State budget impact on L+M, Backus at least $5 million each

The $40 billion biennial budget passed last week by the state legislature will cost each of the region’s two hospitals at least $5 million over the next two years, cuts that hospital officials warn cannot be absorbed without major impacts to services and staffing.

“These dramatic cuts will surely result in significant job reductions and program closures, affecting our state’s economy and access to care for our most vulnerable community members,” Rebecca Stewart, spokeswoman for Hartford HealthCare, the network that includes The William W. Backus Hospital in Norwich, said Monday. Backus alone will lose $6.2 million over the next two years, she said. In fiscal 2014, Backus had a $48.6 million positive operating margin on total revenues of $301 million. 

The new budget combined with impacts over the past three years, she said, has resulted in a $100 million reduction in state revenues to the Hartford HealthCare system. The new budget also reduces state Medicaid reimbursements for care to Medicaid payments to 50 percent of the cost of services, she said. That is down from 69 percent two years ago, according to the Connecticut Hospital Association.

“This is clearly unsustainable,” Stewart said.

Lawrence + Memorial Hospital in New London is bracing for a $5 million decline in revenues over the next two years because of the new budget, said Bill Stanley, vice president for development and community relations. L+M administrators have not yet reached any conclusions about how to absorb the reduction.

“But however we get to that point it’s going to be painful,” he said. “Each year for the last three years Connecticut hospitals have taken a huge financial hit from the state. At some point we’ll reach the breaking point.”

He added that “it’s no coincidence” that L+M has finished the last two fiscal years in the red, after years of staying in the black. L+M ended fiscal 2014 with a $18.7 million negative operating margin, on total revenues of $454.4 million.

“This is a terrible budget,” Stanley said, “not just for hospitals, but also for Connecticut taxpayers” because it threatens to weaken the economy and the health care system with layoffs and program cuts.

The new budget, which has not yet been signed by Gov. Dannel P. Malloy, includes $556 million in hospital taxes to be paid by the state’s 27 nonprofit hospitals, an increase from $350 million in the current fiscal year, said Michele Sharp, spokeswoman for the hospital association. The tax is offset by reimbursements made by the state, an arrangement that enables the state to leverage more federal assistance. This year, reimbursements totaled $80.5 million, meaning the net payment by hospitals was $269.5 million. In the new budget, hospitals will get back $241 million, Sharp said, leaving the hospitals with a net payment of $315 million.

“These cuts, taxes and regulatory burdens, which endanger our hospitals and their patients, are devastating and unsustainable,” Jennifer Jackson, chief executive officer of the hospital association, said in a statement.

Gian-Carl Casa, undersecretary for legislative affairs at the state Office of Policy and Management, said figures provided by hospitals overestimate the Medicaid reimbursement cut. He said the amount budgeted for Medicaid reimbursements is “roughly a 4 percent cut,” not the 19 percent rate hospitals estimate. He confirmed the hospital tax and reimbursement figures.

State Rep. Matthew Ritter, D-Hartford, co-chairman of the Public Health Committee, said he is aware of the “major concerns” about the impact of the budget on hospitals, but that final numbers won’t be known until the Legislature considers bills implementing the budget. He added that some adjustments to the budget may be made in the special session being planned for later this month.

Sharp said the hospital association will be lobbying state lawmakers to revise the budget during the special session.

“We will continue our advocacy during the special session, asking legislators to fix the budget and reduce the hospital tax and restore Medicaid funding,” she said.

Stanley said that in addition to the increases in the hospital tax and decreased in Medicaid funding, L+M and other hospitals with freestanding ambulatory surgery centers will pay taxes increasing from 5.5 percent to 6 percent. For L+M, that will affect taxes paid on revenues for surgeries at the Pequot Health Center in Groton. On a positive note, he said, another bill that would have had brought further financial harm to L+M and other hospitals was defeated. The bill would have imposed taxes on new purchases of property and equipment at satellite facilities outside the main hospital campus. He credited state Sen. Cathy Osten, D-Sprague, with playing a leading role in defeat of the measure.

Stanley said he and other L+M officials will be talking to local legislators, particularly those who voted in favor of the budget, to urge them to adjust the budget during a special session to lessen the impact on hospitals.

j.benson@theday.com

Twitter: @BensonJudy 

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