A change in Medicaid reimbursement currently being pushed by New York’s hospital industry appears likely to benefit high-end hospitals proportionally more than safety-net institutions, a review of hospitals’ financial reports indicates.

A proposal jointly advanced by Greater New York Hospital Association and the health-care union 1199 SEIU calls for New York’s Medicaid program to reimburse hospitals for 100 percent of their costs for treating Medicaid patients. This is meant to eliminate what the groups say is a 30 percent shortfall between current Medicaid fees and their expenses.

In an ad campaign and in testimony to the Legislature, the proponents have contended that their proposal would “combat inequity” in the state’s health-care system. However, that claim is hard to reconcile with the pattern found in hospitals’ financial reports to the federal government.

For 2021 – the most recent year for which complete data are available – those reports show that the gap between Medicaid revenue and Medicaid costs varied widely from one hospital to the next, from as high as 90 percent to zero. A handful of hospitals reported Medicaid revenue that exceeded their cost of care.

Overall, reimbursements gaps for individual hospitals were inversely correlated with the share of income they derived from Medicaid. The gaps tend to be wider for more prosperous hospitals that treated fewer Medicaid patients, likely because their cost structures reflected higher spending on salaries, equipment, facilities, etc.

On the other hand, the gaps tended to be smaller for “safety net” hospitals serving low-income communities, in part because those hospitals receive supplemental Medicaid funding meant to offset their financial losses (see chart).

Source: CMS hospital cost reports for 2021 (click to enlarge)

The 11 hospitals owned by the city of New York were exceptions to this rule. In 2021, they accounted for more than half of the aggregate reimbursement gap statewide. If Medicaid had reimbursed all reported costs, the city’s Bellevue Hospital would have collected an additional $863 million, the most of any single institution, and New York City Health + Hospitals collectively would have gained $4.3 billion.

However, the vast majority of New York’s hospital care is provided by not-for-profit institutions. For that sector, a cost-based reimbursement system would have driven relatively less money to safety-net providers and relatively more to high-end hospitals.

If such a system had been in effect in 2021, for example, the state’s largest and most profitable hospital – Manhattan’s NewYork-Presbyterian – would have collected an additional $537 million from Medicaid, the largest dollar increase of any non-government hospital.

Meanwhile, not-for-profit safety-net hospitals such as Bronxcare Health System and Wyckoff Heights in Brooklyn would have received no increase, because their overall Medicaid funding already exceeded their reported costs of care for Medicaid patients.

Two more examples from 2021: St. Barnabas Hospital in the Bronx (also known as SBH Health System) got almost half its revenue from Medicaid and would have received a 12 percent boost under a cost-based Medicaid payment system. But Long Island Jewish Medical Center in Nassau County, where Medicaid is a fifth of revenue, stood to receive a 21 percent increase in Medicaid fees.

A statewide listing of Medicaid funding and reported costs by hospital is available here.

At last week’s budget hearing, advocates of switching to cost-based payment for Medicaid hospital care presented the proposal as a matter of justice. 

GNYHA President Kenneth Raske said the change would “eliminate the health-care disparities in our communities of color.” He said the additional cost to the state, which he estimated at $2.7 billion, should be phased in over four years, starting with a downpayment in the fiscal 2024-25.

The president of 1199 SEIU, George Gresham, compared inequities in the current system to the Jim Crow laws of the post-Civil War South: “This is not just about balancing the budget, this is a civil rights issue.” He said he hoped lawmakers would agree “that New York is better than this, that we’re not going to compensate the hospitals 30 percent less for taking care of the Black and brown community.”

New York’s per-person spending on Medicaid, and its per-person spending on hospitals from all sources, are the highest of any state, and switching to full reimbursement of reported costs would add billions to both numbers. Before considering such an expensive change, legislators should think through the complexities of how the policy would work – and the possibility that it would worsen funding inequities rather than fixing them.