Much of the federal coronavirus money distributed so far goes to hospitals that need it least, critics say

The rich keep getting richer — even among hospitals dealing with a historic pandemic.

The federal government in April began rushing $50 billion out the door as part of a mad dash to keep hospitals afloat as they canceled elective procedures and hunkered down in preparation for a wave of disease-stricken patients.

But the method used to allocate funds from three federal coronavirus relief measures was based on a formula that critics say paid far more to affluent hospitals that needed the help the least. It did so by favoring hospitals with a higher mix of patients with private insurance, according to an analysis released last week by the Kaiser Family Foundation.

Private insurance has been estimated to pay hospitals nearly double what Medicare and Medicaid, the federal health programs for the eldery and the poor, do. 

The Kaiser analysis found that the 10% of hospitals with the highest portion of privately insured patients received more than twice as much in federal bailout money — $44,000 per bed — than those in the lowest 10% — $21,000.

Critics said that’s backward because the hospitals caring for the poorest patients are likely to deal with the worst effects of the pandemic and are often in a weaker financial position.

“We’re absolutely seeing the unfortunate consequences of the existing health and social disparities that are coming to light,” said Erin O’Malley, senior director of policy for America’s Essential Hospitals. 

She added: “We have members who are seeing and treating cases of COVID and in many respects it is due to the fact that they are seeing patients who have essential jobs in their communities. They’re taking public transportation. They live in overcrowded housing.”

With more than 300 members nationwide, O’Malley’s organization represents “safety net” hospitals that have to care for all comers, regardless of their ability to pay. In Ohio they include MetroHealth in Cleveland, the OSU Wexner Medical Center in Columbus, UC Health in Cincinnati and Premier Health in Dayton.

The hospitals might have the greatest needs in the face of coronavirus, but a review of federal data shows that none of these hospitals were big winners of dollars handed out so far in Ohio. MetroHealth and the University of Cincinnati got a little more than $20 million apiece. The other safety net hospitals got less. Meanwhile the Cleveland Clinic, which has been criticized for lavish spending while ignoring its own neighborhood, got more than $120 million.

Asked about the disparity, the Cleveland Clinic responded with a written statement saying that the federal grants it’s received were based on a formula devised by the U.S. Department of Health and Human Services. It added that some of the money reimbursed the hospital system for costs incurred helping to coordinate the response to coronavirus across Northern Ohio.

“As the largest provider of care covered by Medicaid in the state and the state’s largest employer, the CARES Act helps us continue delivering on our mission to care for patients and serve our community,” the statement said. “We have worked to ensure we remain ready for patients with COVID-19 in establishing a fully functioning surge hospital, training our caregivers, procuring supplies, setting up dedicated testing sites, and preserving resources needed to support patient care.”

The Kaiser Family Foundation analysis of funds distributed so far said that all hospitals that participate in Medicare were eligible for funding. But it said the formula was based on “net patient revenue,” or the money above costs the hospitals received for each patient. 

Big hospital systems in concentrated marketplaces can “command higher reimbursement rates from private insurers and therefore received a larger share of the grant funds under the formula HHS used,” the analysis said. It added that federal officials could instead have indexed the payments to patient volume or the percentage of hospital’s revenue that comes from Medicaid.

One Ohio health policy expert said he was mystified by the formula the feds used to divvy up the first $30 billion in federal coronavirus funds for hospitals. Greg Moody was the director of former Gov. John Kasich’s Office of Health Transformation as the state expanded its Medicaid program under the Affordable Care Act. 

“Medicaid really is the front line of community hospitals that are really addressing the crisis,” said Moody, who now is an executive-in-residence at Ohio State’s John Glenn College of Public Affairs. “For some reason, the federal government made the decision to attach its funding formula for hospitals to what they’re seeing on the Medicare side of the equation. That’s actually had the effect of moving the money to hospitals which, financially, are better off and not necessarily toward those that are on the front lines.”

The Ohio Hospital Association reports that even with the $1.34 billion in coronavirus payments to Ohio hospitals in April and May, they’ve still lost nearly $1 billion due to the pandemic.

“We appreciate the efforts of our policymakers to secure funding for Ohio hospitals and we look forward to working with them to provide additional support,” John Palmer, the group’s director of media and public relations, said in an email.

Ohio U.S. Sen. Rob Portman, a Republican, said he’s working to ensure that any future funding is distributed more equitably as billions more flow into the pipeline.

 “When the first wave of funding was awarded in April, I called out the inequity that the distribution formula failed to account for Medicaid claims, hurting providers that disproportionately serve our nation’s most vulnerable that rely on Medicaid, including our children’s hospitals, nursing homes, and safety net hospitals,” he said in an email.  “At my urging, HHS improved how they distributed the second round of funding, but more action is needed to ensure that hospitals serving a higher percentage of Medicaid patients received an equitable share of the funds.”

Ohio’s other U.S. senator, Sherrod Brown, joined 11 other Democrats on the Senate Finance Committee in signing a letter to the department of Health and Human Services also urging it to make the payments more equitable.

For it’s part, a spokeswoman for the department said that it distributed the first $30 billion the way it did to “expedite providers getting money as quickly as possible.”

The spokeswoman said the next $20 billion and subsequent distributions will take into account hospitals with a high mix of Medicaid and uninsured patients “in a way that is fast, fair, simple and transparent.”