As Governor Hochul calls for spending restraint next year, influential hospital lobbyists are pushing what could be the costliest budget request ever floated in Albany.

In a joint ad campaign, the Greater New York Hospital Association and the health-care union 1199 SEIU are asserting that Medicaid underpays providers by an average of 30 percent – and urging lawmakers to close that gap.

Hospitals are asking for the necessary rate increases to be phased in over the next four years, GNYHA President Kenneth Raske told Crain’s New York.

The ad campaign by the Healthcare Education Project, which is jointly funded by GNYHA and 1199, does not cite a source for the 30 percent figure or estimate how much the proposed rate hikes would cost.

However, any attempt to close a gap that large would be massively expensive.

Eliminating a hypothetical 30 percent shortfall would entail a 43 percent increase over current payments. For hospitals alone, that translates to added Medicaid spending of about $7 billion per year, $3.2 billion of which would come from state coffers.

If a similar adjustment were to be made for all Medicaid providers – nursing homes, clinics, home health care organizations, physicians, etc. – the price tag would balloon to approximately $43 billion, including $19 billion from the state.

The latter amount is the equivalent of a roughly 33 percent increase in the state’s personal income tax.

The proposal from GNYHA and 1199 comes comes seven months after hospitals secured across-the-board rate increases of 7.5 percent, as part of one of the biggest-spending Medicaid budgets of the past two decades.

In this year budget cycle, the state is facing a multibillion-dollar projected gap between revenue and expenses, which Hochul is proposing to close by slowing spending rather than hiking taxes.

That said, the hospital lobby wields significant power in state politics and has a track record of winning big spending increases in the midst of fiscal crises – as notably happened in the aftermath of the Sept. 11, 2001, terrorist attacks.

There is no dispute that Medicaid, a state-federal health plan for the low-income and disabled, generally reimburses providers at lower rates than commercial insurance. Providers commonly say that it pays less than their actual expenses. 

However, the claim that Medicaid is paying hospitals 30 percent below cost should be viewed with skepticism. Albany’s hospital lobby has used exaggerated statistics in the past, and they appear to be doing so again with the current campaign.

There’s no universal standard for gauging the cost of care, which varies widely from patient to patient and place to place – in part due to factors under the providers’ control, such as the level of compensation paid to executives, doctors and other employees.

Compared to one commonly used benchmark, Medicare, New York’s Medicaid rates for hospitals appear relatively generous.

A joint study by the Empire Center and the Manhattan Institute found that in 2015 Medicaid paid New York hospitals about 22 percent less, on average, than commercial rates – but 29 percent more than Medicare rates.

A study by the federal Medicaid and CHIP Payment and Access Commission found that Medicaid’s base hospital rates in 2010 were 22 percent lower than Medicare rates on average nationwide – but were slightly higher than Medicare rates in New York State. When supplemental payments were factored in, the study found that Medicaid paid hospitals better than Medicare both in New York and nationwide.

Nursing homes are calling for a similar boost to their reimbursement, saying current rates cover only 75 percent of their costs.

However, the argument that nursing homes consistently lose 25 percent on care for Medicaid patients is hard to reconcile with the hefty profits that some operators realize – both from the homes themselves and from affiliated companies.

There is a case to be made for lifting Medicaid payments closer to the market norm, to minimize the corrosive effects of a two-tiered medical system.

However, the first priority for such an effort should not be hospitals, but primary care. On average, New York’s Medicaid fees for outpatient doctor visits in 2019 were just 57 percent of the comparable Medicare rates, which was the fourth-lowest level among the 50 states.

Rate reform should also be coupled with broader change. Although Medicaid was meant to be a safety-net for the indigent and disabled, New York’s enrollment has mushroomed to 40 percent of the state’s population – more than half of whom are living above the federal poverty level. 

If less-needy enrollees could be shifted to commercial insurance, the state would have savings to reinvest – and it could afford to consider overhauling its rate schedule without busting the budget.