Settlement in Buffalo
Erie County agrees to give hospital annual subsidy
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.