Hahnemann closure puts $51 million in Medicaid funds in play. Will the money stay in Philly?

After Hahnemann University Hospital went into bankruptcy and closed this summer, a group of state senators urged the Wolf administration to redistribute the Center City institution’s subsidies for the poor and uninsured to other hospitals that serve North Philadelphia.

Moving the Hahnemann money to Einstein, Jefferson, and Temple — the shift sought by Philadelphia’s State Sen. Tina Tartaglione and others to prevent cascading losses at other hospitals as they picked up indigent Hahnemann patients — sounds simple.

It is anything but.

Hahnemann’s $51 million in subsidies represented a slice of the $1.15 billion in state and federal Medicaid money paid to Pennsylvania hospitals last year through 37 obscure programs negotiated in Harrisburg to help pay for treating the poor. Philadelphia hospitals’ share was $535 million.

Still, very few, including professionals that closely watch the Philadelphia health-care industry, understand how the funding works.

The labyrinthine funding system pits hospitals across Pennsylvania against one another and forces them into backroom deals to get the funding they need to keep treating poor patients. And, it forces hospitals in the city, with a 24.5% poverty rate, to play politics in Harrisburg to fill the gap left by Philadelphia General Hospital’s closure more than 40 years ago.

“It’s a ridiculous way to do things, but that’s politics and it’s politics in Pennsylvania,” said Stuart H. Fine, a professor at Temple University’s College of Public Health.

Pennsylvania’s total Medicaid spending in fiscal 2018 was $30 billion, with $12.3 billion coming from the state and the rest from the federal government, plus more in administrative costs, according to state officials. The program provides medical benefits for more than 2.8 million Pennsylvanians, including 525,000 Philadelphians.

Hospitals with relatively few Medicaid patients typically depend on commercial health insurance, paid largely by employers, to subsidize the cost of treating poor patients. Because of their locations in North Philadelphia, Temple University Hospital and Einstein Medical Center Philadelphia, especially, don’t have enough patients with commercial insurance to offset Medicaid losses.

“The bottom line is that Temple and Einstein both are only able to survive because they’ve been able to wrangle additional dollars from the state and then draw additional matching money” from the federal government, said Stuart Shapiro, a former Philadelphia health commissioner who consults for hospitals and long-term care providers.

But it’s not just Einstein and Temple at risk. In the year ended June 30, all but two of the adult hospitals in Philadelphia that received supplemental payments would have had operating losses without them. The outliers were the Hospital of the University of Pennsylvania and Penn Presbyterian Medical Center.

Penn said it provides “nearly a third of all inpatient care for adult Medicaid patients and over 40 percent of all births covered by Medicaid in the city.”

Medicaid’s system of subsidies for what are called disproportionate share hospitals started in 1981. It is abbreviated as DSH and pronounced as “dish." Under the Affordable Care Act, Medicaid DSH payments were scheduled to start going down in 2014, but Congress has repeatedly delayed the cuts.

“When the DSH system was first created, its purpose was to provide extra dollars for specific urban hospitals with high uninsured and very high Medicaid and rural hospitals who needed the extra support just to keep the doors open," Shapiro said. "Over time, the American Hospital Association lobbied for additional dollars in the pot and expanding the definition.”

As of now, virtually any hospital is eligible for DSH payments, subject to statewide limits on the aggregate amounts set by the federal government. In Pennsylvania, 87 percent of hospitals receive the supplemental payments, according to a 2017 report from the Medicaid and CHIP Payment and Access Commission. The report said that only three states make the payments to a higher percentage of hospitals.

That report was part of a national discussion of whether “to narrow the subset of hospitals that are able to access these funds and create a higher standard where they really need to be very clear that they are serving people who are low income, people who are still uninsured,” said Jessica Curtis, senior adviser at Boston-based Community Catalyst’s Center for Consumer Engagement in Health Innovation.

In Pennsylvania last year, 194 hospitals received subsidies, and over the last five years the number of payment programs has increased to 37 from 32. The two newest, paid for the first time in fiscal 2019, directed $4.19 million to Temple’s Jeanes Hospital and $1.68 million to Wills Eye Hospital.

The largest program for one hospital by far is for Temple University Hospital, where nearly half of inpatients are covered by Medicaid. Without the $199 million in supplemental payments in the year ended June 30, Temple’s flagship hospital would have had a $155 million operating loss.

Among Philadelphia hospitals, Temple is in the unusual position of being able to take advantage of its status as a state-related institution, which receives an annual appropriation from Harrisburg. Some of the money destined for the university is shifted to the state’s Medicaid program. That generates a federal match, which goes to the hospital.

That maneuver generated $119 million for Temple in the latest fiscal year. In a similar manner, hospitals statewide made payments to the state that were used to produce more than $500 million in state and federal Medicaid funding.

In addition to Temple, Jeanes, and Wills, Einstein, Mercy Hospital of Philadelphia, and Nazareth Hospital benefit from individual programs.

Emblematic of the complicated nature of Medicaid subsidies are the different amounts used to describe Hahnemann’s subsidies last year. The senators used $51 million in their letter. Gov. Tom Wolf’s response to the senators said the amount was $39 million. The Pennsylvania Department of Human Services pegged the amount at $28 million.

The biggest difference is that DHS did not include additional amounts tacked onto the Medicaid rates for providers in underserved areas.

Despite the obscurity of the funding mechanism, the money is critical for Philadelphia.

In their letter, the senators said they feared dire consequences if the Hahnemann money is not kept in the city.

“Without concerted action and support of the Commonwealth, we are concerned the failure of Hahnemann could set in motion a cascading series of issues that ultimately could jeopardize the remaining health care institutions serving this community,” said the senators’ letter, sent from Tartaglione’s office and signed by 12 more senators.

The loss of the Hahnemann money is particularly troubling to the senators because it follows the 2016 closure of St. Joseph’s Hospital, which sucked as much as $30 million in annual Medicaid funds out of North Philadelphia, according to one estimate. Longer term, the loss of hundreds of medical residents who used to train at Hahnemann could pull additional millions in federal funding out of Philadelphia.

In response to questions from The Inquirer, Einstein, Jefferson, and Penn issued statements saying the Hahnemann money should follow the patients.

Wolf’s response to the senatorsdetailed restraints that make it impossible to redirect the Hahnemann money to the senators’ picks — even though, subject to federal approval, the state could create new, specifically targeted programs that would benefit Einstein, Temple, and Jefferson.

Representatives for Wolf and Tartaglione did not respond to requests for comment.

Sandy Gomberg, a former high-ranking executive at Temple University Hospital and Aria Health, wonders if there’s not a better way to ensure that poor people have access to health care. Maybe Pennsylvania should bring back public hospitals, she said. California, Florida, and Texas still have them.

That would end “these machinations of fighting for funding,” she said. “Instead of all these regulatory and supplemental payments, they pull it right out of their budgets.”