OHS Report Confirms Hospitals Continue To Face Extraordinary Financial Pressures

On Friday, February 7, the Office of Health Strategy (OHS) released its Annual Report on the Financial Status of Connecticut’s Short-Term Acute Care Hospitals for Fiscal Year 2023.  The OHS report confirms the findings of an independent report released in December that demonstrates hospitals continue to face negative operating margins and persistent financial challenges.  Although the report shows some improvement in the financial health of Connecticut hospitals, the year-over-year operating losses reflect the real pressures that hospitals and the healthcare workforce experience every day.  Improvement in revenue continues to be outweighed by staggering increases in operating costs like drugs, supplies, and workforce costs (which grew by $1 billion) and significant Medicaid and Medicare losses totaling $1.4 billion and $1.3 billion, respectively.

OHS is changing how it calculates hospitals’ payment-to-cost ratio, which measures Medicaid underfunding.  This new creative accounting disregards the role that hospital taxes play in supporting the Medicaid program and, as a result, shows false improvements in Medicaid reimbursement and undercounts the uncompensated costs that hospitals incur in providing essential access to Medicaid patients. 

“We are deeply troubled by changes to OHS’s methodology for calculating payment-to-cost coverage, which, by disregarding the full value of the taxes hospitals pay to support the Medicaid program, are designed to make Medicaid underpayment appear far less than it is in reality,” the Connecticut Hospital Association (CHA) wrote in a statement.  “Changing the math does not change the problem.  Medicaid underpayment must be addressed if we are serious about tackling healthcare affordability.  Collaboration with state leaders is critical right now to support solutions that keep our hospitals viable over the long term to improve health access, affordability, and equity.”

The new ratio uses new math that does not reflect reality: The new payment-to-cost ratio calculation omits key factors to make Medicaid funding on paper appear better than reality.  The new calculation directly contradicts the Medicaid shortfall figures contained in OHS’s Hospitals’ Community Benefit Summary and Analysis Report 2022, which reports a Medicaid shortfall percentage that is 79% higher than the national average.  If the intent is to reflect the reality of Medicaid payments accurately, this misses the mark entirely.

Connecticut hospitals continue to face extraordinary financial pressures, exceeding national and regional challenges, as detailed in the independent analysis by Kaufman Hall.  These challenges include:

• Operating costs grew by $1 billion in one year and the costs of prescription drugs, supplies, and workforce costs in Connecticut hospitals all exceed growth in the Northeast/Mid-Atlantic region and national growth rates
• Hospitals are also absorbing $1.4 billion in Medicaid losses and $1.3 billion in Medicare losses annually, a growing gap created by government underpayments
• There has been some improvement in the years following the pandemic, as the Kaufman Hall report shows total hospital operating margin at -0.5% in FY 2023, an improvement from -1% in FY 2022. But negative margins mean hospitals are still operating at a loss; year after year this is not sustainable and threatens the ability of hospitals to meet their mission of building healthier communities, supporting innovation and quality advancement, and meeting evolving patient needs

Click here for more information on the payment-to-cost ratio change.