Home Preserving Access to Health Care Preventing Health Care Budget Cuts Proposed Hospital Financing Waiver

The Schwarzenegger’s proposed Medicaid waiver deal with the Bush Administration would have major impacts on the funding of safety-net hospitals, those that disproportionately serve uninsured, indigent, and Medi-Cal patients, which in turn have repercussions for the health system as a whole. According to Secretary of Health and Human Services Secretary Kim Belshe, this would be "a change in the formula used for 25 years" to fund our hospitals.

These funds help keep trauma centers and emergency rooms open for all of us. The Governor’s deal should alarm every Californian who thinks they might have an emergency or need hospital services sometime in the future.

CONCERNS: Hospitals, counties, consumer advocates, and community groups are concerned about the Governor’s proposal for hospital financing that would destabilize our health care system, which would:

• freeze the amount of money for public hospitals for the next five years, ensuring cuts in services and possible closures;
• shift the risk and responsibility for bringing in federal funds to public hospitals from the state to the counties;
• fail to provide specific hospitals any guarantee of adequate funding, to prevent closures;
• require that seniors and people with disabilities be forced into mandatory managed care, losing access to doctors and specialists, and further destabilizing the funding for hospitals.

The funding announced isn’t enough to keep up with medical inflation. According to the state documents, federal support would only go up 5.5% a year, when medical inflation is project at 8.5% and more.

And much of the funding is illusory, since hospitals and counties won’t be able to draw it down. There is no guarantee that California will get any of the additional money, because of new and unfair rules that California has refused to agree to in the past

BACKGROUND: The five-year Medicaid waiver currently being negotiated by the State and federal government would replace the current waiver that expires June 30 th. This waiver will govern how public and private safety net hospitals are paid by the Medicaid program (known as Medi-Cal in California).

Medi-Cal is the primary source of financial support for public hospitals, and a important funding stream for all hospitals. Public hospitals operate more than 60 percent of California’s top-level trauma centers and train half the state’s doctors.

Health Access and other patient advocates believe that hospitals are already funded inadequately. Voters have recognized this: large majorities in multiple counties, including Los Angeles, Alameda, Monterey, as well as in several districts, have voted to tax themselves to support their safety-net hospitals. After this affirmation of support at the local level, voters would be angry if these facilities have to scale back services or close because of financing changes at the state and federal levels.

SOLUTIONS: Consumer and community groups urge that Governor Schwarzenegger:

• Go back to the federal government in pursuit of a better deal for California’s safety net hospitals and the patients and communities they serve.
• Ensure that the waiver include adequate funding for growth for the next five years for public hospitals, and does not divert money from safety-net hospitals to other areas.
• Oppose the inclusion of unrelated requirements in the waiver, such as the forcing of seniors and people with disabilities in Medi-Cal into managed care and other “milestones” that have been proposed as a condition of securing $180 million of the federal money under this waiver. This includes the proposed health coverage expansion, which should not be financed out of core safety-net institutions.
• Commit to backfilling any shortfalls created if there are insufficient matching funds to draw down the federal funds permitted under the waiver. If the state believes we can appropriately draw down this money, the state should share in the risk.

In other states, both Democratic and Republican Governors were active in opposing the Bush Administration’s proposal to cut Medicaid in the federal government. Despite urging from a wide range of doctors, hospitals, patient and provider groups, Governor Schwarzenegger did not make any independent statements about the Medicaid cuts.

NATIONAL CONTEXT: With one of the highest rates of uninsured people in the country, California desperately needs these additional resources to fund care for uninsured, Medi-Cal, and all California patients:

• California now gets the lowest Medicaid reimbursement rate in the country.
• California spends less per Medicaid beneficiary than any other state in the country.

Administration officials attempted to make the case that this deal was as good as California would get, especially in the context of the $10 billion in Medicaid cuts proposed at the federal level. Yet in other states, both Democratic and Republican Governors were active in opposing the Bush Administration’s proposal to cut Medicaid in the federal government budget, whereas California, despite its size and prominence, did not take a leadership role.

We need our elected officials, from the Governor and legislature, to take a unified stand against Medicaid cuts at the federal level, and to side with the hospitals, counties, and patients in further negotiations

STAKEHOLDER COMMENTS ON THE HOSPITAL WAIVER: Other comments on the hospital financing waiver from other stakeholder groups:

PUBLIC HOSPITALS: The day the waiver was announced, the California Association of Public Hospitals and Health Systems issued a strong letter of opposition, that stated: "Unfortunately, the past year of negotiations between the State and federal government over a new Medicaid hospital financing waiver have led us to the conclusion that California’s health care crisis will worsen in the next five years, and that public hospitals and the patients and communities they serve will be hardest hit... It is incumbent on us to caution the State about the impact of a financing arrangement that freezes funding for public hospitals and shifts the risk and responsibility for supporting them from the state to the counties. We are increasingly concerned that access to care for the uninsured and insured alike will diminish if the current plan goes forward. Services we all rely on – trauma, emergency, doctor training – will become scarce. Some public hospitals could close. Private hospitals are not prepared to assume their burden."

HOSPITALS: In a June 1 st letter to Secretary of Health and Human Services Kim Belshé, California’s hospital leaders declared in one voice their opposition to the proposed waiver, citing the “grave implications” of the plan: “Safety net hospitals already are in crisis, and if they are not adequately funded for the next five years, services that all Californians rely on—such as trauma care and doctor training—will suffer. In fact, under the current proposal, we are certain that some public and private safety net hospitals would close.”

COUNTIES: Numerous county boards of supervisors have already announced their opposition, including the boards in Riverside, Santa Clara, Contra Costa, San Joaquin, and Kern. Several other counties expected soon. A June 10 th letter from the Urban Counties Caucus stated, “Our counties believe that the current waiver proposal threatens the survival of our county hospitals.”

ELECTED OFFICIALS: A June 14 th letter to Governor Schwarzenegger from the Chair of the Assembly Budget Subcommittee on Health, Hector De La Torre, and dozens of Assemblymembers also raised this point: “…it is clear that a significant portion of this [waiver] funding is unreliable… The current proposal creates financial uncertainty for both public and private hospitals… Reliable annual increases over the five-year duration of the plan are necessary to keep hospitals open and functioning.”

The letter closes, “A lack of annual adjustments in funding will only exacerbate the fiscal crisis that California’s hospitals are currently experiencing due to an increase in population, hospital and emergency room closures, and the large number of indigents needing care. We request that the Administration advocate for a waiver that features a committed investment to California’s hospitals, secures a stable source of funding, and contains an adequate growth component…. without these elements, your Administration will be responsible for any subsequent damage to an already weakened hospital infrastructure in California.”

For more information, go to http://www.health-access.org, or contact Anthony Wright, Executive Director, Health Access California, 1127 11 th Street, Suite 234, Sacramento, CA 95814, at awright@health-access.org, or 916-442-2308.

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