A free hand on healthcare capital

by Bill Hammond |  | NY Torch

Cuomo hospitalsThe new state budget’s allocation of $500 million in capital funding for healthcare providers – the fifth such infusion in four years – comes with a notable lack of procedural controls or clarity of purpose.

For one thing, the money is to be doled out as grants “by the commissioner of health in his or her sole discretion, without a competitive bid or request for proposal process.”

And unlike previous capital programs – which were tied to the implementation of Medicaid reforms or addressing the fiscal woes of specific groups of hospitals – this year’s funding appears to be available to all manner of providers for all manner of projects.

The one clear restriction is that “grants shall not be available to support general operating expenses.” Otherwise, they can be used for:

“Capital projects, debt retirement, working capital or other non-capital projects that facilitate health care transformation activities including, but not limited to, merger, consolidation, acquisition or other activities intended to create financially sustainable systems of care or preserve or expand essential health care services.”

The program sets aside $75 million for community-based health care providers (as opposed to institutions such as hospitals and nursing homes) and $50 million for Montefiore Hospital in the Bronx (as promised by Cuomo in January). It also gives first priority to applicants who were rejected for last year’s capital program.

One check on the Cuomo administration’s flexibility is that grants must be approved by the Public Authorities Control Board, which effectively gives a veto to Senate Majority Leader John Flanagan and Assembly Speaker Carl Heastie.

With the new addition – known as the “Health Care Facility Transformation Program: Statewide II” – the Cuomo administration has committed a total of $3.3 billion in capital funding for healthcare since 2014, drawing on a mix of borrowed money and major legal settlements with financial firms.

This capital spending, of course, comes on top of billions in operating funds paid to providers annually through Medicaid and other state programs.

In theory, the public’s money is being invested in ways that modernize the healthcare system and make it more efficient. But it’s also promoting consolidation, which can drive up costs. As Politico NY’s Dan Goldberg points out, “Market forces are already driving consolidation, and Cuomo is putting his foot on the gas, spending billions of tax dollars over several years to encourage even more consolidation.”

The previous capital allocations were:

  1. Capital Restructuring Financing Program, $1.2 billion, contained in the 2014-15 budget.
  2. Health Care Facilities Transformation Program: Kings County project, $700 million, Oneida County project, $300 million, 2015-16 budget.
  3. Essential Health Care Provider Support Program, $355 million, 2015-16 budget.
  4. Health Care Facilities Transformation Program: Statewide, $200 million, 2016-17 budget.

Program No. 1 came under scrutiny in February when the Times Union reported that a for-profit physician group – whose members had donated $400,000 to Cuomo’s campaign account – won two grants totaling $25 million to finance a pair of medical office buildings that were already under construction.

That program was subject to a competitive request-for-proposal process. Programs Nos. 2, 3, and 4, like this year’s program, are not.

The money from program No. 4 has not yet been distributed, leading to some objections from the Legislature when Governor Cuomo proposed No. 5 in this year’s budget. Still, both houses supported the idea in concept: the Assembly proposed adding $200 million more to the program, and the Senate proposed adding $300 million.

The final budget keeps the amount at $500 million and requires the administration to announce last year’s grant recipients by May 1.