medi-Cal money to pay employees and bills?

“Right now, we don’t know the answers,” said Jan Emerson, vice president at the California Hospital Association. “We are in unchartered territory. No one knows what will happen if IOUs are issued, especially given the overall economic/banking crisis.  We’ve never had IOUs before,” Emerson said.

Nursing Homes Advised To Line Up Loans

The California Association of Health Facilities, which represents more than 1,400 nursing homes, is urging its members to get ready to borrow.

“We have already advised our skilled nursing facilities that if they haven’t already gotten in contact with their lending institution, they should do so immediately,” said Betsy Hite, spokesperson for the association. “That’s really unprecedented for us to be recommending that when we’re not in the period of the typical budget delay. This whole scenario with the state talking about issuing warrants at this time of the year is unprecedented,” Hite said.

Delayed payments from either Medi-Cal or Medicare would have a serious impact on about half the nursing homes in California, Hite said.

About half the state’s nursing homes are owned by independent owners who would “be hit pretty hard if their funding was interrupted,” Hite said. For most of those nursing homes 60% to 70% of their revenue comes from Medi-Cal, and most of the balance comes from Medicare, Hite said.

“The impact of delayed checks from either one of those would be enormous,” Hite said.

According to Hite, about half the nursing homes in California are owned by national corporations and will be better able to make ends meet during the state’s lean months — maybe years — ahead, whether the state issues IOUs or not.

“In times of financial strife, homes that are part of a larger corporation tend to be in a little better financial position to ride out the storm,” Hite said.

Hite, whose association also represents homes for Californians with developmental disabilities, is worried that California’s 1,000 homes for the developmentally disabled might not be able to weather many cuts in the coming financial storm.

“Most of them are truly mom and pop operations — you can’t even really call them small businesses in most cases,” Hite said. “And most of them are 100% dependent on Medi-Cal payments.” 

Leaner Times Ahead

No matter what happens in the latest budget cuts, many health care providers in California are facing a 10% reduction in Medi-Cal reimbursements as a result of the budget approved last summer. Many nursing homes and community clinics are exempt from those cutbacks, but most hospitals are not.

If the state avoids issuing IOUs next month, as many political observers believe it will, health care institutions will still face leaner times in the coming months.  Gov. Arnold Schwarzenegger (R) proposes cutting $744.2 million from Medi-Cal spending. He also wants to cut $422.8 million from the Department of Developmental Services, which provides services for people with developmental disabilities.

Critics say the governor’s plans take too much from the poor and not enough from the wealthy.

“The elderly and disabled don’t deserve to be pawns in the state’s fiscal mess,” Hite said. “They have absolutely no control over any of this. It’s very, very frustrating that their care and the wages of the workers who care for them are on the line like they are.”

The problems go deeper than California’s budget process. The California Hospital Association predicts the ailing economy may make it harder for Californians to get hospital care.

“As more people lose their jobs in this declining economy, they also are losing their job-based health insurance,” C. Duane Dauner, president and CEO of the California Hospital Association, said in a statement accompanying the association’s special report. 

“The growing number of uninsured patients, coupled with inadequate Medi-Cal payments and the ripple effects of the financial market crisis, is leading to a decline in the financial health of California’s hospitals at the very time when demand for health care services is growing,” Dauner said.

California ranks 49th in the nation in hospital beds, with 1.9 beds per 1,000 residents, and last in Medicaid reimbursement, according to CHA.

“As a result of the declining economy and inadequate Medi-Cal payments, Californians may soon find their access to hospital care further diminished,” the release said. 

According to a CHA survey, most hospitals have already made cutbacks or anticipate having to make reductions in patient care services in the near future. 

Among the types of care at risk are cardiology and obstetrics programs, subacute and psychiatric units and skilled nursing beds.  Staff layoffs and pay cuts also are being reported.

Clinics Hope Stimulus Package Will Help

The California Primary Care Association, which represents more than 800 community clinics and health centers in the state, is preparing for the worst, but hoping for some federal help.

“We are assuming we will be given IOUs for the Medi-Cal services that we provide if no action on the budget is taken,” said Chris Patterson, spokesperson for CPCA.  “The likelihood of clinics not getting paid is high,” he added.

If payments are withheld, clinics hope to get help from the same organizations and foundations that contributed to an emergency loan fund last year when Medi-Cal payments were delayed.

Groups including Catholic Healthcare West, Sutter Health, Mercy Partnership, Non-Profit Finance Fund and NCB Capital Impact were “critical to clinics’ ability to maintain services during last summer’s budget stalemate. And CPCA is working these organizations again this year to put together a similar effort for clinics,” Patterson said.

The clinics association is also “looking to the economic stimulus package on the federal level and SCHIP reauthorization as possible vehicles to assist,” Patterson said, referring to a proposal in Congress to expand the State Children’s Health Insurance Program, which fund’s California’s Healthy Families Program. 

Community clinics are primary health care providers for Healthy Families.

The House last week approved the $33 billion bill that would raise federal taxes on cigarettes, cigars, rolling paper and other tobacco products to help fund the expansion. Federal cigarette taxes would rise from 39 cents per pack to $1.

President Obama is expected to sign the SCHIP expansion if it gains Senate approval.

Related Topics

Health Care Costs Health Industry Insight Medi-Cal