State officials are pursuing a new strategy to funnel millions of Medicaid dollars into the city’s public hospital system that relies on federal approval as U.S. lawmakers contemplate vast cuts to the program.
New York City Health + Hospitals asked the federal government for extra Medicaid funding through a so-called state-directed payment template, which boosts Medicaid payments for hospitals and other providers that operate at a loss because they treat a high percentage of low-income patients. The payments increase Medicaid reimbursements to what Medicare or even private insurers pay, using federal dollars to prop up safety-nets.
The public hospital system’s request is part of a broader strategy to replace the funding it currently gets from the state. Health + Hospitals receives millions through a combination of state and federal dollars earmarked to support hospitals that serve a large share of low-income patients, but it has, for multiple years, exceeded its funding limits and had to pay money back, according to state budget officials. The state is seeking to save money while allowing H+H to pursue a more lucrative funding mechanism by cutting its annual contributions to the public hospital system by $57 million, according to language in the state budget.
If the plan gets the nod from the federal government, it could allow H+H to draw down additional federal Medicaid dollars while saving the state money, according to the Division of Budget.
But federal approval is not certain. State-directed payments have drawn scrutiny from federal lawmakers as Republicans search for $880 billion in Medicaid cuts over the next decade. The supplemental payments have grown significantly in recent years, as more hospitals rely on the extra cash to take care of low-income patients. But critics have pointed to increased federal spending, saying that the payments allow states to expand Medicaid and hospitals to rake in profits on the U.S. government’s dime. The Paragon Institute, a conservative think tank whose president was a key health adviser to President Donald Trump, released a report earlier this year that referred to the payments as part of a “legalized money laundering” scheme.
Chris Miller, a spokesman for the public hospital system, said that the public hospital system is “heavily reliant” on Medicaid and other public dollars to take care of all New Yorkers.
“We are still assessing the impact of this reduction,” Miller said. “While we are pursuing opportunities for additional federal funding, should those funds not materialize we will work with the state to address any shortfalls.”
If the federal government rejects H+H’s request for extra Medicaid payments, the city could be on the hook to cover the health system’s losses from the state, according to a source familiar with the discussions. State lawmakers attempted to include contingency language in the budget that would require the state to continue putting up funding for the public hospital system if the federal government rejected its application, but the language did not make it through budget negotiations, the source said.
