As many of you are already aware, the State of Virginia is facing its worst budget shortfall in years. Gov. Tim Kaine has proposed severe cuts in Medicaid funding. He proposed a 60-cent cigarette tax to help make up some of the deficit. This tax was defeated in committee last week. If funding is not found elsewhere, Southampton Memorial Hospital and the East Pavilion will face severe cuts in Medicaid funding.

The Effect on East Pavilion

The care for nearly two of every three residents living in Virginia’s nursing homes is funded by Medicaid. These individuals were productive taxpaying citizens — teachers, factory workers, policemen, farmers, etc., that typically pay for their long-term care until their savings are gone and have nowhere else to turn but to state-funded Medicaid. In caring for them last year, Virginia’s nursing facilities lost $78 million. Under current proposed budget cuts, Gov. Kaine has recommended the General Assembly reduce funding for the Medicaid program by an additional $40 million.

We want to serve as the safety net that cares for those Virginians who are sick, elderly and disabled and are out of options for living in their own homes — but we must hire staff and provide real-world competitive wages and meet other financial obligations incurred as a part of operating our facilities.

Virginia’s 270 nursing homes have a big impact on the state’s economy. They employ more than 30,000 Virginians who work in nearly every county with a payroll of $1.2 billion. East Pavilion has more than 100 employees. The proposed reduction in Medicaid reimbursement will cost our facility approximately $50,000, resources desperately needed to meet the needs of these vulnerable adults.

The Effect on SMH

Virginia’s proposed budget calls for reducing Medicaid hospital reimbursement rates from 75 percent of costs to 70 percent of costs. Without the cigarette tax increase this payment rate could drop to 50 percent of costs. In essence, if the proposed budget cut to 70 percent of costs passes in the legislature, the state would “save” $282 million by not paying hospitals that amount for providing care to Virginia’s most vulnerable citizens (those who rely on Medicaid). In truth, no money would be saved because citizens who rely on Medicaid will still be admitted to hospitals and hospitals will still incur the same costs.

But it gets worse. As Medicaid is a joint federal-state program, the federal government pays a percentage match to what the state puts into the program. In Virginia, the match is 50-50, and the state has to spend money on Medicaid to receive that federal match. Every dollar Virginia cuts from Medicaid funding costs hospitals $2 dollars. So if Virginia “saves” $282 million in spending, it will cost hospitals $564 million in payments. The proposed reduction in Medicaid reimbursement will reduce hospital payments by approximately $1.1 million.

Virginia’s hospitals and health systems have not been immune to the current economic downturn. There already are reports around the state of increases in uninsured and Medicaid patients, delays in capital improvement projects and, in several cases, hiring freezes and staff reductions.

Despite these economic pressures, we continue to play a critical role in Franklin and Southampton County. We fill a community need when a loved one is sick, a child is born or in emergency situations. And we affect our communities in other ways. We are the largest for-profit employer in the City of Franklin, many of whom are involved in local charities, schools and other organizations that help to improve life in our communities. Additionally, these employees spend money to help the local and state economics.

The governor’s proposed budget will drop hospital inpatient payment to 70 percent of actual costs. (That’s the lowest rate in more than 10 years). With the defeat of the cigarette tax, the payments could drop to 50 percent of cost.

We don’t think hospitals should be immune to state budget cuts in lean economic times; however, we cannot absorb “double whammy” losses of this magnitude. These cuts will have a direct impact on health care for all of us. The largest impact will be on expensive services that cost money but communities need. For example, in 2002, hospital Medicaid reimbursement rates were lowered to 72 percent of cost. At that time, many hospitals were forced to eliminate jobs, close senior care services, OB units, psychiatric services, family practices and other essential community services.

The proposed 2009 cuts go even further than they did in 2002, to 70 percent of costs, (and maybe as low as 50 percent of costs). Cuts of this magnitude could cripple health care access in communities for all of us.

Help us to continue to provide the services the residents of Franklin and Southampton County deserve by telling our state legislators that the reduction to Medicaid funding must not continue. It is time to pay fair and adequate Medicaid rates to Virginia’s hospitals and nursing homes.