Use Edwards' hospital cut request to exit charity model

Building on yesterday’s post, can liberal Democrat Gov. John Bel Edwards also become the one who finally frees Louisiana from any vestiges of its archaic charity hospital system?

Until a few years ago, Louisiana insisted on continuing its outdated model where anybody could walk into what then comprised a system of ten hospitals, mostly in urban areas, and receive free treatment for whatever ailed them, regardless of severity. That system delivered subpar medicine, in no small part because, as the laws of human behavior dictate, make something free and people engage in overconsumption of it. This produced queued care as hospitals became treated like primary care centers and for any ailment, no matter how minor or even fictional, squeezing out the more serious cases and promoting wasteful resource use.

Unfortunately, way too many policy-makers preferred this inefficient use of taxpayer dollars because it provided superior symbolism, if inferior service delivery, of some asserted commitment to the “poor,” and also because this could act as a patronage sink and job machine that politicians in these areas could crow about to secure reelection. So it took another misfortune, Congressional repeal of a law that favored Louisiana’s Medicaid funding (ironically because of the economic bump resulting from the heavy influx of federal aid from the hurricane disasters of 2005) to shock them out of their complacency, and former Gov. Bobby Jindal wisely used this leverage to exit halfway the system.

But he could not go the whole way because legislators continued to place the importance of taking political credit above that of accomplishing optimally service delivery. Since the Legislature had to approve of the state exiting, or even significantly paring back, the direct health care provision business, with too many of them opposing the move Jindal had to fall back upon the hybrid relationship, where the state would continue to own the facilities but to hire out management of these.

By all accounts, in the aggregate service delivery has improved at the eight hospitals where nongovernment entities assumed management (one closed with its charity functions assumed elsewhere while another stayed in state hands) and costs have come down. However, the financing model largely remained the same – any uninsured patient could access that hospital’s services without charge courtesy of the state, while other hospitals had to seek reimbursement through the federal government’s uncompensated care program that often does not pay for all expense. These costs they then partially transfer to insurers and other private payers.

In other words, delivery of the model may have become more efficient, but the model itself remains inefficient. No other state supports such a concept, all others preferring to let nongovernment hospitals (and also those explicitly designated as teaching hospitals part of a public university) to recoup charity care from the federal government’s disproportionate share hospital (DSH) program (as long as they qualify, generally meaning at least 15 percent of their caseload makes up indigent patients). Where charity hospitals exist, others typically do not qualify for DSH because the charity hospitals suck in the vast majority of the indigent.

The reimbursement dollars the Edwards Administration wishes to cut, as part of its strategy to reduce spending to meet a current fiscal year shortfall in the area of $900 million, to the tune of over $60 million. This had led some of the entities to proclaim they cannot guarantee that they would not opt out of their contracts to provide charity care, if reimbursement rates go too low, even if they still likely would qualify for DSH.

And those interested in efficient delivery of medical care should hope for this. If it works in every other state, why not Louisiana? And that Edwards has shoved Louisiana into the unwise acceptance of Medicaid expansion by definition radically diminishes the uninsured pool that otherwise flocks to charity hospitals, as they now will have Medicaid and many more hospitals in urban areas can accept them with reimbursement by government.

Therefore, Republicans should take up this part of Edwards’ budget as they should with his Taylor Opportunity Program for Students proposal, with some addition specification. They should remove completely all reimbursement for any uninsured and let those facilities go through DSH. Undoubtedly this will lead the nongovernment partners to use the escape clauses in their contracts, but also the state should offer them the deal to buy the facilities at a rate they know they continue to operate them. If they decline, offer the sale to someone else; since the facilities would be priced not lose money, there will be buyers. Then use the sales proceeds to pay for deferred maintenance on state buildings and the savings to plug budget holes.

More decisions would remain; for example, because of their attachments to medical education to Louisiana State University, retaining the hospitals in New Orleans and Shreveport might prove a better course of action. Yet, simply enough, the state should exit the charity business and treat indigent care as does every other state that conducts it overwhelmingly through nongovernment hospitals.

This change could generate hundreds of millions of dollars a year in savings – needed not only now given the looming budget deficits, but for the foreseeable future as Medicaid expansion will suck a predicted $4 billion extra out of state coffers in the 2020s. It’s time to finish the job Jindal started, with extreme irony if it turns out that Edwards, who believes no government is too small, ends up as the catalyst with his cut request that he intended to act primarily as a scare tactic to raise taxes, serving as the motive force.