'Safety net' hospital officials worried over payments.

A new hospital financing system that Gov. Schwarzenegger developed with the federal government has health care officials across the state and in the San Fernando Valley worried that they may be unable to keep up standards of care because of it.

Every year California receives $2 billion which is distributed to public and private hospitals that treat a large number of Medicaid and indigent patients. In an era of razor thin budget margins, these "safety net" hospitals rely on the millions of dollars to keep their doors open, provide specialty procedures and hire medical personnel, but the payment system that the state agreed to with the federal government expired last month.

Until the end of June, the federal government's policy was to pay $1 for each dollar that the state government spends to treat low-income patients. Many states, however, used clever accounting techniques in reporting their expenses to the federal government, which meant they could pull even more money from the feds to pay for low-income patients that aren't covered by Medicaid, like illegal aliens.

The Bush administration made it clear to California that it wasn't going to sign a new deal that allowed that type of maneuvering, and brought the governor and his administration to the bargaining table.

The new deal reached is good for California, said Health and Human Services Agency Secretary Kim Belshe because it will increase the state's payments by $671 million from its current $2 billion, including $368 million for indigent care.

Hospitals officials aren't sure that's as sweet a deal as it sounds, because the payments don't increase over the five-year period. If health care costs go above what the government can cover, hospitals are going to be in a tight spot.

The California Hospital Association, along with several other groups, issued a statement saying the new agreement worries them because it doesn't include any funding increases, and because the federal government is not promising to match state and local spending.

Tracey Talley, Chief Financial Officer at Valley Presbyterian Hospital in Van Nuys said that every hospital in the state has been forced to wait and see what's to become of their federal funding.

"There are going to be more hospitals competing for funding," said Talley.

Valley Presbyterian's current policy in treating uninsured and ineligible patients is to collect enough information to write them off as charity. When patients aren't forthcoming with their information, the hospital is forced to treat its expenses as bad debt, and hope that federal money will be enough to offset their losses.

Should federal assistance not be enough to cover the hospital's costs over the next few years, hospital officials would be forced to start examining the budget to find services that can be cut.

"(In that hypothetical situation) you try to be as lean as you can, control costs, renegotiate contracts," Talley said. "You look around the rest of the hospital and figure out where it can be leaner. You look at product lines, you can't be everything to all people...maybe you don't have open heart surgery, or acute rehabilitation."

Mission Community Hospital in Panorama City is also waiting anxiously to see how the new waiver will affect its business--34 percent of its patients are covered by Medicaid and about 11 percent of them are uninsured.

Heidi Lennartz, acting chief executive officer at the hospital, said she's forced to wait to see what kind of impact the new system will have on the hospital.

"We are part of a lobbying group for private hospitals which is trying to make sure that public hospitals don't keep more federal funding than we think they have a right to," said Lennartz.

Lennartz said that the county hospitals have remained relatively cooperative with private safety net hospitals, cognizant of the fact that no hospital or group of hospitals can afford to shoulder the uninsured patient burden alone.