High court gives hospitals a boost for billing woes.

High court gives hospitals a boost for billing woes

Wracked by chronic operating losses, Southland hospitals may be the next industry to head in droves to U.S. Bankruptcy Court. But thanks to a U.S. Supreme Court ruling June 14, some bankrupt hospitals could have a financial trump card unavailable to most debtors: The high court held 5-4 that hospitals can sue state governments for inadequate reimbursements made under the Medicaid system, the federal-state health care program for poor people.

In California, the Medicaid program is named Medi-Cal, and is budgeted at $7.6 billion for services in the next fiscal year, with roughly a third of the expenditures distributed to Los Angeles County. The program is half funded by the state, and half by the federal government.

Medi-Cal patients account for a fifth of hospital stays in Los Angeles County, but hospital administrators have complained the program pays only 60 cents per dollar of expenditure on Medi-Cal enrollees. If so, the Medi-Cal program shortchanged hospitals in Los Angeles County by an estimated $1.5 billion last year, based upon state figures.

The Supreme Court ruling could lead to a spasm of lengthy litigations by hospitals in Chapter 11 or other financial restructurings, said industry analysts last week. "There will be litigation from hospitals in Chapter 11 or in out-of-chapter (financial) restructurings," said Jeff Werbalowsky, lawyer and bankruptcy expert at HLHZ Capital in Century City. "Hospitals will attempt to prove that inadequate payments contributed to their downfall. But the litigation could take years to resolve."

Hospitals and hospital groups may sue for higher reimbursements, whether or not they are in bankruptcy.

Despite the delays of the U.S. court system, hospital industry denizens are delighted at the Supreme Court decision. "This is a real triumph for the health care industry," said David Langness, spokesman for the Hospital Council of Southern California, an organization of 232 Southland hospitals. "It will put additional pressure on the state and federal government to come across with funds."

The Supreme Court ruling was issued in the Wilder v. Virginia Hospital Association case, in which hospitals in Virginia sued the state for higher Medicaid reimbursements. The High Court ruled that if reimbursement rates are unreasonably low, and if a hospital is managed in an efficient and economic manner, "a provider is entitled to have the court invalidate the current state plan and order the state to promulgate a new plan that complies with the (Medicaid) Act."

According to Margaret Manning, partner with Weissburg and Aronson law firm in Century City, "The court ruled the federal Medicaid Act imposed a `binding obligation' on states participating in the Medicaid program to establish `reasonable and adequate' rates."

In short, hospitals can now go to the federal courts to have reimbursement schemes drawn up and approved. State officials -- and indirectly, governors and state legislatures -- can be bypassed.

For Los Angeles hospitals and other health care providers, the June 14 ruling is important: Medi-Cal patients accounted for one out of five hospital stays in Los Angeles County in 1989, according to the Office of Statewide Health Planning and Development.

For many Southland hospitals, the ratio of Medi-Cal patients is far higher. For example, French Hospital in downtown Los Angeles draws more than 40 percent of revenues from the Medi-Cal system; the Motion Picture & Television Hospital in Woodland Hills draws 44 percent; and San Fernando Community Hospital draws 40 percent. All hospitals in the six-hospital Los Angeles County public hospital system, including County-USC, draw at least 46 percent of their patients through the Medi-Cal system.

Nevertheless, joy among some Los Angeles area hospital administrators was muted a bit last week, due to the type of Medi-Cal contracts the state has employed for hospital in-patient services.

In California, hospitals sign contracts with the state, in which they agree to a reimbursement scheme. Although administrators complain that they only get 60 cents from the state per dollar of expenditures on Medi-Cal patients, none are forced to sign the contracts. The contracts are not based upon costs which are determined by the state, but rather are negotiated payments.

"There is one weakness in all of this (the Supreme Court ruling) for California hospitals," said Ron Dahlgren, president and chief executive of Queen of Angels-Hollywood Presbyterian Hospital. "We entered into contracts with California. If you sign a contract, you take a risk."

At the California Medical Assistance Commission, the state body which administers and negotiates Medi-Cal contracts with hospitals, a legal official said the High Court ruling would not affect Medi-Cal contracts in California. "We have a negotiated system, not a cost-based system," said Byron Chell, general for the medical commission. "There are no hospitals in the system which haven't agreed upon the prices we pay."

About $2 billion of the $7.7 billion Medi-Cal budget is distributed through negotiated contracts, according to the state Department of Health Services.

In response to the June 14 Supreme Court decision, investors in bond markets are said to be upgrading their opinion of hospital bonds, particularly for institutions that have large numbers of Medicaid patients. John Goetz, a vice president at Moody's, the New York-based credit rating agency, said that hospitals with large numbers of Medicaid patients generally have lower bond ratings than other hospitals, due to the perception that Medicaid is inadequate financially. The Supreme Court decision "is a positive sign" for those hospitals, he said.

PHOTO : Santa Monica Hospital