Looming State Budget Shortfalls will Impact Hospitals

Charles Dickens begins A Tale of Two Cities with, “It was the best of times, it was the worst of times…”. 

For the Idaho State Budget, it also seems like the best of times as well as the worst of times. Despite a 5.2% growth in revenue this year – a growth rate that would be the envy of nearly every other state – the Governor has ordered a 1% budget holdback for the current year, and a 2% base reduction for the next fiscal year.

It’s all part of what the Governor is calling a “spending reset” because expenditures are growing at a faster rate than state revenues.

Reducing hospital’s Medicaid reimbursement rates by 5-10% is what the Dept. of Health & Welfare is considering to meet the Governor’s spending reset.

That spending reset will not affect education, which compounds the cuts necessary in other areas of the state budget – including Medicaid reimbursements to hospitals and nursing homes.

So, with healthy revenue growth, why is the state budget in “the worst of times”?  When the Legislature set the current year’s budget, they appropriated an overall increase in spending of about 7%. If revenues only grow at 5.2% (adjusted down from an original “best of times” and overly optimistic 8.2% projection) you can see the immediate problem. Just a maintenance budget that accounts for growth in student enrollment, Medicaid population, or the cost of housing prisoners is about a 5.5% year-over-year increase. To further complicate this, there are two supplemental funding requests that the Legislature will have to consider for the remainder of the year — $23 million from Department of Correction and $22 million from Department of Health and Welfare for Medicaid funding not related to Medicaid Expansion.

This year’s holdback and next year’s base reduction are designed to slow the growth of the overall state budget – but the Department of Health and Welfare has limited options on where they can “cut”. This year, the state’s total Medicaid budget grew by 6.7%. Hospital Medicaid payments are one of the largest portions of the Medicaid spend (about one-fourth of the total) and those reimbursements were up about 12%.

Hence, a “spending reset”.

From the Department’s perspective, the “best” way to come up with its holdback is to reduce the hospital 100% cost-reimbursement rate by as much as 5-10%. From a hospital’s perspective, it’s the “worst” way because you leave a significant federal match on the table. At this point, the intent is to limit the cuts to PPS hospitals – knowing that substantial reductions in Medicaid payments to CAH hospitals would threaten the viability of some community hospitals to keep their doors open.

Later in A Tale, Dickens offers hope in an otherwise dark time, “Nothing that we do, is done in vain.”  It is under this charge, that IHA is bringing alternatives to the Department, the Governor and Legislators to avoid “the worst of times” and assure that the unintended consequences of rate cuts and cost shifts don’t interrupt the “best of times” Idaho’s citizens are enjoying in our prospering economy.

Photo of Brian Whitlock, President / CEO, Idaho Hospital Association, Boise, Idaho
Brian Whitlock, President/CEO
Nov. 11, 2019