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Veto, unallotments present NCHS budget challenges

Gov. Tim Pawlenty's May 14 line-item veto of a health care program for poor adults means the loss of $4.8 million to North Country Health Services.

Pawlenty's budget-trimming last week through unallotment will add to the problem, but it's the loss of General Assistance Medical Care dollars that most affects NCHS, says CEO and President Jim Hanko.

"I can guess that the March 1, 2010, end to GAMC coverage will be the most painful cut to absorb," Hanko said in an e-mail. "We estimate the line-item veto will potentially reduce our payments by $4.8 million per year."

NCHS operates North Country Regional Hospital and Neilson Place long-term care facility.

Citing a 30 percent growth in the program, Pawlenty used his line-item veto to cut $381 million and end GAMC for fiscal 2011, which starts July 1, 2010. His thought was the 2010 Legislature could still find a solution to save those cuts.

The program provides health coverage to about 35,000 most destitute Minnesota adults.

Ending the program earlier, March 1, would cost NCHS from $600,000 to $1.6 million more in fiscal year 2010, which ends June 30, 2010, Hanko said.

In his unallotments last week, Pawlenty said he eased up on hospitals and nursing homes because of his earlier cut to help fill a $3 billion budget gap between the spending bills sent to him by the DFL-led Legislature and the expected revenues.

DFLers sent Republican Pawlenty a balanced budget that included new taxes, but he refused to agree to new taxes.

"There was a great deal of concern by hospitals as to how they might be impacted by these proposed unallotments," Pawlenty said last week in announcing them. "The in-patient hospital services are not reduced at all ... They are exempt from the unallotment."

Pawlenty said that should be "a significant, although not a total, relief to our hardworking folks in the hospital community and stakeholders in the hospital community."

There no additional ratable reductions in areas of primary care, medical education or in the disproportionate quarterly payments to hospitals, he said.

"These disproportionately go to the safety net hospitals ... like Regions (in St. Paul), Hennepin County Medical Center (in Minneapolis) and a few others," Pawlenty said. "They were greatly concerned that if those payments were reduced, that they somehow be partially protected if you were a large safety net hospital. None of those payments are reduced under the proposed unallotments. They all go forward just as they were at the end of the legislation session."

"The governor is entitled to say what he wants about being kind to hospitals in his unallotments, but the elimination of GAMC eligibility negates that conclusively," says NCHS' Hanko.

"Health care has been a disproportionate source for the state's budget gap solution since 2003," he said. "This biennium is no different. The legislative budget hammers us with payment reductions of $650,000 a year (which are on top of the cuts associated with the unallotments and GAMC program cessation)."

Nursing home cuts

Pawlenty's unallotments includes the suspension of nursing home rebasing in reimbursements, saving $5.9 million in the biennium that starts next week.

A recent change to the method of setting payment rates for nursing facilities was to be phased in over eight years. The Legislature already suspended rebasing for fiscal year 2011-13.

"This does not reduce current rates paid to nursing facilities; the cost savings occur from not providing rate increases that were otherwise expected to be given in fiscal year 2010," according to the proposed unallotments and administrative actions document.

"All of us have done what we could to protect nursing homes during this past session," said Pawlenty. "There are no additional adjustments or cuts to nursing homes. Rate payments continue as they were. The only exception to that is the Legislature put on hold rebasing for fiscal years 2011 and 2012 and thereafter. This puts that on-hold feature in fiscal year 2010."

It's not a reduction, he said, "it will simply put on hold some scheduled increases for some of the nursing homes."

But Hanko said the cumulative effect of not rebasing rates -- adjustments for inflation to the reimbursement base - continues to adversely affect Neilson Place.

"As far as nursing home rebasing's postponement, it's déjà vu," Hanko said. "Been there, suffered that."

He says that "rebasing is essential unless our costs for people, supplies and other resources are going down. Everyone knows they are not. We're under reimbursed to the tune of $20 per day per resident at Neilson Place. That's $570,000 per year which equates to our best projections for an operating loss this year for Neilson Place."

Rates are now based on 2002 costs.

The governor's refusal to consider new revenues to help balance what started out as a $6.4 billion deficit baffles Hanko.

"I'd have much more understanding of the governor's statements if his imposed state hiring freeze had been even half successful and he was willing to allow new state revenues," Hanko said.

Earlier this year, NCHS said it would incur salary reductions for its management team and wage reductions to about 170 non-union staff members. Cuts were 8.5 percent for Hanko, 7 percent for vice presidents, 5.5 percent for directors and 4 percent for non-union staff.

North Country Regional Hospital sustained a $216,000 loss on operations in March, putting year-to-date losses at that time at $680,000 and for Neilson Place, $415,000.

North Country Regional Hospital reported in 2008 costs in excess of Medicare payments of $4.6 million, up from $1.5 million in 2007, and uncompensated care of $1.9 million, down from $2.1 million the previous year.

It reported costs in excess of Medical Assistance of $2.9 million in 2008, up from $1.75 million the previous year.

The hospital's total of community benefits and contributions of $6.8 million in 2008 was 174 percent of the $3.9 million in 2007 community benefits and contributions.