Ohio hospitals find mixed bag in Kasich budget proposal

It easily could’ve been worse.

That’s likely what many Ohio hospital executives were thinking after they learned the details of Gov. John Kasich’s two-year, $55.5 billion budget proposal. Faced with a budget shortfall estimated at more than $8 billion, there was no question that Kasich would call for some serious cuts to health spending. The big questions merely revolved around exactly where the axe would fall, and how hard it would whack the state’s hospitals.

On the bright side for Ohio hospitals, Kasich preserved a franchise fee that has cost hospitals $580 million over the last two years, a move that was applauded by the Ohio Hospital Association (OHA) in a statement. While it may seem odd that hospitals would essentially ask the state to take more of their money, there are two good reasons for the OHA’s support of the measure. (It may also seem odd that Kasich refers to his spending plan as the “jobs budget” when he’s calling for big spending cuts to local governments that are likely to result in layoffs to thousands — if not tens of thousands — of teachers, police officers and firefighters, but that’s another story.)

First, the hospital franchise fee is designed to help the state draw in more matching federal dollars for Medicaid. Second, hospitals are currently being reimbursed for the fee, which was initiated in 2009 by former Gov. Ted Strickland and initially planned as a temporary measure. “Think of it as hospitals loaning money to the state to allow Ohio to leverage the funds and bring in more federal money,” The Plain Dealer explained last month.

Less auspicious for hospitals was Kasich’s plan to cut Medicaid payments to hospitals by $478 million over the two-year budget period. Hospitals were hoping that a continuation of the franchise fee would remove the perceived need to cut Medicaid payments, but Kasich apparently didn’t see things that way.

The $478 million in savings from Medicaid cuts to hospitals is spread over several areas, according to Kasich’s budget documents. Here are a few highlights:

• $157 million in savings from cuts to outlier payments, in which the state pays hospitals for high-cost cases.
• $126 million in savings from cuts to inpatient capital rates, in which hospitals are paid for medical equipment-related costs of care.
• $94.5 million from savings in changes to “crossover payment methodology.” That refers to situations in which Medicaid is overpaying providers when a person is enrolled in both Medicare and Medicaid, and Medicaid has a lower reimbursement rate, according to the administration.
• $33 million in savings from eliminating supplemental payments to children’s hospitals.

In a statement, the OHA did its best to put a positive spin on the Medicaid cuts.

“Despite anticipated policy changes to reduce payments to hospitals by $478 million, hospitals look forward to working with the administration and Ohio General Assembly to achieve a mutual goal to transform healthcare in Ohio,’ said OHA President James Castle.

Medicaid is the single-largest expense in Ohio’s budget, accounting for nearly $1 of every $3 spent. About 2.1 million Ohio residents obtain healthcare through Medicaid.

Overall, Kasich is hoping to wring $1.4 billion in savings out of changes to the state’s Medicaid program. Nursing homes, in particular, appear in for a rough ride, as they face Medicaid cuts of about 7 percent. The Ohio Health Care Association, the state’s largest organization representing nursing homes, obviously wasn’t pleased.

“Make no mistake, the governor’s budget threatens the quality of care for the most vulnerable among us,” said Peter Van Runkle, the group’s executive director, in a statement.