Second New Jersey budget more generous to hospitals

The latest New Jersey budget proposal is a little kinder than its more Draconian predecessor, but the state's hospitals say some facilities probably won't survive even the smaller funding cuts.

At issue is funding for charity care - treatment given to the uninsured. Gov. Corzine's original budget would have cut the program $143 million, to $573 million, and focused money on hospitals that treat the highest proportion of poor people. Some hospitals with a better-insured clientele - Virtua Health's hospitals in Marlton and Voorhees, for example - would have lost charity-care funding entirely.

Under the proposal hammered out yesterday, the cut was reduced to $111 million and all of the hospitals got at least some money, according to the New Jersey Hospital Association. The state also plans to create a $44 million hospital-stabilization fund, the association said.

The association said its members were already in a precarious position. New Jersey hospitals reported operating revenue of $16.8 billion in 2007, but their average operating margin - the equivalent of profit from patient care - was a meager 0.8 percent, according to the hospital association. Half were in the red.

Seven New Jersey hospitals have closed in the last 18 months and another says it will close this year.

"I just don't see how some of our hospitals will survive those cuts, even with the state's new hospital-stabilization fund," said Betsy Ryan, president-designee of the hospital association.

"I think there's going to be a lot of belt-tightening going on," said Jim Wallace, senior vice president for advocacy and institutional advancement for Lourdes Health System. Under the previous proposal, Our Lady of Lourdes Medical Center in Camden would have gotten nothing. The latest computer-model from the hospital association now puts its funding at $3.9 million, still $1.4 million less than this year.

The Virtua Health hospitals in Marlton and Voorhees would go from zero to $476,000 under the new deal, according to the association. That's still a drop of more than $600,000 from this year.

Earlier this year, the New Jersey Commission on Rationalizing Health Care Resources concluded that the state had too many hospital beds. The surplus was largest in the northeastern part of the state. One of New Jersey's challenges, the commission said, was to identify essential hospitals worthy of state support.

New Jersey requires its hospitals to provide free care - both emergency and elective - to patients who make up to twice the federal poverty level and to give reduced-cost care to people up to three times the poverty level. In exchange, it gives hospitals money to cover part of the cost. The hospital association estimates that hospitals provided $946 million in charity care in 2007.

Pennsylvania's hospitals say they often voluntarily provide care for the same population. Federal law requires hospitals everywhere to treat all emergency patients, regardless of ability to pay. Pennsylvania hospitals receive far less in subsidies, only about $80 million in tobacco-settlement money, according to the Hospital and Health System Association of Pennsylvania.

Nonetheless, Pennsylvania hospitals are generally more solid financially. The average operating margin in Pennsylvania was 4.82 percent in fiscal 2007, according to the Pennsylvania Health Care Cost Containment Council. About a third of the hospitals had negative operating margins.

The Commission on Rationalizing Health Care Resources said hospitals in financial distress were more likely to be in the northeastern part of New Jersey, have a high volume of publicly insured patients, and be small to medium in size. It also said Medicaid, the state and federal insurance program for the poor, underpays many hospitals.

Health-care consultants said Pennsylvania's Medicaid system paid better than New Jersey's. They also said the shakeout of weak hospitals began earlier in Pennsylvania. Stronger hospitals have survived and are benefiting from higher patient volumes.

"Their evolution into a truly price-competitive marketplace has just lagged behind," Dan Grauman, president of DGA Partners, a Bala Cynwyd management-consulting firm, said of New Jersey.

Gerald Katz, a health-care consultant with Kurt Salmon Associates Inc., of Plymouth Meeting, agreed that many New Jersey hospitals were too small. "No one's going to pay a lot of attention to a 120-bed hospital when it says, 'Can you do better on the price?' " he said.

But, he said, there are parts of the state where people would have to drive an hour if a hospital closed. "If you've got an emergency, that's a problem," he said.