Proposed Health Care Fee System Limits Legislature’s Budget Flexibility

With two weeks left in the 2013 Legislative session, lawmakers are focused on several initiatives that would engender long-term consequences for the state’s fiscal affairs. State officials and the public should fully recognize the future effects and limitations. In particular, the Legislature is poised to limit its budgeting flexibility by placing in the Constitution a mechanism for an escalating floor of state fees for certain health care providers. House Bills 532 and 533 are proposed amendments to the state constitution. To be enacted, they require a two-thirds majority vote of both the House and Senate and a simple majority approval by voters in a statewide referendum. Their casting as constitutional provisions appears to be driven by the fact that constitutional amendment legislation cannot be vetoed by the governor, whose administration has criticized the plan. A statutory solution, which would be in line with how other states have implemented similar health care assessment programs, would be preferable and yet vulnerable to veto. The bills provide for fees and assessments from certain categories of hospitals, nursing homes, intermediate care facilities and pharmacies. The money from these assessments would be used as a match for federal Medicaid dollars. If the system is designed effectively to meet federal standards, the federal matching dollars would flow to the health care providers, who ultimately would receive substantially more money than the original assessments. The purpose of the program is to compensate providers that are not fully reimbursed for the care they give to Medicaid patients. This type of arrangement is used in most states. If properly regulated and financed, it could be appropriate for Louisiana. In addition to creating the federal match programs, the proposed amendments seek two other major goals: To establish trust funds protected in the Constitution from legislative or gubernatorial appropriation for unintended purposes; and to create parameters and a process for a regular formula that would set the state-paid provider rates for certain types of health care services. It is this second goal that deserves the greatest scrutiny because it embeds funding mechanisms in the Constitution that are designed to increase base rates regularly and decrease the state’s budgetary options. Health care provider rates currently are set in administrative rules established by the Department of Health and Hospitals. The Legislature today has the ability to reject proposed rules establishing provider rates. Under these bills, each year the Legislature would consider provider-rate formulas presumably prepared mainly by legislative staff, lawmakers and industry lobbyists. The process would set a base rate with mandatory annual inflationary adjustments for nursing homes and potential inflationary increases for hospitals. (No negative inflation could be applied. No particular inflation factor is identified although it should be noted that the medical services price index, which could be an option here, tends to rise at a much greater rate than the better-known consumer price index.) Reductions in the most recently adopted base rate could be made only if a state budget deficit exists and then only if two-thirds of both chambers agree. Even then, the decrease would be unable to exceed the average reduction made to other types of providers. This is a remarkable level of rate protection to be included in a state Constitution. Also, the proposed new system would establish winners and losers in the private marketplace. For example, nursing homes are included in the deal while home care and community care providers are not. Proponents of these bills say these additional assessments are a contract between the public and health care providers and so the constitutional protection would codify that these new funds deserve greater protections to assure they do not supplant existing funds provided by the state. These concerns are understandable but could and should be addressed in statute. Creating a constitutional protection from reductions for certain health care providers will likely create new problems for those without this special status. Higher education and health care providers without this status will be at significantly greater risk for reductions. More providers could be added eventually. The two bills combined will give constitutional protection to approximately $1.9 billion in annual state spending, according to DHH. State lawmakers, who routinely complain about their lack of budgeting flexibility because of constitutional restraints, will be in no position to complain further if they support these constitutional amendment proposals in their current form. Many Medicaid health care providers have experienced cuts to provider rate reimbursements in recent years while other providers have been relatively insulated due to other funding mechanisms, such as the Medicaid Trust Fund for the Elderly. Using provider assessments to raise reimbursement rates is a common practice in other states and may be a good move for Louisiana. In addition, the supporters of these measures can make valid arguments that their funds should be protected from unintended and unrelated appropriations. However, constitutional provisions limiting the budgetary options of policymakers — and for all practical purposes setting an escalating floor of provider rates — should be avoided.

For More Information Contact:
Robert Scott
225-926-8414
robertscott@parlouisiana.org