By TRACEY DRURY AND ADAM SICHKO
tdrury@bizjournals.com | 716-541-1609

An emergency spending plan approved by state legislators earlier this week includes cuts of nearly $10 million to Western New York hospitals. It also includes provisions for health insurance premiums that could hurt businesses.

Kaleida Health and Catholic Health hospitals stand to lose the most: A combined $5.8 million will be cut in 2010-11 through the elimination of the trend factor, reduction in funds for indigent care, cuts in payments for potentially preventable readmissions and changes to Medicaid managed care and workers' compensation.

But that's only the current fiscal year: The impact grows when the cuts are fully implemented next year, according to the Healthcare Association of New York State. John Bartimole, president of the Western New York Healthcare Association, says things could be even worse if the governor implements a proposed gross receipts tax increase.

"Over the last seven budgets, there's been more than $5 billion cut from health care in all of New York. That's a lot of money, but the reality is our costs are going up just like everyone else's," he says. "Budget bills should be handled in total - not in piecemeal fashion. The danger is: Does he come back for more from health care when they finally get around to passing a budget for the state of New York?"

The actions were part of the latest emergency spending plan enacted by legislators June 7 to prevent the government from shutting down. The state budget was due April 1, but negotiations remain stalled. The state still faces a $9.2 billion deficit.

In the interim, basic state operations have subsisted on one-week spending plans. The latest plan keeps the lights on through June 13 - and it allots enough money for the state to pay in full all of its construction bills, payments that had been delayed for weeks, if not a month or more.

Gov. David Paterson, who authors the bills, forced legislators to vote on close to $400 million of reductions in health-care spending. In all, the cuts reduce money for health care by no more than 1.5 percent.

But every lost Medicaid dollar also triggers an equivalent loss in federal dollars, compounding the cuts, says Dennis Mc-Carthy, vice president for public relations and government affairs.

Additionally, the cuts compound late payments: At Catholic Health, the state is already behind on nearly $17 million in funds promised for capital projects at both Sisters of Charity Hospital campuses and to cover $8 million in costs associated with the closing St. Francis of Buffalo nursing home - costs already incurred by Catholic Health.

"We believe before enacting new and deep cuts, the state should first fulfill its promises," McCarthy says.

Applying $3 million in cuts will be the tough part, he says.

"You cut services, you cut people, you don't buy equipment you had planned on purchasing or don't do programs you had planned," he says. "However you look at it, it becomes a shortfall."

The plan passed easily in the Assembly and by a 32-26 party-line vote in the Senate. The vote locked in almost all of the state's Medicaid budget for the full fiscal year, which will top $50 billion for the first time - by far the largest program of any other state. Paterson's plan also calls for a $330 million increase in Medicaid fraud recoveries targeted for this fiscal year, a jump of almost 40 percent.

Kaleida officials also point out that the impact of the cuts on long-term care is still unknown. Kaleida has been struggling with how to keep open its Waterfront Health Care Center - and this could possibly be the final straw on that fight, says Mike Hughes, vice president for marketing, communications and government relations.

Kaleida is also waiting to hear how a regional poison-control center based at Women's & Children's Hospital will be affected. A proposal at the state level calls for major cuts in that program, as well. Combined, the cuts are deep and will have consequences, with Kaleida forced to reduce spending, restructure operations and cut people and programs, Hughes says.

"It's premature to say yet about (individual) sites, but when you add the state budget cuts to federal health reform, we're really going to have to rethink how we do business," he says.

Also on June 7, legislators reinstated what's called "prior approval" over the objections of business lobbies and the insurance industry.

Now, the state Insurance Department has the power to veto proposed increases in health insurance premiums. The state used to have such power before former Gov. George Pataki phased it out in the late 1990s. Paterson said reinstating prior approval would save the state $70 million a year by reducing the number of people who drop their health care and sign on to cheaper, state-funded health insurance plans.

"Prior approval is a politically attractive solution but a very unhealthy, unsustainable approach to reducing health-care costs," says Roberta Rifkin, vice president for government affairs at Independent Health. The policy fails to address the underlying costs reflected in premiums, she says.

Under the bill, which Paterson is expected to sign into law, the state Insurance Department will be required to rule on a proposed premium hike within 60 days of when an insurer notified the state of its plan to raise rates.

Insurers say that means final rates won't be available to employers until much later in the year, leaving them with little time to plan their budgets. And if rates are artificially lowered, they're bound to see higher increases in subsequent years, says Deborah Fasser, spokeswoman for the New York State Conference of Blue Cross Blue Shield Plans.

"It will make it really difficult for business, especially small businesses, to budget," she says. "We had it in the past, and it didn't work out. And now we have this federal health-reform initiative that's going to create a wave of new products coming into the market. And this is really going to limit that."

Adam Sichko is a reporter for The Business Review in Albany.