The Hospital and Healthsystem Association of Pennsylvania (HAP) released new data last week showing Medicaid payments falling short of costs by $5.28 billion between 2011 and 2015.
Pennsylvania hospitals are also facing reduced Medicaid payments and increased uncompensated care totaling at least $146 million as a result of the 2012–2013 proposed state budget.
[See also: Medicaid cuts to Florida hospitals would harm local economies]
"Medicaid, like in most states, is an important component of care, so this kind of shortfall is pretty significant," said HAP President and CEO Carolyn Scanlan. "With state revenue continuing to improve, hospital payments should be restored in the final state budget."
Scanlan said that the Medicaid program has always paid hospitals less than the cost of care, but that budget and payment policy changes in Harrisburg will cause the shortfall to more than double in the coming year.
"In fiscal year 2011, Medicaid paid Pennsylvania's hospitals $542 million less than the cost of care for Medicaid patients, however, our payments were at 89 percent – one of the best years we've seen," said Scanlan. "For fiscal years 2013 through 2015, the shortfall exceeds $1 billion annually and peaks at $1.454 billion in 2015."
"Whether nonprofit hospitals, for-profit businesses or even individuals, it is virtually impossible to avoid fiscal collapse when costs continue to exceed revenues," said Scanlan. "While hospitals' Medicaid payments improved modestly over the past two years, the payment shortfall remained, and budget proposals now on the table will nullify any short-term improvements. By 2013, our payments will drop to 78 percent. This is also combined with the fact that hospital costs will increase by an estimated 3 percent."
[See also: Pennsylvania health system seeks quality-driven success]
She said that the Medicaid payment shortfall is just a small component of the hospital community's financial predicament in Pennsylvania.
"This year's budget is not a one-time occurrence," said Scanlan. "It is on top of the Governor's current-year budget freeze that will reduce special payments for obstetrics/neonatal, burn care, trauma care and critical access hospitals by 10 percent; a 2 percent reduction in Medicare payments as a result of the current budget/deficit impasse in Congress; last year's 4 percent state Medicaid cut to hospitals; and $9 billion in payment reductions that will be absorbed by hospitals as part of federal health reform."
Sclanlan mentioned that some of the small and rural hospitals will be most affected by these cuts.
"Some of those hospitals have a margin of zero and hospitals will have to evaluate where they can cut costs and whether they can survive this or not," she said. "When a hospital loses revenue, it really affects the whole community. It affects the ability of hospitals to provide services and employment is affected. There is definitely a huge financial impact on the community. It's not simply the Medicaid programs losing money. Everything is connected and it creates a cascade of shortfalls for everyone."
[See also: Pennsylvania health plan to withdraw from 17 counties on Sept. 30]