The proposed elimination of Medicaid funding for graduate medical education programs could cost New York City's public hospitals $390 million and its voluntary hospitals $790 million annually in lost federal and state matching funds, according to a report released yesterday by the New York City Independent Budget Office.

Hardest hit would be the New York City Health and Hospitals Corp., which would lose $195 million of Medicaid GME funds annually and could then also lose $195 million of matching state funds.

"It is clear that potential end to Medicaid GME represents a serious threat to the finances of New York City hospitals and especially to HHC, and could lead to major reductions in patient care and employment at hospitals throughout the city," the report said.

The elimination was one of seven rules changes made to the Medicaid program since last year by the Centers for Medicare and Medicaid, which is part of the U.S. Department of Health and Human Services. Congress imposed a year-long moratorium on four of those changes last year. The moratorium on the GME funding expires on May 25.

The House of Representatives passed the "Protecting the Medicaid Safety Net Act of 2008" last month which would extend the existing moratorium and cover all seven rule changes through March 2009. A spokesman for Senate Majority leader Harry Reid, D-Nev., said in an e-mail that the Senate could take up the bill next week.

According to the IBO, the cuts would hit New York harder than other states because New York, with its many teaching hospitals, receives more than 40% of all Medicaid GME funding, totalling $1.36 billion in 2006. About 15% of the nation's 107,000 medical residents are in New York, the report said. Medicaid GME funding makes up 7.5% of overall HHC revenues, according to the report.

If allowed to take effect, the GME change could cost New York $600 million, according the state enacted budget report for fiscal 2009. According to the budget report, the state would have to make up for the lost non-Federal share.

Spokesmen from the IBO and the state division of budget disagreed on whether or not the state would be obligated to make those payments. Another proposed rule change to the upper payment limit on certain medical services could cost HHC an additional $350 million, according to the budget report.

Jeff Schaub, a senior director at Fitch Ratings, said that while there was no upside for the state's hospitals facing potential Medicaid cuts, the hospitals have had time to look for savings if necessary. It's too early to tell what, if any, ratings impact the potential Medicaid cuts could have, Schaub said.

"We're waiting to see where the Senate ends up with the deferral of those Medicaid cuts," he said "If they're enacted as they're currently scheduled to be enacted there's going to be some revenue reductions in New York state in particular the Medicaid funding for teaching programs will cause some fiscal distress."

Fitch rates 11 hospitals in the state. The hospital system Fitch would watch most closelyif the cuts are implemented is HHC, he said.

The HHC has sold $1.07 billion of bonds since 1999, according to Thomson Reuters data.

HHC president Alan Aviles said in a statement that the cuts would be devastating to its mission to train residents and serve the uninsured.

"We are hopeful that our advocacy efforts, fully supported by New York's Congressional delegation, will persuade Congress to stop these impending disastrous cuts," Aviles said.

The HHC trained more than 2500 residents last year and served more than 400,000 uninsured patients, Aviles said.

Mary Kahn, spokeswoman for Centers for Medicare & Medicaid Services, said that the agency believed the proposed rule changes were in the best fiscal interest of the Medicaid program.


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