Staggering Challenges Outweigh Improvements, Negative Operating Margins Persist
Changing the Math Does Not Change the Problem
The Connecticut Hospital Association (CHA) released the following statement in response to two reports issued today by the Office of Health Strategy (OHS) on the financial health of Connecticut hospitals and health systems:
“The OHS report confirms the findings of an independent report released in December that hospitals continue to face negative operating margins and persistent financial challenges. Although it is good to see some improvement, year after year hospitals are still operating at a loss. These 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.
“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. 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.”
BACKGROUND
Connecticut hospitals continue to face extraordinary financial pressures, exceeding national and regional challenges, as detailed in a December 2024 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
- We are finally starting to see 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
The state’s Office of Health Strategy (OHS) is changing how it calculates hospitals’ payment-to-cost ratio, which measures Medicaid underfunding. This new creative accounting disregards the totality of 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. Changing the math may hide the problem, but it does not change the burden on hospitals, which in turn is borne by the employers and employees who cover these uncompensated costs in their annual premiums.
- 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.
- The new calculation only looks at one part of the equation: The new ratio only looks at how much hospitals get back from the hospital tax, but does not look at all that hospitals are paying for the tax. After a long history of hospitals paying far more than they received back from the tax, with the state coming out far ahead, it is startling that the full impact of the tax would be excluded from any calculation.
- Hiding problems does not fix them: Medicaid rates are woefully insufficient, and the effect on healthcare is evident across the state. Modifying the way Medicaid underpayment is measured does not resolve ongoing underpayment issues — it distracts from the problem we need to focus on solving. Medicaid rates are unsustainable at current levels. Medicaid underfunding not only leads to cost shifts that increase costs for families with private insurance, but it also deprives people who are medically underserved of access to needed care and social supports. Hiding the problem means worse access for all patients.
Click here for more information on the payment-to-cost ratio change.
