New health care funding assessments could jeopardize $1 billion in Medicaid funds

By Megan Poinski

About $1 billion in federal Medicaid assistance could be jeopardized as the Health Services Cost Review Commission implements the statewide medical cost increase included in Gov. Martin O’Malley’s fiscal 2012 budget, raising an additional $331 million in state funds.

Frederick Puddester, chairman of the commission, made the dilemma plain on Friday to the Senate Budget and Taxation’s Health and Human Services Subcommittee.

“Our balancing act is the viability of the industry,” Puddester said.

The danger to the Medicaid funds comes from the difference between the increase of cost of care in Maryland – which will go up under O’Malley’s budget proposal – and the increase of cost of care in Medicaid as a whole. If the state’s costs increase too sharply, the $1 billion in federal funding assistance that the state has received may no longer come. This means that residents may have to pay even more in health care costs, and the state’s system that sets equal hospital costs could be jeopardized.

“We have a unique waiver system, and this potentially violates our entire agreement,” said Valerie Shearer Overton, senior vice president for legislative policy at the Maryland Hospital Association.

How it works

With a gap between fiscal year 2012 projected revenues and expenditures that state analysts have projected is up to $1.6 billion, O’Malley took several unique steps to raise revenues without increasing taxes or fees. Two of those deal with reducing General Fund dollars to Medicaid, which means that the funds need to be made up elsewhere.

In Maryland, the Health Services Cost Review Commission sets costs for treatment at hospitals throughout the state. The costs are the same regardless of a person’s insurance – private or a public plan like Medicaid – and are adjusted annually.

The commission also has authority to add assessments to the hospital treatment costs. For the current fiscal year, the commission added an assessment to raise $129 million more, which Commission Executive Director Robert Murray said came out to an increase of about .64%.

The burden of the assessment, which only lasts for the fiscal year, was split between the hospitals and patients. The commission determines how the assessment is split, and put 70% of the costs on patients. The remaining 30% of the cost came from hospitals.

The assessment was not popular, Murray said, but it passed muster. Without the assessment, Medicaid funds would be transplanted to the General Fund for other needs, and Medicaid would have had less money to operate.

“Everyone cooperated because the alternative was so much worse,” Murray said.

FY 2012 costs

One of the bills in O’Malley’s 2012 budget proposal sets a much larger amount to be raised through assessments. The bill mandates a 2.5% assessment on costs, cutting $331 million from Medicaid. Murray said that the commission was told about the amount of the assessment only a couple days before O’Malley unveiled his proposal.

With so much more money that needs to be raised through assessments, it will have a great impact on health care costs. Murray said that the commission can determine how much of that cost is passed on to patients and how much the hospitals will have to pay. It cannot negotiate the amount of the fee.

“There is no easy answer here,” he said.

No percentage splits have been determined yet. The commission has not met since the budget proposal came from the governor, but has a meeting scheduled this week. Murray said members will begin discussing the issues and options in front of them then.

Overton said that the assessment could be devastating to hospitals. When hospitals need to cut their budgets, she said, employees and quality of care can easily find themselves on the chopping block.

$1 billion at risk?

Maryland has a waiver from the federal government that grants the state an additional $1 billion a year to pay Medicare costs. The waiver is renewed as long as the state continues to meet two standards. Cost growth in the state must be at a lower level than cost growth in the national program. Additionally, all patients need to pay the same rate for care.

Health officials, legislative budgetary analysts, senators, and representatives from the Maryland Hospital Association all were fearful that the proposed increase in funding could threaten the waiver. Murray said that Maryland has about a 9% “cushion” between funding increases in the state and national programs, but that’s reduced by almost a third with a 2.5% assessment increase. And, Murray added, with federal spending getting slashed, it is likely that federal Medicaid dollars will stop growing so quickly.

Sen. James Robey, the subcommittee chair and a Howard County Democrat, asked the department officials when they would find out if the cost increases might cause “heartburn with the feds?”

“More like cardiac arrhythmia,” Murray responded, using the medical term for an uncharacteristically rapid heart rate. “In the next several weeks, we probably need to have some conversations at the federal level.”

Surcharge for teaching hospitals

A separate cost-savings measure in O’Malley’s budget proposal would change the way that teaching hospitals are funded. Right now, Murray said, patients at Johns Hopkins Hospital and the University of Maryland Medical Center pay a little bit more for their care. This surcharge goes toward the cost of covering the teaching functions of the hospital.

O’Malley’s budget proposes to change the funding. Instead of surcharges at the two teaching hospitals, the total cost will be split as a surcharge for all the state’s hospitals. This would save the state about $35 million because the two teaching hospitals are both in Baltimore City, and they treat a large number of Medicaid recipients.

About The Author

Len Lazarick

Len Lazarick was the founding editor and publisher of and is currently the president of its nonprofit corporation and chairman of its board He was formerly the State House bureau chief of the daily Baltimore Examiner from its start in April 2006 to its demise in February 2009. He was a copy editor on the national desk of the Washington Post for eight years before that, and has spent decades covering Maryland politics and government.