Coast hospitals claim state Medicaid mismanaged $533 million in federal funds

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Gulfport Memorial Hospital

For years the state Division of Medicaid has failed to properly administer a federal hospital reimbursement program, and this lapse is robbing a group of Mississippi hospitals of more than $33 million a year, according to a lawsuit filed with the Mississippi Supreme Court.

Gulfport Memorial Hospital and Ocean Springs’ Singing River Health Systems sued the state’s Division of Medicaid on Oct. 2 for consistently failing to update the agency’s $533 million hospital reimbursement program, which repays hospitals for providing uncompensated care. The two hospitals said this error costs them a combined $7 million a year. They’re asking the court to order Medicaid to fix its formula and to pay the two hospitals $21 million total in funds lost over the last two years.

But criticism of Medicaid’s formula, known as the Mississippi Hospital Access Program, has dogged the agency since the plan’s implementation in late 2015 and has come from not only Memorial and Singing River but also the University of Mississippi Medical Center, a chancery court judge and the federal government.

Every one of these has demanded Medicaid fix the formula for its Hospital Access Program, which is one of two programs the federal government uses to reimburse hospitals for uncompensated care. They argue that the current formula is biased, arbitrarily granting windfalls to some hospitals while failing to fully compensate others for millions of dollars in services.

Lee Bond, chief operating officer of Singing River Health System

“The intent of the funds is to stabilize hospitals and preserve access. And under the current formula the intent is not being met, just to be frank about it,” said Lee Bond, the chief operating officer at Singing River Health Systems during a presentation to the Medicaid Advisory Committee in September.

“There’s winners and there’s losers. It’s not supposed to be a game,” Bond said.

Although the $533 million Hospital Access Program is federally funded, the state’s Division of Medicaid administers the program, much like a second reimbursement program, Disproportionate Share Hospital Payments. Combined, these two programs repaid Mississippi hospitals three-quarters of a billion dollars in 2017.

Mississippi’s Division of Medicaid has admitted the program’s current formula does not comply with federal standards. In an email to Mississippi Today, executive director Dr. David Dzielak said state Medicaid had been working with the federal Centers for Medicare and Medicaid Services “for a while now” on a corrective action plan that would address these issues.

“Access, quality, and outcomes are the goals of the supplemental payments. Since we have been working so closely with CMS (Centers for Medicare and Medicaid Services) throughout this process, we believe our proposal will align with CMS expectations,” Dzielak wrote.

In September, Dzielak told Medicaid’s Medical Care Advisory Committee that his agency would submit its corrective action plan the following week, ending Sept. 29. As of Oct. 24, a plan had not been submitted. In an email, a spokesperson for the agency said “it’s safe to say” Medicaid would submit the corrective action plan the week of Oct. 30.

In the meantime, other hospital heads worry the formula’s arbitrary dispersal of funds will continue to wreak havoc on their budgets.

“It causes other chaos as many of you saw in the news, and quite frankly it costs people jobs at the end of the day,” said Brad Sinclair, chief financial officer of University of Mississippi Medical Center Health Systems, which made headlines in the spring when it cut 280 jobs, due in part to reductions in its Medicaid reimbursements.

“The money needs to follow the patient,” Sinclair said. “It needs to go to whatever hospital is providing the services for that Medicaid patient. And under this current formula, it’s not.”

The impact

At Gulfport Memorial, the program’s payment inequalities have already affected the services they provide, said Gary Marchand, the hospital’s president and chief executive officer.

Gary Marchand, president and chief executive officer of Gulfport Memorial Hospital

Earlier this year, the hospital announced plans to sell its behavioral health unit, where 66 percent of patients qualify for Medicaid. Then two weeks ago, Memorial, which is the Coast’s only Level 2 trauma care facility, announced that it would no longer accept “non-urgent” patients in its emergency room. Instead, they would be steered to one of the hospital’s walk-in clinics. Patients who stay will be required to pay a $200 deposit.

The press release accompanying the announcement said the changes were intended to “relieve congestion in the emergency room.” But in a phone call with Mississippi Today, Marchand admitted the policy change in the emergency room and the decision to sell the hospital’s behavioral health unit were a direct result of the Hospital Access Program’s funding inequities.

“I think that’s the bottom line. We have a capacity to do things, but at some point somebody’s got to cover the costs. And right now, it’s the Medicaid (Hospital Access Program) that’s supposed to cover the costs. And they’re not,” Marchand said.

At Singing River, Bond admits financial issues reach well beyond missing Medicaid payments. Currently, a group of employees is suing the hospital system for failing to make contributions to its employee pension plan between 2009 and 2014. But he said a crucial part of Singing River’s turnaround hinges on recouping its lost funds.

“(Medicaid payments) were not the primary source of trouble, but they were a big part of it,” Bond said. “If they paid back what we’re owed it would help our situation greatly.”

At the University of Mississippi Medical Center, Medicaid’s Hospital Access Program paid the hospital $7.3 million less than the hospital spent on eligible uncompensated care in fiscal 2017, the biggest loss under that program in the state.

Although Sinclair, the CFO, has been outspoken about the medical center’s problems with the formula — speaking along with Bond and Marchand at the Medicaid Advisory Committee meeting in September — the hospital did not join the lawsuit. An attorney for the hospital declined to give a reason.

But the formula’s financial impact has been no less devastating. Currently the hospital operates with an annual budget of $1.7 billion. While $7.3 million represents less than one percent of that, Sinclair said the loss can throw their budget into the red.

Brad Sinclair, chief financial officer of the University of Mississippi Medical Center Health System

“Health care finance has razor-thin margins,” Sinclair said to the Medicaid Advisory Committee in September. “And I’ll just give you an example. Although UMMC receives on average $110 million a year in supplemental payments, even a $5 million deduction —though not a big percentage — $5 million is more than our annual net income budget. So it really puts us at a disadvantage.”

This year already has been a difficult one for the University Medical Center. The loss of 280 jobs came after the medical center announced a budget cut of $35 million in March. This cut was the result of a change to Medicaid’s formula for Disproportionate Share Hospital Payments, the second federal program used to reimburse hospitals. After the medical center complained, the Division of Medicaid adjusted its formula, reducing the blow by $11 million. But these cuts, along with an $8 million reduction in state funds, still left the hospital struggling to close a more than $30 million budget gap.

“So, yes, if we collected more money, (our financial situation) would be better,” Sinclair said after the Medicaid Advisory Committee meeting.

The ‘winners’ and the ‘losers’

For Marchand, one of the most frustrating issues with the program is that the federal government actually provides the Division of Medicaid with more than enough money to fully reimburse every hospital in Mississippi.

A spreadsheet provided by Gulfport Memorial, based on raw data from the state Division of Medicaid, breaks down these numbers. The spreadsheet lays out how Medicaid distributed the funds from the two federal programs to each hospital in the state and compares it to the amount each hospital spent on uncompensated care. The disparities between hospitals are striking.

According to the data, Medicaid paid 55 Mississippi hospitals, more than half the hospitals in the state, a total of $33 million less than these hospitals spent on uncompensated care in fiscal year 2017. Medicaid reimbursed another 15 Mississippi hospitals at cost. But Medicaid reimbursed 32 Mississippi hospitals over cost by a combined $125 million. This means that even if the state Division of Medicaid reimbursed every hospital in the state up to its recommended amount, the agency would still have $92 million in federal funds left over.

“The state has enough supplemental payment money from DSH and MHAP to cover the costs at all the hospitals in the state if it wanted to,” Marchand said. “But it just doesn’t choose to do that.”

Singing River Medical Center

 

The three “biggest losers” from Medicaid’s formula in fiscal 2017 were Singing River (which received $2.1 million under what it spent on uncompensated care), Gulfport Memorial ($4.8 million under) and University of Mississippi Medical Center ($7.3 million under).

The three “biggest winners” were Forrest General in Hattiesburg ($32.1 million), Alliance Health Center in Meridian ($16.5 million) and Delta Regional Medical Center in Greenville ($13.1 million).

These drastic differences are allowed because of a federal technicality. Hospitals that receive Disproportionate Share Hospital Payments cannot be paid over the limit set under the Omnibus Budget Reconciliation Act, which represents the amount each hospital spent on uncompensated care in a year. But if a hospital does not receive any Disproportionate Share Hospital Payments, even if it’s eligible, then the state can use the Hospital Access Program to pay the hospital what it deems appropriate.

Of the 81 hospitals eligible for Disproportionate Share Hospital Payments in 2017, 25 did not receive them. Instead, every one of those 25 hospitals received Hospital Access Program payments well above their federal limits — including Forrest General, Alliance Health and Delta Regional Medical Center.

The fact that Medicaid can replace Disproportionate Share Payments with Hospital Access Funds is particularly vexing to Sinclair, given that two-thirds of University Medical Center’s cuts came through reductions to the Disproportionate Share program. And he admits it raises the question of whether Medicaid even had to make such drastic cuts to the medical center.

“I think (Medicaid has) options that they could explore to mitigate some of these losses, not just for UMMC, but also for other hospitals. Between the two programs, MHAP and DSH, it would not seem right that you would have some hospitals that were big winners and then have other hospitals that don’t even recover their costs for providing the care. Those two things seem illogical,” Sinclair said.

“I don’t know that there’s a perfect formula that would work for everyone. But it seems they could do something to mitigate the extent to which loser hospitals exist.”

Dr. David Dzielak, left, executive director of the Division of Medicaid; Dr. Tami Brooks, medical director of the Division of Medicaid; and Keith Heartsill, Medicaid’s healthcare financial consultant, at Medicaid’s Medical Advisory Committee meeting, Sept. 21.

At the Medicaid Advisory Committee meeting in September, Dr. David Dzielak, the executive director of the Division of Medicaid, did not dispute the numbers presented by the three hospitals. But he said that despite complaints, the formula used by the Mississippi Hospital Access Program is legal.

“All the things that we’re using to distribute the funding (are) outlined in state law,” Dzielak said after the presentations from Memorial, Singing River and University Medical Center. “We’re strictly just following what is outlined in state law.”

A long-standing problem

Although the Mississippi Hospital Access Program may meet state standards, the federal Centers for Medicare and Medicaid Services has repeatedly told the agency that the program violates federal law.

Problems with the current formula began in fiscal year 2013, when the program had a different name, Upper Payment Limit payments. That year, Medicaid altered the formula to reimburse hospitals based on a patient’s diagnosis, rather than the old standard, which based reimbursement on a day rate and services provided. Complicating matters, according to Sinclair, is that future reimbursements for many hospitals, including University Medical Center, remain fixed at 2013 levels.

“We get just the same amount of money (as we did in 2013) … and I know our utilization has picked up a lot since then,” Sinclair said.

To tackle the formula’s inequalities, the Legislature authorized the Mississippi Hospital Access Program in 2015. But this new program was an update only in name, as state Medicaid itself wrote in a letter on its website that same year.

The federal Centers for Medicare and Medicaid Services noticed. In a letter dated March 22, 2016, the head of managed care at the federal branch of Medicaid demanded with palpable frustration that the state agency change its formula, arguing that the money was being arbitrarily dispersed.

“We have shared many of our concerns with you and your staff verbally on multiple occasions. CMS maintains that this proposal violates current managed care policy under (federal statute). CMS also has concerns that these payments lack a relationship or linkage to hospitals’ actual utilization, delivery of services, or the quality or outcomes associated with delivered services,” wrote James Golden, director of managed care plans.

A second letter from the federal branch of Medicaid, dated March 25, 2016, gave the division 120 days to submit a corrective action plan outlining how the state plans to move from its current formula to one that links the $533 million in payments to “utilization, quality or outcomes of delivered services.”

More than 18 months later, the federal government is still waiting on that plan.

In the meantime, hospital administrators continue to express frustration that nearly two years have passed without the stage agency addressing the program’s deficiencies — and express doubts that they ever will.

“There has been zero leadership within the Division of Medicaid to make sure that this issue has been addressed, and what I think it boils down to is a lack of political will,” said David Estorge, president of the Memorial Hospital Foundation.

“There is absolutely no rhyme or reason as to why this payment model exists.”

The court case

In August 2016, frustrations over these delays pushed executives from Memorial and Singing River to file a complaint against the Division of Medicaid in Hinds County Chancery Court.

Citing the complaints from the federal Center for Medicaid Services, attorneys for the two hospitals asked the court to compel the state agency to change the Hospital Access Program formula to one that was “based on Hospitals’ actual utilization, delivery of services and/or the quality or outcomes associated with delivered services.” They also asked the court to order Medicaid to reimburse the two hospitals for any funds withheld since 2013, an amount attorneys later said reached over $21 million.

In her decision in February 2017, Judge Denise Owens sided with the division of Medicaid, saying the formula did not technically violate the state statute that established the program.

But she also issued a withering critique of Medicaid’s Hospital Access Program, calling it “patently unfair and inequitable.”

Marchand said he believes this is a contradiction. On Oct. 2, attorneys for Singing River and Gulfport Memorial appealed the lower court’s decision to the state Supreme Court, asking the court once again to compel the agency to reimburse the hospitals and to change its formula.

“The endpoint here is, ‘Why does a payment model with so much inequity exist if it doesn’t have to?'” Marchand asked.