A blow to safety net providers

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New York’s takeover of the Medicaid prescription-drug program saves the state hundreds of millions of dollars a year. However, it has stripped area safety net hospitals and clinics of big savings from drug company discounts.

Since implementing its takeover of the Medicaid prescription drug program last year, the state has taken a number of steps including increases in hospitals’ Medicaid reimbursement rates to offset safety net providers’ lost savings, says Cadence Aquaviva, state Department of Health spokesperson.

However, local health care officials say, those measures do not fully cover many providers’ current losses and are likely to leave them even more cash strapped as costs rise and chronically insufficient Medicaid reimbursement rates fail to keep pace. 

The state in part defines safety net providers as institutions whose patient rolls include roughly one third insured by Medicaid. According to a list compiled by the New York State Energy Research and Development Authority, virtually all of the area’s hospitals meet safety net criteria.

Losses hit home

Among providers hardest hit statewide is UR Medicine’s Strong Memorial Hospital, which has seen $90 million in annual savings evaporate since the state takeover began on April 1, 2023. 

Other UR Medicine hospitals also saw lost savings with the change, but the system has yet to tally those figures, says Chip Partner, UR Medical Center’s assistant vice president for public relations.

Because of the scope of Strong’s lost savings, the state has agreed to repay the hospital’s $90 million 2023 hit, sending Strong $30 million a year in extra Medicaid payments over the next three years. UR Medicine is grateful for that relief, Partner says.

Still, he notes, over the payments’ three-year span, Strong is likely to lose savings totaling at least $270 million, leaving the hospital with a net decrease of $180 million and UR Medicine not reimbursed at all for its other hospitals’ lost savings.

Though a number of hospitals asked the state for payments like Strong’s, Partner believes that Strong is one of only a few to actually get any extra funding.

Asked to provide figures on offsets the state is authorizing for safety net providers’ lost savings, Aquaviva did not detail extra Medicaid payments slated for individual hospitals.

A state document obtained by the Rochester Beacon appears to outline similar first-year extra Medicaid payments for two downstate hospitals: $300,000 for St. Joseph’s Medical Center in Yonkers and $18.5 million for Wycoff Heights Medical Center in Brooklyn.

Rochester Regional Health calculates its 2023 systemwide lost savings resulting from the Medicaid drug-program change at $35 million, says Cristina Domingues Umbrino, spokesperson for the health system. RRH is currently not in line for extra Medicaid funding to offset those losses or any for future losses, she adds.

Also affected by the switch are federally qualified clinics.

Generally located in high-poverty enclaves, such clinics were created to primarily serve Medicaid, uninsured and underinsured patients. This area’s six federally qualified clinics include the Anthony L. Jordan Health Center and Trillium Health. 

Federally qualified clinics get higher Medicaid reimbursements than other safety net providers. Still, in 2021, when the state first passed legislation authorizing its takeover of the Medicaid prescription drug program, this area’s six area federally qualified clinics protested, estimating that the change would cost them $250 million a year.

Last year, the state did provide new Medicaid funding that erased federally qualified clinics’ expected lost savings and wiped out similar losses for facilities like Trillium’s Ryan White HIV-AIDS clinic, says Mark Malahosky, vice president of pharmacy services at Trillium Health.

However, Malahosky adds, while the state’s infusion of cash is “a lifesaver” for federally qualified clinics now, and though such payments will continue in future years, the benefit amount is capped at current levels.

As clinics’ costs rise, Malahosky estimates, the benefit will effectively vanish in five years.

The 340B program

Providers’ lost savings in the state Medicaid prescription program takeover trace to the federal 340B program. The program requires pharmaceutical manufacturers to give substantial discounts to safety net providers. In 1990, Congress called on drug companies to give the federal Medicaid program discounts in exchange for coverage of their drugs by Medicaid and Medicare Part B. In 1992, Congress passed legislation extending such discounts to individual safety net providers.

Drug companies dislike 340B. A fact sheet disseminated by PhRMA, the pharmaceutical industry lobbying and trade group, tags 340B as a boondoggle that showers money on for-profit safety net providers and pharmaceutical benefit managers while providing little actual aid to Medicaid patients.

URMC’s Partner, on the other hand, extolls 340B as a program providing needed financial aid to safety net providers that “doesn’t cost taxpayers a dime.”

Medicaid is a government health insurance program for the poor. It is jointly funded by the  federal government and by the states with Washington and each state splitting the cost. Each state designs and runs its own Medicaid program.

Until 2012, New York had each county administer Medicaid through their social service departments.

That year, legislation proposed by Gov. Andrew Cuomo and adopted by the Legislature created a managed Medicaid system in which private insurance companies took over administration of New York’s Medicaid program.

Under the new system, insurance companies pay individual Medicaid enrollees claims and are reimbursed by the state. Until last year, those managed care claims included prescription drugs.

To manage prescription drug costs, each insurance company creates its own formulary, listing which drugs insurers allow and saying how much they will pay for each drug. 

Seeing a chance to save money by creating one statewide formulary, New York passed legislation in 2021 taking the prescription-drug program back from managed care insurers. Called NYRx, the statewide Medicaid formulary went into action last year. 

One wrinkle of NYRx’s creation: In taking over the Medicaid drug program, the state, rather than individual safety net providers, now receives the 340B discounts. 

Among benefits meant to offset safety net hospitals’ 340B savings losses, Aquaviva names the state’s increases of 7.5 percent and 6.5 percent in hospitals’ inpatient and outpatient Medicaid reimbursement rates.

Safety net hospitals do not see those rate increases as making up for their 340B lost savings.

In New York, Medicaid payments on average fall 39 cents short of every dollar hospitals spend to care for Medicaid patients, the Hospital Association of New York State states in a posting calling on the state to cancel the 340B carve-out.

“Safety net hospitals cannot absorb the loss of these (340B) savings,” maintains HANYS, an Albany-based trade group representing more than 500 nonprofit hospitals and nursing homes in New York.

URMC’s Partner confirms that the 39-cents-per-dollar figure is in line with Strong’s Medicaid reimbursement shortfall.

Similarly opposed to the state’s 340B takeover is the New York Safety Net Hospital Coalition, a group representing 10 New York City safety net hospitals.

The 340B carve-out does “not provide adequate support for safety net hospitals that serve New York’s marginalized and low-income communities,” the downstate coalition maintained in testimony submitted to a joint hearing of the state Senate’s Finance Committee and the Assembly’s Ways and Means Committee last January. 

The state’s plan to spend up to $2.2 billion over three years to support the transition of 340B discounts from safety net providers to NYRx does “not provide operational funding to make up for insufficient Medicaid payment rates,” the group’s testimony declares.

Will Astor is Rochester Beacon senior writer. The Beacon welcomes comments and letters from readers who adhere to our comment policy including use of their full, real name. Submissions to the Letters page should be sent to [email protected]

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