cuomo-ny-post-300x200-5312664Governor Cuomo’s new budget-balancing plan is roiling the state’s health-care industry because it trims Medicaid spending while leaving education and other programs untouched.

Some of his proposals are flawed on the merits. But the net impact is less than 2 percent of Medicaid’s total projected budget. And some of the more heated attacks from industry groups – including a claim that “tens of thousands of health-care workers would lose their jobs” – should be taken with a grain of salt.

Facing a shortfall in tax revenue, Cuomo rolled back about half of the Medicaid increase he proposed last month, reducing growth in the state share from 4.4 percent to 2.1 percent. This saves the state $550 million compared to his original plan. When the loss of federal matching aid is factored in, the changes would reduce overall Medicaid spending by $1.1 billion.

His specific cutbacks include reversing a planned Medicaid fee increase for hospitals and nursing homes, capping charity-care grants to financially stronger hospitals downstate, and reducing provider reimbursement across-the-board by 0.8 percent.

He also proposed a $100 million tax on opioid drugs, meant to replace a similar tax that was recently overturned in federal court.

His actions raise multiple complex issues, so let’s take them one at a time.

Repurposing the Fidelis funds

Last year – in one of the biggest revenue maneuvers in recent state history – Cuomo expropriated $2 billion from the sale of Fidelis Care, a non-profit Catholic-affiliated health plan, to for-profit Centene Corp.

The state had no prior statutory claim to the money, but the bishops who controlled Fidelis, along with Centene officials, agreed to give up more than half the sale price in return for state approval of the deal.

Cuomo originally proposed to put the money in a “health-care shortfall fund,” as a hedge against threat of Medicaid cuts in Washington. When those federal cuts did not materialize, he and the Legislature instead directed the Fidelis funds into a “health-care transformation fund,” which could be spent on virtually any health-related purpose.

Cuomo dipped into the fund for the first time last October, when he quietly ordered temporary Medicaid rate increases of 2 percent for hospitals and 1.5 percent for nursing homes. That was a significant benefit for interest groups which had lobbied in support of taking the Fidelis money and which were backing the governor’s re-election campaign.

As part of last week’s budget plan, however, Cuomo said he would rescind those rate increases and redirect $222 million in Fidelis funds to a pre-existing housing program.

In effect, the fund that Cuomo originally proposed to prevent federal Medicaid cuts has now become a vehicle for implementing state Medicaid cuts. And the Fidelis money has morphed from a dedicated pool in support of health-care for the needy into just another form of general revenue.

This is one move that the Legislature arguably cannot block. Last year’s budget gave Cuomo authority to spend money in the transformation fund without seeking further approval from the Assembly or Senate, or even notifying them until 15 days after the fact.

Cutting the Indigent Care Pool

Originally created as part of the Health Care Reform Act of 1996, the Indigent Care Pool is nominally meant to reimburse hospitals for providing free treatment to low-income uninsured patients.

Because of a dysfunctional funding formula, however, the pool’s payments to hospitals often have little to do with how much charity care they actually provided – so that some institutions are overcompensated and others are shortchanged. On average, relatively wealthy hospitals receive more generous funding from the program than safety-net hospitals serving poor.

Last year, Cuomo created a task force to recommend reforms, but that group could not agree on any proposed changes in its final report this month.

His new budget changes would put a $10,000 cap on Indigent Care Pool grants to hospitals or hospital systems that a) are located in Westchester, New York City or Long Island, b) have operating revenue of more than $68 million, and c) have operating margins of more than 2.98 percent.

Rather than redistributing those funds to needier hospitals, however, he would also cut the pool’s total funding (including federal aid) by $276 million, or about 25 percent, for net savings to the state of $138 million.

Barring further action, the remaining $719 million would be spent according to the existing dysfunctional formula.

Taxing opioids

In December, a federal court overturned the opioid tax enacted by Cuomo and the Legislature last year. The key flaw was that the tax was supposed to be collected on the first sale of opioid medications into New York, but the seller was barred from passing the cost onto the buyer. The court found that the state was effectively imposing a tax on non-New Yorkers that did not apply to its own residents, in violation of the Constitution’s Commerce Clause.

Cuomo’s new proposal attempts to resolve this issue by specifically stating: “The economic incidence of the tax imposed by this article may be passed to a purchaser.”

This approach raises its own issues.

First, the stated rationale for the tax is to offset the costs of addiction prevention and treatment programs. But there’s no guarantee that the $100 million per year in proceeds will be used to expand those programs as opposed to replacing what the state already spends. The previous tax included a “stewardship fund” to symbolically segregate the revenues. Under the new proposal, collections would go straight to the state’s general fund.

Second, it’s not clear why opioid consumers – and their health plans – should bear an extra burden for the costs of treatment. The proposal exempts certain drugs used to treat addicts and people in hospice, but it would still apply to the majority of opioids prescribed to patients, the vast majority of whom are using them for legitimate reasons. The single biggest payer would likely be the state’s own Medicaid program.

Reducing provider reimbursement

A third spending cut in Cuomo’s plan – a 0.8 percent reduction in provider reimbursement – comes with an important caveat: He is also reconvening his Medicaid Redesign Team to study alternatives that could achieve similar savings. First established in 2011, this panel of state officials and industry stakeholders was widely credited with improving the efficiency of the Medicaid program during Cuomo’s early years in office.

The Cuomo administration has allowed its focus on cost control to slacken more recently, and a renewed effort in that direction would be welcome even in the absence of a budget gap to be filled.

Targeting health care

It’s fair to point out that Cuomo’s Medicaid cuts stand in striking contrast to his message from only a few weeks ago, when he spoke of defending the program from the threat of federal attacks. He also seems to be singling out health care, when a parallel increase in school aid was left undisturbed.

Still, it’s unrealistic to expect that a program as big and expensive as Medicaid would be held immune in a budget crunch.

It’s worth remembering that New York spends more per capita on Medicaid than any other state, at a rate 76 percent higher than the national average

The program’s overall budget has grown by $3.5 billion, or 22 percent, since 2015, a period when enrollment was virtually flat. Even with Cuomo’s proposed cuts, the program’s total cost would be projected to rise by $800 million, or 1 percent, in fiscal year 2020.

UPDATE: This post has been updated to correct an error relating to a task force studying the Indigent Care Pool. A report was published this month, but the panel did not agree on any changes to propose.


About the Author

Bill Hammond

As the Empire Center’s senior fellow for health policy, Bill Hammond tracks fast-moving developments in New York’s massive health care industry, with a focus on how decisions made in Albany and Washington affect the well-being of patients, providers, taxpayers and the state’s economy.

Read more by Bill Hammond

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