DFL spending cuts target hospitals, HMOs

Alexa Mayerhofer
Registered nurse Alexa Mayerhofer answers the phone at a nurse's work station at the New Prague Hospital, in a file photo from September 17, 2012. Minnesota hospitals would be subject to a state surcharge under a House DFL budget proposal for the health and human services department released on Tuesday, April 9, 2013.
Photo by Jackson Forderer for MPR

Minnesota House Democrats are proposing a health and human services budget that spares drastic cuts to poor people, the elderly and people with disabilities. But the plan would raise about $152 million from the state's hospitals and HMOs. It would also increase funding for the state's nursing homes and other long-term care facilities.

Three weeks ago, DFL legislative leaders announced their intention to cut $150 million from the health and human services budget, but didn't explain how they would do it until now.

In the interim, groups representing the health care industry, people with low incomes, the elderly and people with disabilities were waiting nervously to hear where the budget cuts might come.

Now DFL Rep. Tom Huntley of Duluth, who chairs the House Health and Human Services Finance Committee, has released a budget bill that accounts for those cuts by increasing a state surcharge on hospitals and requiring HMOs to pay a portion of their cash reserves to the state.

His proposal would still cut projected growth in areas like dental services and prescription drugs. But Huntley says targeting hospitals is easier than making more painful spending cuts.

"It's a way to alleviate some of the cuts," said Huntley. "And as I said, the whole hospital system -- because of the Affordable Care Act -- is going to get a lot more money coming into the state of Minnesota from that."

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The proposal would raise a state surcharge on the amount of money generated by each hospital. But the federal government reimburses the state and hospitals for treating low-income people enrolled in Medicaid. That means hospitals with a higher volume of Medicaid patients will get money back from the federal government if the surcharge goes up. Some hospitals win out under the plan while others lose money.

Mary Krinkie of the Minnesota Hospital Association says her group is disappointed that Huntley's plan would tap hospitals for more money, especially since Democrats are already raising taxes to erase a $627 million budget deficit.

"This was a modest budget challenge this year, and we were hoping -- given that the Democrats were hoping to raise taxes by $2 billion -- that they wouldn't have to rely on surcharges," Krinkie said.

While Rep. Huntley says the Affordable Care Act will help hospitals absorb the higher surcharge, the state's HMOs are still uncertain how the law will affect their bottom lines.

The Minnesota Council of Health Plans opposes a provision in the bill, which puts a cap on how much money HMOs can keep in cash reserves. The organization's Julie Brunner says the health plans need as much money as possible to prepare for the federal health care law.

"I know my companies are scrambling on making decisions about technology investments to connect with the exchange," said Brunner. "There's a lot of work going on to try to sort out what all of these new products are. How are you going to price those products? I just don't think this is the time to tap into what may very well be reserves that they will rely on for some of this."

While the state's HMOs and hospitals are worried about the impact of the budget plan, advocates for Minnesota's most vulnerable residents are resting easier. Bruce Nelson with ARRM, a statewide association of groups that serve people with disabilities, says he's happy the measure doesn't cut much spending in his area. He also says he's pleased to see a 2 percent cost-of-living increase for long-term care workers.

"I think it will help retain caregivers who think we either seem to get cut or get nothing, and we do all of this important work," said Nelson. "The acknowledgement is very important."

But Rep. Jim Abeler, R-Anoka, says he's worried that Democrats aren't looking to scale back the overall cost of health care. He says that could cause problems for a budget line that is growing faster than other areas.

"It's nice to cover everybody where they have no out-of-pocket expense, but health care isn't free. Somebody pays for it," said Abeler.

Huntley says he hopes to hold a committee vote on the bill by the end of the week. Democrats in the Senate are expected to outline their human service budget next week.