News & Events

Boston Medical sues state for funds

Hospital says money was used to finance health law

By Liz Kowalczyk, Globe Staff

Boston Medical Center filed suit yesterday against the state, accusing officials of illegally cutting payments made to the hospital for treating thousands of poor patients,a decision executives saidcould financially unravel the urban hospital’s key services.

The 26-page complaint – filed in Suffolk Superior Court against Dr. JudyAnn Bigby, health and human services secretary – follows two years of payment negotiations between the state and its largest provider of medical care to poverty-stricken families. It argues that the state has financed its landmark health insurance law, a model for national healthcare overhaul, on the backs of poor residents by cutting money to the hospital that cares for many of them to pay for expanded coverage.

The lawsuit could influence the national debate on healthcare by warning of the potential repercussions for hospitals that treat the poor.“This absolutely has implications for the national debate,’’ said Larry Gage, president of the National Association of Public Hospitals.

Bigby, in a statement to the Globe last night, said: “The administration is greatly disappointed that BMC, which has received $1.5 billion in state funding in the past year, has chosen this path. At a time when everyone funded and served by state government is being asked to do more with less, BMC has been treated no differently.

“We are confident that the administration’s actions in this area comply with all applicable law and will be upheld,’’ she said.

In interviews with the Globe last week, state officials questioned BMC’s request for more funding, consideringthe state’s extraordinary budget crisis and the hospital’s large cash reserves.

The $1.5 billion the state paid the hospital in the past year went not just to the hospital, but also to its community health centers and health insurance plan, officials said.

BMC – where half of the patients earn less than $20,000 annually, 30 percent do not speak English, and one-third are on Medicaid – estimates that it will lose $175 million in the fiscal year starting Oct. 1, an 18 percent operating loss. By the end of this year, the hospital is likely to be $38 million in the red, its first loss in five years.

Hospital executives blame these projected losses on the state’s decision to slash the amount it pays BMC for treating a Medicaid patient in the hospitalfrom $12,476 per admission last year to $9,323 this year and for paying what the hospital considers inadequate rates to care for uninsured patients and newly insured patients.

The state calculated the new Medicaid rate by considering the average cost of caring for Medicaid patients at Massachusetts hospitals, and paying 75 percent of that amount to encourage efficiency, the lawsuit says.

BMC argues this approach is illegal, because a 1991 law requires the state to pay hospitals that treat large numbers of poor patients based on each institution’s unique financial needs and BMC’s need is great.The hospital employs 75 translators, more than any other Boston hospital, and treats nearly 70 percent of the city’s trauma cases, among other added expenses required to care patients from the city’s poorest neighborhoods.

The hospital also argues in the lawsuit that the state has acted illegally in several other ways, resulting in it paying 64 cents for every $1 BMC spends treating the poor.

Under the 1995 law that formed BMC, the hospital is required to serve vulnerable populations.

“There are certainly instances where individual doctors say, ‘We’re not getting enough money for seeing patients,’ ’’ saidformer US attorney Donald Stern, whom the hospital hired to argue its case. “The courts have been fairly cool to that argument, partly because [Medicaid] is a voluntary program. We’re different. We’re required by the state . . . to continue to treat these patients.’’

In an interview last week, the state’s Assistant Secretary of Health and Human Services Terry Dougherty acknowledged that the hospital will receive significantly less next year for treating Medicaid, uninsured, and newly insured patients. But he said, BMC has sizable reserves, about $190 million in unrestricted cash, according to the hospital.

And, he said, the hospital’s costs are 20 to 30 percent higher than those at similar hospitals, suggesting that cost savings are possible.

The hospital’s successful building campaign has also drawn attention, particularly from legislators who represent communities with struggling hospitals in worse shape than BMC.

Hospital vice president Tom Traylor said the state, in calculating BMC’s costs, considered small teaching hospitals like Caritas Carney in Dorchester and Mount Auburn in Cambridge. But in an analysis the hospital commissioned, Bain Capital compared BMC to major Boston teaching hospitals and found its costs to be average, he said.

Gage, the National Association of Public Hospitals president, said many public and private hospitals have filed lawsuits against states and the federal government over Medicaid rates. But, he said, the BMC lawsuit is unusual because of the broader context of health reform.

One problem with the Massachusetts approach, Gage believes, is the state too quickly phased out special payments to BMC and Cambridge Hospital for treating the poor. These payments are now being used to subsidize health coverage for thousands of newly insured residents. His organization advised Congress to phase out payments to so-called safety-net hospitals more slowly, an approach the House is advocating, he said.

The Massachusetts law was supposed to raise Medicaid rates and did for some hospitals, but not for BMC. The hospital said in its lawsuit that the state has not paid it millions of dollars in special payments it was supposed to get over three years as the health insurance law was implemented.

“The magnitude of BMC’s problems are unusual,’’ Gage said. “There isn’t any other state where all these payments have gone away at once.’’

It was unclear if the state and the hospital will continue negotiations, now the courts are involved. But hospital officials signaled that they would be willing to meet. “We want to fix this,’’ Traylor said.