On January 29, 2003, Governor George E. Pataki released his proposed budget for the State's 2003-04 fiscal year, which begins on April 1, 2003. The budget contains huge Medicaid cuts for hospitals and continuing care providers as well as new taxes imposed on hospitals and home health care providers. "These cuts will hit hardest where we can least afford to cut: teaching hospitals, which are our first line of defense against future terrorist attacks, and the safety net hospitals that are relied upon by the poor," said GNYHA President Kenneth E. Raske. "These cuts pose a real threat to public security and to the health care of our most vulnerable citizens." The Medicaid and tax proposals would achieve $1.86 billion in State savings in fiscal year 2003-04 and $2.15 billion in 2004-05. The specifics of the cuts and taxes proposed by the Governor are described below. In addition, the Governor proposes extending the Health Care Reform Act of 2002 (HCRA), which is scheduled to expire on June 30, 2003, through June 30, 2005. While the Governor proposes no reductions in the HCRA pools for hospital uncompensated care and graduate medical education, he does propose reductions in a number of other HCRA funding streams, as well as borrowing against future funds that the State expects to receive from its settlement with the tobacco industry to reduce this year's deficit. Currently, 100% of those funds are dedicated to paying for health care programs. The Governor also proposes increasing surcharges on health care services and on "covered lives."

GNYHA members react to the details of Governor Pataki's proposed budget, which contains huge Medicaid cuts for hospitals and continuing care providers as well as new taxes imposed on hospitals and home health care providers.

Hospitals: The Governor's budget would make permanent prior years' Medicaid cuts, most of which were enacted in 1995-96; reinstate a 0.7% tax on hospital gross receipts, phased out over five years; permanently eliminate the inflation adjustment, or "trend factor," from April 1, 2003, through December 31, 2003; pay all diagnosis-related groups (DRGs) at the lower of a hospital's blended or group average rate (this cut already applies to the "top 20" DRGs); for indirect medical education (IME) reimbursements, compute each hospital's interns-and-residents-to-bed ratio using the lower of the number of residents in 1990 or the current rate period while continuing to use the 1990 bed count, and reduce the IME factor from 7.7% to 5.5% over four years; eliminate the length-of-stay offset used to calculate negative volume adjustments; reduce by 5% the operating component of per diem rates for hospital exempt units and for exempt hospitals, except those units or hospitals whose primary mission is the treatment of AIDS patients; eliminate the 2003 trend factor for hospital specialty outpatient rates; and, by administrative action, identify and change the status of some part-time clinics and change the criteria for approval of new part-time clinics.

Nursing Homes: The Governor's budget would make permanent nursing home cuts enacted in 1995-96; adopt a regional average methodology under which all homes within a region would receive as the operating component of their Medicaid rate the lower of the operating component of their facility-certified rate or the average operating component of facilities within their region, trended forward and adjusted for case mix; permanently eliminate the inflation adjustment, or "trend factor," applicable to the period April 1, 2003, through December 31, 2003; calculate case mix using the case mix index of Medicaid residents only for the purposes of Medicaid reimbursement; and, for proprietary facilities, eliminate the capital cost component of the Medicaid rate to pay an annual rate of return on owner's equity.

Medicaid Hospital and Continuing Care Cuts: All Funds ($ in millions)
Type of Facility	4/1/03-3/31/04	4/1/04-3/31/05
Hospitals	$596	$682
Nursing homes	$394	$445
Home care	$72	$79
Source: NYS Division of Budget.

Home Care: The Governor's budget would re-establish a non-reimbursable 0.6% assessment on home care providers' revenues, phased out over five years; permanently eliminate the trend factor applicable to the period April 1, 2003, through December 31, 2003; and establish a utilization review program for home health services.

Other Provisions: The Governor's budget would limit reimbursements through Medicaid for copays and deductibles for low-income Medicare beneficiaries to the applicable Medicaid provider reimbursement rate rather than the Medicare reimbursement rate (hospital services would be exempt from this cut); extend the Child Health Plus (CHP) program, scheduled to expire on June 30, 2003, for two years, and shift children ages 6-19 who are between 100% and 133% of the Federal Poverty Level (FPL) from Medicaid to CHP; eliminate eligibility for Family Health Plus (FHP) for parents with incomes above 133% of the FPL; require the counties and NYC to cover 37% of Medicaid hospital and clinic spending (up from 25%) in exchange for the State picking up 100% of pharmacy costs; and require the State to reduce Medicaid and FHP premium levels through more aggressive negotiations with managed care plans.

GNYHA Response: GNYHA is developing a multifaceted plan to protect its members from these damaging Medicaid cuts and new taxes. The day the budget was released, GNYHA engaged in an extensive press campaign, sending a detailed press release and preliminary hospital fiscal impact analysis to all media outlets in the State and to all State legislators, interest groups, and other interested parties. Mr. Raske is testifying on behalf of GNYHA members at a Joint Hearing of the Assembly Ways and Means and Senate Finance Committees on February 10, 2003. In addition, the Healthcare Education Project, a joint initiative of GNYHA and 1199/SEIU, will vigorously oppose these unsustainable proposed health care cuts.