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Local Hospitals Will Lose Federal Subsidies

Hospitals provide care to patients regardless of their ability to pay. That care comes at a high cost. For years, the federal government has helped offset that cost. Now, with the Affordable Care Act, those payments will be reduced. 

More than 70,000 people a year pass through the Emergency Room doors of UPMC Mercy in Uptown. They come via helicopter or ambulance. They drive themselves or are driven by others. And Will Cook, the president of UPMC Mercy, says many just walk in.

People come to Mercy with emergencies – injuries from car accidents, burns or violent crimes. Will Cook says the other half of their Emergency Room patients come in for primary care needs – so much so that the emergency room is divided in two.  One portion for emergency medical care, the other portion for care that could be handled in a doctor's office.

"Also, we provide behavioral health services, which tend to have a higher proportion of patients who are struggling financially; we offer detox services, which serve a higher portion of the population," he added. 

Helping the uninsured

Of the people who come into the Emergency Room, only about a quarter have insurance. As for the rest; 14 % are uninsured, 35 % are on Medicaid, and 25% are on Medicare – both of which offer lower reimbursement rates to hospitals than private insurance plans.

For more than two decades, hospitals like Mercy, have gotten federal money that helped defray the costs of caring for those who could not pay for their services. Called Disproportionate Share Hospitals payments or DSH payments - those subsidies add $580 million a year to the budgets of hospitals in Pennsylvania. That money serves as a kind of safety net for safety net hospitals.

Last year Mercy received around $11 million. Their total operating revenue was $400 million.

DSH funding will start to decline gradually in 2014, the same year the Affordable Care Act requires most Americans to get on a health insurance plan or pay a penalty.

Edward Karlovich, UPMC’s Hospital and Community Services Division Chief Financial Officer said losing that money initially made sense.

Hospitals agreed to these reductions under the assumption there would be more patients receiving Medicaid – they could then pay for their own care and afford primary care providers.  But then the Supreme Court decreed that states can opt out of expanding Medicaid without a penalty.

If Medicaid in Pennsylvania were to be expanded, it would potentially cover around 800,000 additional residents.

The future is unclear

Without knowing if Medicaid will grow, hospitals such as Mercy will still have large numbers of uninsured people seeking care – and the hospitals won't get those subsidies.

DSH payments won’t disappear altogether, but over the next five years they’ll be cut in half.

When UPMC acquired Mercy hospital a few years ago, the hospital was floundering. The health care giant paid off the hospital’s debt and pumped millions of dollars into the hospital.  Last year the hospital even turned a profit.

That’s despite seeing more patients come in for uncompensated care. Will Cook said part of it is economic downturn.

"Since 2008 nationwide, statewide, western PA UPMC Mercy have all seen a higher portion of patients with an inability to pay. People have less jobs, less insurance, less means to pay."

Mercy is one of several local hospital that stand to lose DSH subsidies – the list of Pittsburgh hospitals that get money includes Children’s Hospital, Magee, Shadyside, UPMC McKeesport and West Penn, as well as smaller regional hospitals such as Ohio Valley.  Will Cook said even if Medicaid were expanded, Mercy would still have people seeking primary care in the emergency room.

Safety net hospitals like Mercy are going to become more important as more and more people require them. - Will Cook

"Safety net hospitals like Mercy are going to become more important as more and more people require them. So the thought of losing funding is very daunting because of this phenomenon that more people need it," he said. 

Hospital advocates such as Carolyn Scanlan, the president of the Hospital and Healthsystem Association of Pennsylvania, said with the cuts to Disproportionate Share Hospitals, it is imperative to expand Medicaid because it’s crucial to the finances of Pennsylvania’s hospitals. Her group represents more than 250 hospitals across the state.

"If Pennsylvania chooses not to expand its Medicaid program, the Act still calls for hospitals to have that reduction of that DSH money. We would therefore be penalized twice if you will – lose the DSH money and not get payments for the individuals who we are currently seeing who are uninsured because they wouldn’t be part of the Medicaid expansion program," she said. 

According to Scanlon, the ten-year impact of DSH cuts to Pennsylvania hospitals will be more than seven billion dollars.

UPMC made upwards of 300 million dollars last year. Edward Karlovich said he worries about smaller community hospitals with little to no profit margins. He says UPMC will weather the loss of the federal subsidies.

"We’re gonna be here - UPMC - so the presumption that there will be a significant change in relation to these cuts is very difficult to assess because I don’t know today the other half of the equation which is the uninsured population moving into the insured population," he said. 

Karlovich said this loss and the changes in healthcare might mean a change in the way healthcare is delivered in UPMC hospitals.

"This is a changing time in healthcare and when we look at healthcare today and we look back, 5 or 10 years from today the system is going to look different... I’m not sure but it will look different." 

Governor Tom Corbett has not made a decision on whether Pennsylvania will be part of the Medicaid expansion. But he has been an outspoken critic of the federal health law. 

This story is part of a reporting partnership that includes WESA, NPR and Kaiser Health News.