PROVIDENCE – When it comes to next year’s state budget, Rhode Island is about to experience some extreme weather conditions, with the promise of major turbulence when it comes to deciding how hospitals in the state are taxed, under what is know as the federal Hospital License Fee, as part of the FY 2024 state budget.

There will be no way to stall the cloudy days following the 2022 election – or to stitch together a budget narrative that makes any sense when it comes to crunching the state’s budget numbers – without fully addressing the problem.

Here’s the situation: A carve-out created nine years ago for South County Hospital and Westerly Hospital [owned by Yale New Haven] had reduced those hospitals’ share of the federally mandated Hospital Licensing Fee by 37 percent. Further, the Rehabilitation Hospital of Rhode Island [owned by Prime Healthcare], Bradley Hospital [owned by Lifespan], and Butler Hospital [owned by Care New England] were not assessed any “taxes” under the Hospital License Fee, at the state’s direction, beginning with the Chafee administration.

The problem: the federal Centers for Medicare and Medicaid Services [CMS] had never approved the carve-out.

The result was that CMS found that Rhode Island’s current Hospital License Fee assessment was noncompliant with federal regulations, which placed the state at risk for loss of federal financial participation in the Medicaid program, according to Kerri White, communications spokesperson for the R.I. Executive Office of Health and Human Services.

“Despite the [R.I.] Medicaid Program submitting a waiver application nine years ago pursuant to [federal regulation] 42 CFR § 433.68,” White explained in a recent email to ConvergenceRI, “CMS [had] never opined on the permissibility of the current HLF structure.”

But that situation has now changed, according to White. “CMS has since evaluated and notified R.I. EOHHS that it has never approved the current [hospital] license fee structure, which CMS believes violates the provisions of 42 CFR § 433.68,” White further explained in her email to ConvergenceRI.

Translated, R.I. EOHHS must now rectify and resolve the situation. To do so, White continued, the agency submitted a letter to CMS in April of 2022, “committing to reforming the state’s HLF with the guidance and cooperation of CMS, no later than July 31, 2023.”

To do so, White explained further, “The state must utilize objective criteria to discern whether any discount is appropriate for eligible hospitals in compliance with the redistributive requirements contained in 42 C.F.R. § 433.68, which shall include calculating the proportion of the tax revenue applicable to Medicaid if the tax were broad based and applied to all providers.”

In addition, White said, the criteria “shall include a clear separation of the revenues attributable for each permissible class, for example, inpatient hospital services and outpatient hospital services.”

Further, the documentation sent to CMS “shall include rehabilitative, psychiatric, and state-owned hospitals, and include separate statistical calculations for each permissible class if health-care related tax waivers are required.”

A delicate, unstable balance
Hospital finances in Rhode Island are already at a precarious breaking point, because the business model for health systems has proven to be unsustainable in a post-COVID world, with too few health care workers, not enough staffed beds, and too expensive drugs.

The latest wrinkle in the federally mandated change in how the Hospital License Fee is assessed by the state only adds complexity to how the complicated game of pick-up sticks – who pays for what, without disturbing the complex Rube Goldberg machine of hospital finances – gets played.

Translated, both South County Hospital and Westerly Hospital may now be required to pay more money to the state. So, too, may Butler Hospital, Bradley Hospital, and the Rehabilitation Hospital of Rhode Island. And, it is also likely that any solution must include the newly licensed “Rhode Island State Psychiatric Hospital,” located in the Roosevelt Benton facility in Cranston, which has been separated out from the former Eleanor Slater Hospital, in the hopes of receiving some $40 million in federal reimbursements from Medicaid for patient care.

A bigger problem, perhaps, will be what the state decides to do with any “extra” revenue generated by the CMS-mandated solution to the Hospital License Fee snafu. Indeed, what to do with any “extra” revenue generated is a question that the Governor and legislative leaders will need to revolve and wrestle with as part of the FY 2024 budget negotiations.

The other, unanswered questions are: Who gets to decide? Who gets a seat at the decision-making table? And, in the broadest context: How do we talk about our health care delivery system?

The view from the hospitals
To get the hospitals’ point of view, ConvergenceRI reached out to the Hospital Association of Rhode Island.

“The current “Hospital Licensing Fee” structure has been in place for approximately 10 years,” said Teresa Paiva Weed, president of the Hospital Association of Rhode Island, in an email to ConvergenceRI. “Last year, EOHHS and the hospitals agreed to evaluate and modify the current structure to ensure compliance with all current CMS regulations regarding taxation of hospitals. The Hospital Association of Rhode Island is currently working with EOHHS on the new tax structure. Although we have not finalized details, we can share that the new tax structure will be implemented in FY 2024.”

The view from the General Assembly
ConvergenceRI also reached out to several members of the R.I. General Assembly. “The conversation around restructuring the hospital license fee to make it comply with federal law should focus on how we can reinvest the funds we raise in higher Medicaid reimbursements,” said state Sen. Samuel Bell, in response to questions from ConvergenceRI. “It is critical that Gov. McKee propose a plan to reinvest this additional revenue in higher Medicaid reimbursements in his budget. He needs to engage all stakeholders now – including the patients, the workers, the hospitals, the unions and the patient advocates.”

In addition, ConvergenceRI also reached out to state Sen. Joshua Miller, chair of the Senate Health and Human Services Committee, who told ConvergenceRI he had not yet been briefed on the issue. “A CMS determination is not something that we can directly influence, but it could have an impact on hospital tax discussions when we consider the FY 2024 budget,” Sen. Miller said.

The view from regulators
ConvergenceRI also reached out to the R.I. Office of the Health Insurance Commissioner, which indicated that they were not aware of the situation, although it is unclear whether or not they would have any jurisdiction in the matter. However, the issue may come up for discussion as part the ongoing Cost Trends analysis.

What happens next?
The Hospital Licensing Fee saga is not occurring in a vacuum. There are numerous financial questions swirling around state budgeting for health care – particularly for Medicaid, which represents roughly one-third of the entire state budget – which the Governor and the General Assembly must confront in the coming year. They include:

• The re-procurement of the Managed Care Organization [MCO] contract for Medicaid members in Rhode Island, estimated to be worth $7 billion over the next five years, beginning on July 1, 2023. [To put that process in the proper context, there are roughly 350,000 Rhode Island residents receiving Medicaid for health insurance, more than one-third of the state’s entire population.]

Currently, there are no plans in place to conduct an audit of the three managed care organizations now providing services – including Neighborhood Health Plan of Rhode Island, UnitedHealthcare, and Tufts Health Plan. Without that data, it is hard to envision creating spending contracts for MCOs that is grounded with a transparent, return-on-investment analysis.

• If and when the federal government declares that the current COVID emergency no longer exists, it will spark a re-certification of all Rhode Island residents currently on Medicaid for eligibility, a process that could remove as many as 50,000 Rhode Islanders from the Medicaid rolls who would no longer be deemed eligible. [The state has contingency plans in place to help those Rhode Islanders booted from Medicaid to transition to paying for private health insurance plans, having contracted with Deloitte to manage the process. But the engine warning light should be blinking fiercely, given the state’s past experience with the botched rollout of UHIP – as well as the hours-long wait times customers have encountered when trying to get through to talk with employees at the R.I. Department of Human Services.]

• Beginning on Jan. 1, 2023, OHIC will begin publishing reports on the state’s rates for social and human services programs, as an integral part of the state’s new rate review initiative, which is expected to result in comprehensive increases in Medicaid rates. [How those increases play out in terms of budget projections remains a big unknown, but, for the first time, the data on rates will be made public and transparent – including the rates currently being paid, the dates of the last increases, and the utilization trends for social and human services programs, from Jan. 1, 2017, through Dec. 31, 2021.]

Continuum of care – to keep the money flowing
On Tuesday, Oct. 25, Gov. Dan McKee announced the licensing of a new state psychiatric hospital, which will be located in the Roosevelt Benton facility in Cranston, as a way to improve patient care and to better position the state to continue to receive reimbursements from the federal Medicaid program, which had emerged as a major financial strain on the state budget, a problem that had first dogged Gov. Raimondo’s administration and then the McKee administration. [See second image.]

The high percentage of patients receiving long-term psychiatric care as part of the Eleanor Slater Hospital had continually violated the federal Medicaid guidelines, leading to all kinds of apparent shenanigans to keep those patient rates artificially lower than they actually were – and worse, leading to horrific stories of alleged patient neglect. Tenacious reporting by Providence Journal reporter Kathy Gregg kept the story from being swept under the proverbial rug.

The licensing of a new state psychiatric hospital was the solution finally arrived at in order to preserve the flow of an estimated $40 million in federal Medicaid dollars streaming into the state’s coffers.

The messaging at the Oct. 25 event put the emphasis on improving patient care: “Licensure of the Benton facility as a standalone hospital marks a critical step in our work to transform Rhode Island’s behavioral health continuum of care by preserving and improving access to quality, cost-effective health care,” said Ana Novais, acting Secretary of the R.I. Executive Office of Health and Human Services, in the news release issued following the event. “Patients and their families deserve a psychiatric hospital that best meets the needs of those who require specialized care.”

But getting the flow of federal Medicaid dollars to the state restarted was clearly a major consideration.

All budgetary roads lead to Medicaid
All budgetary roads in Rhode Island lead to Medicaid – and most of the roads are in need of drastic repair. Medicaid represents one-third of the overall state budget in spending. More than one-third of the entire state’s population depends on Medicaid for health insurance coverage. A decade of artificially suppressed Medicaid rates paid to providers has crippled the delivery of community-based mental health and behavioral health services, perpetuating a system that inflicts trauma on children and families in Rhode Island on a daily basis,

The stark questions Rhode Island faces are these: Does Medicaid represent the best avenue to create a pathway to achieve social justice? Or, does it create a permanent underclass of Rhode Islanders?

An equally important dilemma is: Who gets to sit at the table and decide what happens? All too often, it is corporate and business stakeholders who are far removed from the daily realities of financial and health insecurities brought home during the COVID pandemic.

Unfortunately, it is a conversation that never emerged during the political coverage of the 2022 election season.

Credit where credit is due
Throughout the process of figuring out what to do with Eleanor Slater Hospital, the controversy was often marked by the contentious exchanges between Gov. McKee and Providence Journal reporter Kathy Gregg, exchanges frequently observed by ConvergenceRI during the Governor’s news briefings.

At the Oct. 25 “licensing” event, Gov. McKee gave a surprising shout out to Gregg, as captured by WPRO’s intrepid reporter, Steve Klamkin. During the new news conference, the Governor praised Gregg’s work:

McKEE: I know that this is one of Kathy Gregg’s main projects. And she did more and more articles on this issue. I know [her stories] kept [being] posting up, … and they kept on making me more and more determined, actually, to come up with solutions here, that really mattered to the people who we are serving the most.

Following the news conference, Klamkin asked Gov. McKee follow-up questions regarding his praise of Gregg’s work:

KLAMKIN: You credited Kathy Gregg and her reporting for contributing to and spurring you to act on this.
GOV. McKEE: I think that Kathy should... What are the recognitions that a reporter gets, who does a sequence of articles that are important to the state of Rhode Island. Kathy did that.

KLAMKIN: So, she should share some credit in this?
GOV. McKEE: I think she reported the story correctly. I know that she was asking over and over again, what the solution was, on day one [when I became Governor].

And, I didn’t know the solution. We were going to get there. But I think good reporting is important as well, especially in this day and age.

ConvergenceRI reached out to Gregg, to get her take on the ongoing “lively” exchanges between her and the Governor’s office, to include her perspective. The questions asked were:

• Has a Governor ever given credit to you as a reporter before for changing the outcome of a state policy?

• Given your tenacious reporting on the issues surrounding Eleanor Slater Hospital, which often seemed very contentious in trying to get information from the state [from my perspective as a reporter at the numerous Governor’s news conferences]. Is there a better way for the state to conduct its business, in your opinion?

• What are the issues that, in your opinion, remain unresolved when it comes to the care of patients in the system?

No responses have yet been received from Gregg to the questions from ConvergenceRI.