Question: What does an elderly person on Medicare seeking treatment at Lawrence Memorial Hospital have in common with a third-grader at New York School, a young mother receiving prenatal care at Heartland Community Health Center and a neighborhood group trying to fix a broken sidewalk?
Answer: All of them directly benefit from streams of federal money that come to Lawrence through a wide range of federal programs. And all of them have a direct stake in the budget battles now being waged in Washington over what’s being called the “fiscal cliff.”
“Fiscal cliff” is the media term often used to describe a combination of large spending cuts and tax increases that willautomatically take effect after the first of the year — unless there’s a deal to reduce the federal budget deficit by $1.2 trillion over 10 years. Officially, it’s called “sequestration,” and it includes an estimated $55 billion a year in cuts to domestic programs that fund education, health care and other social services.
But while local officials are studying spreadsheets and trying to estimate the impact those cuts could have on local services, most say there’s not much they can do immediately to prepare for them.
“Honestly, you ask the question, are we thinking a lot about it? We’re really not,” Lawrence public schools Superintendent Rick Doll said.
Overall, the Lawrence school district gets only a small percentage of its total budget from federal funds. But those funds are targeted for specific programs for the most vulnerable students.
One of the largest of those is called Title I funding, which is used for supplemental services in schools where more than half the students come from low-income households. In Lawrence, six elementary schools qualify as Title I schools: New York, Kennedy, Woodlawn, Schwegler, Hillcrest and Pinckney. The district itself also receives Title I funding for programs that benefit homeless or neglected students, and to promote parent involvement.
All told, Doll said, Lawrence receives about $1.75 million a year in Title I funding. And if the fiscal cliff cuts were to go into effect, he anticipates losing as much as 10 percent of that, or about $175,000 a year.
“Any time you get a decrease in funding at any level, in any particular fund, you have to think about doing one of two things,” Doll said. “One would be to cut programs, which in this particular case would be really detrimental to kids. These Title I dollars go to our most at-risk kids. That would be difficult for us. So we’d have to look into other funds to see if we could make up that difference in cuts. In reality, it’d probably be a combination of both. We’d probably look at maybe some cuts and then also trying to look for some dollars in other nonfederal funds to help supplement that, where those Title I dollars are going.”
Schools also receive significant federal funding for special education and the school lunch program. According to the Kansas Department of Education, about 12 percent of all special education funding and about 55 percent of school meal programs are funded by the federal government.
It isn’t yet clear how much of that could be reduced if the sequestration cuts take effect. But state officials say they are anticipating cuts in the range of 8 percent.
At Lawrence Memorial Hospital, CEO Gene Meyer is bracing for even more serious cuts in the form of Medicare and Medicaid reimbursements that could total about $8.3 million over 10 years.
Medicare is the federal health insurance program for seniors. Medicaid is a joint federal-state insurance program for low-income children and families.
“We rely on public funding on both the Medicare and Medicaid side,” Meyer said. “But Medicare is the big issue because of the number of seniors that we care for. It’s about 43 percent of our patient volume.” That doesn’t necessarily translate to 43 percent of the hospital’s revenue, he said, because Medicare pays relatively low benefits compared to commercial insurance plans.
But the cuts to Medicare that are directly related to the fiscal cliff are only part of the puzzle for community hospitals, Meyer said. Wrapped up in the broader discussion of the federal budget are two other issues: implementation of the federal Affordable Care Act, commonly known as “Obamacare,” and a perennial Medicare issue dealing with Medicare payments to physicians.
Under the Affordable Care Act, Medicare payments to hospitals are scheduled to be cut next year. Meyer said that cut will cost LMH an estimated $2.6 million a year over the next 10 years.
Originally, those cuts were supposed to be offset by extending health insurance to most Americans, thereby reducing or eliminating the “uncompensated care” hospitals now provide to the uninsured. But that was supposed to be accomplished through a mandatory expansion of Medicaid, the one part of the health reform law that the U.S. Supreme Court declared unconstitutional.
As a result, states now have the option of expanding their Medicaid programs to include more people. Kansas Gov. Sam Brownback, a Republican, so far has not said whether he will support expanding Medicaid here.
Meanwhile, Meyer said, LMH and the physician clinics associated with the hospital are keeping a close eye on federal Medicare payments to physicians. Under a complex formula created by Congress, whenever the total cost of physician services goes past a certain cap, cuts in physician reimbursement rates are supposed to kick in.
For the past 10 years, under pressure from medical lobby groups, Congress has delayed those cuts by passing what is commonly known as a “Doc Fix.”
If Congress fails to pass another Doc Fix in 2013, Meyer said, physician reimbursement rates would be cut 27 percent. And that’s on top of the cuts related to the fiscal cliff and the cuts stemming from the Affordable Care Act.
“The community should be concerned because if these cuts continue, all providers — LMH included — will have to look at services and activities that we’re engaged in to really question the continuation of some of these services,” Meyer said. “I don’t have a list right now that would say we have to look at x, y and z. But clearly, if you’re going to operate a community hospital that relies on significant public funding, both in the Medicare sector and the Medicaid sector, if that’s cut as dramatically as what we think it will be, we’re probably going to have to take a look at making some adjustments to our operating budget.”
Meyer said that could include discontinuing certain medical services and programs that either lose money or barely break even, but he couldn’t identify what specific programs or services those would be. He also said the hospital may have to consider eliminating jobs.
“Staffing is a major expense for all hospitals,” he said.
At Heartland Community Health Center in Lawrence, there’s concern that the fiscal cliff could cause hard-won federal funding to evaporate almost as soon as it arrives.
In June, at the end of a four-year process, Heartland finally received designation as a Federally Qualified Health Center, or FQHC. That enables the local safety net clinic to receive federal funds — currently about $650,000 a year — in exchange for providing primary health care services to the uninsured.
In addition, the clinic also receives enhanced payments whenever it treats patients with Medicare or Medicaid coverage. That means it gets reimbursed for the actual cost of providing those services instead of the standard reimbursement rates, which are often substantially below costs. Uninsured patients account for as much as 70 percent of all the patients the clinic serves, according to Heartland spokeswoman Ali Edwards.
Although she didn’t have exact numbers, Edwards said the clinic staff is anticipating cuts in the neighborhood of 2 percent for federal health care programs if the fiscal cliff goes into effect. That would translate to about $13,000 from its basic operating grant, plus additional cuts through Medicare.
Medicaid reimbursement rates are established by the state. And while the federal government pays about 60 percent of the cost of Medicaid in Kansas, a reduction in federal funding wouldn’t necessarily mean a cut in Medicaid reimbursement rates.
The decision about how to absorb a cut in federal Medicaid funding would have to be made by the Kansas Department of Health and Environment’s Division of Health Care Finance, the agency that manages the state’s Medicaid program.
“If it does happen, we will obviously advocate for keeping funding for community health centers such as ourselves at our current level,” Edwards said.
City and county services
Douglas County and the city of Lawrence are much less dependent on federal funding than schools and health care providers, but the automatic spending cuts scheduled to take effect next year could have an impact on them as well.
Lawrence City Manager David Corliss said the two biggest concerns for the city are possible cutbacks in Community Development Block Grants, or CDBGs, which fund neighborhood improvement projects and a variety of social services for low-income individuals; and federal HOME Investment Partnership grants, which fund affordable housing projects in communities throughout the country.
Both programs are managed by the U.S. Department of Housing and Urban Development. In Lawrence, they added up to $1.2 million in 2012.
“If sequestration happens, and there’s across-the-board cuts in discretionary spending, it probably will impact CDBG funding,” Corliss said. “They’ve talked about, at least from our sources, 8 percent reduction in CDBG funding, and we would need to look at how that would impact future CDBG programs.”
That probably wouldn’t have an immediate impact in Lawrence, Corliss said, because the city is now working on projects funded in the federal 2012 fiscal year, which ended Sept. 30. Congress has not yet passed a 2013 budget but instead is operating on a series of “continuing resolutions.” That’s the money being negotiated now in the talks over the impending fiscal cliff.
According to budget figures from the city, this year’s CDBG funds are being used to pay operating expenses for five neighborhood associations: Brook Creek, East Lawrence, North Lawrence, Oread and Pinckney. North Lawrence is also receiving $1,000 for a bus stop pad at North Third and Lyons streets, while the Oread neighborhood is receiving $13,492 for a crosswalk improvement at 14th and Tennessee streets.
The city is also using block grant funds to support operations of the Douglas County AIDS Project, Lawrence Community Shelter, Housing and Credit Counseling Inc., the Boys and Girls Clubs of Lawrence, the Social Service League of Lawrence and Independence Inc.
Meanwhile, the city is using about $400,000 in federal HOME grants to fund tenant-based rental assistance, the city’s first-time homebuyer program, Habitat for Humanity and other affordable housing programs.
Douglas County Administrator Craig Weinaug said there are few programs funded through county government that would be affected by sequestration.
Most of the federal money the county receives is for road and bridge projects that flow through the Kansas Department of Transportation, and those funds are not considered to be part of the negotiations over reducing the deficit because they come from dedicated revenue through motor fuel taxes.
Even if Congress and the Obama administration agree on a deficit reduction package to avoid the fiscal cliff, local officials acknowledged that any such package will itself have to include large and potentially painful budget cuts. As a result, they said, local governments may have to get used to the idea of reduced federal funding under any circumstances.
“Probably the biggest thing that’s likely to happen with the fiscal cliff is there’s just going to be a steady reduction in all sorts of federal funding,” Corliss said. “We do get the occasional Homeland Security grant for equipment purchases, or grants that come through the state from the Environmental Protection Agency for recycling work. There is any number of federal grants and opportunities that could be affected.”