Tennessee Hospital Association president Craig Becker said a week ago that the state’s hospitals — and especially major safety net hospitals like Erlanger — would be “looking at Armageddon” if TennCare’s budget is effectively cut another half-a-billion dollars as proposed by the governor. That wasn’t an exaggeration. Proof comes in the announcement THA member hospitals have agreed to tax their net revenues to secure enough federal Medicaid matching funds to offset that deep cut. Gov. Phil Bredesen seems supportive of the idea. State lawmakers should also endorse the plan.
Unfortunately, that doesn’t mean our lawmakers will bless the idea. Some legislators, including state Senators Ron Ramsey and Hixson’s Bo Watson, say it’s too early and not enough details are known to commit to such a plan. The better question is, what is their alternative? Have the over-loaded Memphis Medical Center shut down? Jeopardize the viability of Nashville’s General Hospital and vital rural hospitals?
Knee-jerk aversion
It’s obvious that the Republicans who now control both chambers of the Legislature have a knee-jerk aversion to the very word “tax.” Yet the THA proposal would not produce the sort of tax that ordinary Tennesseans would pay. The hospitals propose to levy the tax of 1-to-2 percent on their earnings, and not pass it through to patients.
The THA would limit the tax to one year’s duration. It would raise around $200 million, an amount that would offset the governor’s proposed $200 million cut in the state’s contribution to the TennCare budget. That amount would pull down around $400 million in federal Medicaid 2-for-1 matching funds. The THA self-tax would not be required by the safety-net hospitals that it would chiefly benefit. Most importantly, it would keep afloat the hospitals that provide the lion’s share of care for patients covered by Medicaid (known as TennCare in Tennessee).
Why would lawmakers object?
The Centers for Medicare and Medicaid is likely to approve the proposal. It follows a similar permanent fee system employed by Tennessee’s nursing homes. Similar hospital proposals, moreover, are being made in more than half the states in the country. They’re all hurting for much the same reason: the double whammy of the Great Recession.
Increased costs
As unemployment more than doubled last year following the 2008 financial implosion, the number of people losing employer-sponsored health insurance soared, driving up both Medicaid and indigent costs. Simultaneously, state tax revenue plummeted as joblessness and plant closings drained consumer spending.
Last year, Gov. Bredesen responded with heavy cuts in TennCare, among other programs, and this year he’s proposing deep cuts in the program again.
His TennCare program cuts last came to $238 million, but that loss was masked by the governor’s use of part of the state’s federal stimulus funds. This year, that cut kicks in, along the new $200 million cut. The governor’s budget plans to make those cuts by reducing provider fees by a whopping 7 percent, and capping TennCare patients’ hospital benefits at $10,000 a year — an amount that can easily be used up in a single emergency room visit.
Devastating effect
The two-year total of $440 million in state TennCare cuts that will show up this year will climb to $1.2 billion in cuts when federal Medicaid matching dollars follow the state cuts out of the TennCare budget. The magnitude of that total cut will be devastating. When TennCare patients actually have to be hospitalized for a few days, the unmitigated $10,000 cap will wreck safety-net hospitals’ bottom lines like a tidal wave.
It is absolutely critical to minimize the impact of these huge cuts. The self-imposed THA tax is the only viable plan to avert these cuts on the horizon. If Tennessee lawmakers do not have a magic fiscal wand — and they clearly do not — they must support the THA plan.