Set­tle­ment in Buf­falo

Erie County agrees to give hospi­tal an­nual sub­sidy

Modern Healthcare - - The Week In Healthcare - Shawn Rhea

Fol­low­ing five years of wran­gling, Erie County Med­i­cal Cen­ter, Buf­falo, N.Y., and county of­fi­cials have set­tled a dis­pute over the county’s con­tin­ued obli­ga­tion to pay an­nual sub­si­dies to the hospi­tal. Un­der the terms of the agree­ment, reached late last year, Erie County will pro­vide $16.2 mil­lion an­nu­ally to help the for­merly county-owned safety net provider cover the cost of care that may not be re­im­bursed through Med­i­caid and char­ity-care pay­ments. The sub­sidy does not in­clude ad­just­ments for cost inflation.

The hospi­tal “board felt we should be able to run th­ese op­er­a­tions without ad­di­tional help from the county,” said Jody Lomeo, pres­i­dent and CEO of the hospi­tal—which has 406 beds along with 720 nurs­ing-home beds—re­gard­ing the fixed sub­sidy.

Among other terms, the agree­ment calls for Erie County to pay the med­i­cal cen­ter an an­nual $16.2 mil­lion sub­sidy in per­pe­tu­ity and pay $11.5 mil­lion of the pre­vi­ously agreed upon $23 mil­lion cap­i­tal-im­prove­ments obli­ga­tion. The money will be used to fi­nance a new $105 mil­lion nurs­ing home to be lo­cated on the med­i­cal cen­ter’s cam­pus. The hospi­tal will fi­nance the re­main­ing $93.5 mil­lion needed for the project through Med­i­caid fund­ing and a bond of­fer­ing.

“This set­tle­ment agree­ment is a win for this com­mu­nity in count­less ways,” said Erie County Ex­ec­u­tive Chris Collins in a news release about the deal.

The ef­fort to find com­mon ground was fraught with chal­lenges. The dis­pute be­gan af­ter the 2004 spinoff of the hospi­tal into a pub- lic-ben­e­fit cor­po­ra­tion. The spinoff agree­ment called for Erie County to pro­vide an ad­justed an­nual short­fall sub­sidy as well as pay for agreed-upon cap­i­tal im­prove­ment projects. But when the county faced fi­nan­cial trou­ble in 2005, of­fi­cials slashed that year’s sub­sidy to $19 mil­lion from $29 mil­lion and with­held more than $18 mil­lion in cap­i­tal im­prove­ment funds. County of­fi­cials also pro­posed cut­ting $13.5 mil­lion from the provider’s 2006 sub­sidy. The hospi­tal sub­se­quently sued and won the case in state Supreme Court.

The win forced county of­fi­cials to re­in­state much of the fund­ing. But, faced with tax­payer back­lash and the re­al­ity of con­tin­ued county bud­get chal­lenges, the hospi­tal rene­go­ti­ated the terms of the fund­ing agree­ment. In 2006, the par­ties ne­go­ti­ated a tem­po­rary con­sent de­cree that set an­nual sub­si­dies and fund­ing for cap­i­tal projects through 2009. But be­yond that, no agree­ment ex­isted un­til this past De­cem­ber. “From the county per­spec­tive, our big­gest con­cern was that, un­der the court or­der, tax­pay­ers would be re­spon­si­ble for any short­falls come 2010 and mov­ing for­ward,” said Erie County spokesman Grant Loomis. “The hospi­tal has great man­age­ment, and they clearly have made strides (to re­duce costs), but as a hospi­tal that serves the county’s poor and in­di­gent pop­u­la­tions, there are fi­nan­cial chal­lenges.”

Lomeo said the cur­rent ar­range­ment should al­low the med­i­cal cen­ter to meet its obli­ga­tion to treat pa­tients. He at­trib­uted that ex­pec­ta­tion to im­proved ef­fi­cien­cies that have helped the hospi­tal re­duce its deficit. “We had pos­i­tive out­comes in 2006 and ’07 to the tune of about $17 mil­lion on the plus side.”

But Lomeo also ac­knowl­edged that 2009 was a fi­nan­cially tough year, and that the provider could see a short­fall of up to $9 mil­lion for that pe­riod once the num­bers are cal­cu­lated. What’s more, the hospi­tal is con­cerned that state bud­get cuts could push it into the red in 2010. The provider is al­ready down­siz­ing its Med­i­caid-fi­nanced, long-ter­mcare ser­vices from its cur­rent 720 beds to about 390 beds. “We’ll be looking at things like as­sisted-liv­ing fa­cil­i­ties and adult day care” to make up for the elim­i­nated beds, Lomeo said. “But if we con­tinue to see bud­get cuts com­ing from the state, we will be­gin to see a re­duc­tion in ser­vices.”

Erie County Med­i­cal Cen­ter will get $16.2 mil­lion an­nu­ally from the county.

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