1199, Spitzer Ready for a Health Care Rematch

Staring down a $4.3 billion budget hole, a politically weakened Governor Spitzer may have no choice but to engage in another costly war with the hospital industry and the state's largest health care employees union.

Left unchanged, the state's Medicaid budget, the most expensive per capita in the nation, is expected to grow by nearly $2 billion next year. Spitzer officials say they won't be able to close the gap unless the figure shrinks.

The question facing the administration is whether they can tame Medicaid without once again triggering a confrontation with the state's most powerful special interest group.

"I'm cautiously optimistic that there will be some level of agreement, but we are facing a fairly significant budget deficit," Mr. Spitzer's Medicaid director, Deborah Bachrach, said in an interview. "At the end of the day, nobody likes cuts … but we have to balance the budget."

The health care industry was Mr. Spitzer's prime target during this year's budget battle. He sought to slam the brakes on funding growth for hospitals and nursing homes, while accusing the institutional heavyweights — the 275,000-member 1199SEIU United Healthcare Workers East and the major hospital associations — of "maintaining a status quo that does not work for anyone but them."

For Mr. Spitzer, riding high on his 69% electoral victory, confronting the health care lobby provided his first opportunity to flex his political muscle and neutralize a special interest that had negotiated expensive deals with the Pataki administration.

In an unusual move for a sitting governor, Mr. Spitzer spent $3 million of his campaign money and $500,000 of his personal wealth on television ads defending his budget. The union and the hospital groups unloaded millions of more dollars on television ads, rallies, mailings, canvassing, and lobbying to drive down the governor's poll numbers and gain support in the Legislature.

The result was a mixed bag for Mr. Spitzer. The final budget passed by lawmakers enacted only about 25% of the hospital and nursing home cuts proposed by Mr. Spitzer, who was far more successful in trimming spending on Medicaid pharmaceuticals and managed care.

For the first time since 1994, lawmakers also agreed to overhaul the reimbursement weighting system for medical procedures, so that payouts better reflect the actual costs to hospitals.

For a variety of reasons, Mr. Spitzer may not be able to pursue the same aggressive approach in his second budget, according to Albany observers.

Mr. Spitzer, whose political war chest stood at $1.5 million in July, lacks the resources that enabled him to appeal to New Yorkers through an extended statewide television campaign —unless he further dips into his family fortune. Senate Democrats will also be relying on Mr. Spitzer to share his campaign money for their electoral efforts next year.

The governor is also heading into his second year with weaker poll numbers and facing an increasingly disaffected Legislature less likely to accommodate his budget demands or hear out another impassioned cry for reform. With an election looming, lawmakers may be less willing to risk angering constituents by slashing hospital budgets.

"There is a recognition that this is an election year, and there is less of a likelihood that the Legislature is going to have a stomach for controversial reform proposals," the legislative counsel of Housing Works, an AIDS advocacy group, Michael Kink, said.

Despite the shifting dynamic, union and hospital advocates are girding for a second round match-up against the governor. They are quietly preparing the groundwork for a new lobbying campaign and are sitting on tens of millions of dollars that they could unload at any time to attack Mr. Spitzer on the airwaves.

Union advocates say they expect Medicaid to bear the brunt of Mr. Spitzer's budget saving actions, expressing doubt that the governor will spread the pain to other areas, such as education. Their concerns have grown in light of Mr. Spitzer's renewed pledge not to raise taxes next year.

Whether a war flares up again greatly depends on the extent to which Mr. Spitzer aims the deepest cuts at hospitals or at drug and insurance companies.

Spitzer administration health officials have spent months analyzing health care data that they say will allow them to make "smarter cuts" and more effectively back up their proposals by showing with greater clarity how Medicaid tax dollars are being misspent.

Officials are signaling that they intend to extract the biggest savings by securing additional discounts from pharmaceutical companies, by slowing the growth of or cutting managed care rates, and by seeking to reduce medical malpractice costs.

They are also likely to try to save money by trying to cut down on the Medicaid expenses borne by the costliest patients, particularly mentally ill substance abusers who heavily rely on emergency care.

Still, health officials appear to be eyeing hospital cuts in two major areas: graduate medical education and a pool of funding reserved for bad debt and charity care. New York spends close to $700 million a year on subsidizing residency training at teaching hospitals.

The money goes to support resident salaries and benefits, overhead costs such as classroom space, simulation equipment, and the cost of complying with federal accreditation requirements. Hospitals and 1199 defend the costs to the state as a smart investment.

They point out that 70% of the money for the program comes from the federal government and that almost three quarters of practicing physicians in New York completed their residency and fellowships in the state.

State health officials say too many graduate medical education dollars are going to support unrelated hospital costs and services.

The governor's office is also expected to reallocate money spent on a fund that goes to hospitals to help them recover the cost of uncompensated care. New York's budget spends more than $135 million a year on the fund.

State health officials say too much of the money ends up compensating hospitals for patients who fail to make good on their co-payments or deductibles and not enough of it underwrites care for uninsured patients.

"We don't know how many uninsured patients are being served," Ms Bachrach said. "With transparency, we can hold hospitals accountable for the money."