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Santa Barbara County's Safety Net
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Safety Net: Providers Facing Double-Edged Sword with New Health-Care Law

More people will have insurance, but officials at hospitals and clinics say they expect funding cuts

Health-care providers such as Santa Barbara Cottage Hospital say the new health-care laws going into effect are a two-edge sword — more people will be insured, but funding to hospitals is likely to go down.
Health-care providers such as Santa Barbara Cottage Hospital say the new health-care laws going into effect are a two-edge sword — more people will be insured, but funding to hospitals is likely to go down.  (Tom Bolton / Noozhawk photo)

[Noozhawk's note: This article is part of a Noozhawk special project for The California Endowment Health Journalism Fellowships, a program of USC's Annenberg School for Communcation & Journalism.]

[Click here for a gallery of photos from the series.]

The health-care reforms scheduled to take effect in January represent a sort of double-edged sword for so-called “safety net” providers.

On the one hand, the reforms are based on the assumption that a lot more people will have health insurance than at present.

But while the ranks of the insured are expected to swell, the government simultaneously is handing out deep funding cuts to health-care providers.

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Officials assume that more people will get insurance so facilities such as hospitals and clinics will need less money to cover the uninsured.

If people don’t sign up for services and programs, county clinics and other organizations say they will be seeing huge budget deficits in the coming years.

That’s why CenCal Health and the Santa Barbara County Public Health Department are hard at work to pre-register residents in programs before Jan. 1, when the Patient Protection and Affordable Care Act takes effect.

These providers rely on getting reimbursements for the care they give low-income or indigent patients, since even government-funded insurance pays more than uninsured patients, who usually pay nothing.

The Public Health Department is expecting a 75-percent cut to its funding for uninsured and other non-reimbursable costs, Director Dr. Takashi Wada said.

Sansum Clinics expect to see more insured patients and lower reimbursement rates. (Tom Bolton / Noozhawk photo)

“We always knew the governor was going to take back some of our funding,” he said.

Santa Barbara County will be one of the hardest-hit in the state, and will lose $2.3 million of its $10 million in “realignment” funding next year.

In 2014-15, that number jumps to $7.3 million.

“The state’s reasoning is that, since the Affordable Care Act is kicking in, they assume people will now be insured,” he said.

“We’re working with CenCal Health and our own county Department of Social Services on ways to try to convert the uninsured into the Medi-Cal system. We still may have to make some degree of cutbacks.”

CenCal Health CEO Bob Freeman believes that these safety-net facilities are already serving the people who will sign up with the Medi-Cal expansion, though some county leaders worry that the system will be flooded with first-time insured patients who need a lot of care up front.

For Santa Barbara and San Luis Obispo counties, CenCal Health is preparing for 30,000 newly enrolled patients in Medi-Cal by mid-2015.
While tens of thousands of patients will be eligible for programs, no one can predict how many will actually sign up.

The federal government is funding the first three years of ACA implementation so health-care providers are working to push patients toward the lowest-cost levels of care: clinics and urgent-care centers instead of the emergency room.

CenCal Health manages the Medi-Cal program for Santa Barbara and San Luis Obispo counties and Freeman said the important part of the program’s expansion is the use of preventive services.

Regular and affordable access to care means healthier people and shorter lines at the emergency room for everyone else, he said.

“Just like we’d all like there to be no uninsured motorists, it’s in everyone’s interest to have as few uninsured people as possible. The number one cause of personal bankruptcy is medical bills,” Freeman said.

It’s not just primary-care facilities that are getting funding cuts related to safety-net patients.

Both Marian Regional Medical Center and the Cottage Health System have 4-5 percent of patients who can’t pay, mostly through the emergency rooms.

Marian receives “disproportionate funds” from the government, which are paid to hospitals with high levels of low-payer or indigent patients, said Sue Andersen, CFO for the hospital.

Starting Jan. 1, that money will be cut by 25 percent, which is a $3 million hit to Marian.

The population of seasonal farm workers is a big concern moving forward, Andersen said.

The workers make up a large portion of the uninsured population and won’t qualify for any benefits under the new health-care reform rules.

“So my concern is, is it going to work the way it should, with all the people uninsured going to get insurance? We’re not convinced of that yet,” Andersen said.

“It’s not like there is a hidden bucket of money somebody gives us to cover those patients.”

The Medi-Cal expansion should help thousands of safety-net patients get better access to care, but providers believe that won’t help with the “cost shift” and premium costs for non-safety-net patients.

Health-care facilities are paid twice as much for commercially insured patients than they are for Medi-Cal and Medi-Care patients, which isn’t expected to change, said Ron Werft, CEO of Cottage Health System.

Laws mandate that hospitals bill patients the same – and care, equipment and service are the same – but that has no impact on what hospitals actually get reimbursed, Werft said.

Medi-Cal pays the Cottage Health System 50 percent of the cost of care, Medi-Care pays 70 percent, and private insurance plans pay twice that, though Werft can’t disclose exactly how much gets reimbursed with the contract agreement.

This is why health-care insurance is so expensive for everyone else: people are subsidizing uninsured and government-subsidized patients with their own plans.

Cottage’s three main hospitals have 65 percent of patients who have Medi-Cal or Medi-Care, so the system relies on other patients to make up the cost difference of $100 million each year.

“It’s like a hidden tax,” Werft said.

It’s unclear if reimbursements will change for acute-care providers such as hospitals, but the Affordable Care Act does include more money for primary-care providers, Freeman said.

The increase – which varies by facility – has technically been in effect since Jan. 1, 2013, but the federal government hasn’t provided the funding yet, he said.

Cottage, Marian and Sansum Clinic all rack up millions each year in “charity care” – health-care services given out for free.

They all write off a lot more between bad debt – money they bill but fail to collect – and the cost shift.

Uninsured patients often don’t pay at all, which is expected, but that pool of patients is expanding.

In fact, the increase in high-deductible, low-premium plans means that charity care is sometimes given out to patients with insurance plans.

People choose insurance with low monthly bills, and then can’t afford the $8,000 deductible when something happens, Werft said.

Besides working closely with safety-net providers, specialty and acute-care facilities provide a lot of free care to safety-net patients.

Hospitals see a lot of uninsured patients come through their emergency rooms.

The Cottage Health System wrote off about $17 million in charity care last year and expects to hit the same number this year.

Cottage loses about $100 million per year in the cost shift, with the deficit from Medi-Cal and Medi-Care reimbursements being lower than the cost of care.

Marian will write off $16 million in charity care this year and write-off $30 million per year in bad debt – money it bills but can’t collect.

Sansum Clinic will write-off bills if it determines a patient can’t pay – that amounted to $547,000 last year. Doctors provide a lot of care to local patients who can’t afford scans, tests or specialty care.

Sansum also gave out $368,000 of MRIs, CAT scans for Santa Barbara Neighborhood Clinics patients.

Other stories in the Safety Net series:

» Patchwork of Clinics Struggles to Keep Santa Barbara County Healthy

» Without Health Insurance, Many Put Off Critical Treatment

» Poor Children May Have Most to Gain from Health-Care Changes

» Health-Care Providers Face Significant Challenges Serving Uninsured

» Emergency Rooms Strained by Growing Load of Patients

» Mental Illness Places Escalating Burden on Emergency Rooms

» Demand for Services Expected to Jump with Affordable Care Act

» Safety Net: Most People Will Be Affected By New Health-Care Law

Noozhawk staff writer Giana Magnoli can be reached at .(JavaScript must be enabled to view this email address). Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Connect with Noozhawk on Facebook.

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