Smaller New Mexico hospitals will soon start missing out on government funding due to their fewer number of beds and smaller financial performance.

Senate Bill 17 signed into law earlier this year is set to go into effect this summer, redefining how the state calculates its portion of the Medicaid match for hospitals. The Healthcare Quality Delivery and Access Act establishes that 60% of the state’s match is based on “Medicaid service volume” or beds while 40% is based on performance, which is determined by the Health Care Authority based on reports from the hospitals.

“Ultimately, the bill aims to improve and increase access to healthcare services within the state. However, hospitals that do not have significant Medicaid service volume will not see much benefit,” reads a Legislative Finance Committee report.

According to the report, smaller hospitals with fewer beds care for fewer Medicaid patients, compared to bigger hospitals with a larger capacity to treat Medicaid patients.

“Given the structure of the act, hospitals most at risk of down-sizing may not see much benefit. Generally speaking, hospitals that are not fiscally-challenged will receive the bulk of the financial aid based on bed count,” the report reads. “Ultimately, the act does not target hospitals that are financially struggling, and instead helps larger hospitals which are generally already profitable.”

The LFC report uses Rehoboth McKinley Christian Hospital in Gallup as an example. The smaller hospital lost around $20 million in 2022 and will receive about $6.5 million from the new law.

Rehoboth has made headlines recently by being ordered to pay over $100 million in medical malpractice damages. The civil case was filed in 2019 following a patient’s botched hernia surgery left them with life-long complications.

Gallup hospital says it is ‘indigent’ ahead of court order to find more than $100M 

“This will not cover the full extent of the losses that Rehoboth faces and they will still have a negative net margin of more than $13 million,” the LFC report reads.

On the other hand, the larger Eastern New Mexico Medical Center reported a profit of about $80 million in 2022 and will receive over $37 million from the law. The report said if the Roswell hospital’s earnings remain on track, it could see over $117 million in combined profits and matched funding from the state.

Twelve New Mexico hospitals which qualify for funding under the new law reported net losses in 2022. Four of them will not receive enough state match funding to turn a profit. These include Rehoboth, Presbyterian Hospital in Albuquerque, Santa Fe Medical Center, and Encompass Health Rehabilitation Hospital of Albuquerque.

In Southern New Mexico, Artesia General Hospital reported a nearly $3 million loss in 2022 and is only projected to receive $5.6 million in match funding. The hospital will be profitable at $2.7 million, which is low compared to other larger hospitals in the region.

The report also noted that public funds made up about 70% of total hospital revenue in 2022 and this number is projected to reach 74% by 2025. These include funding from Medicaid, Medicare, Medicare Advantage and state subsidies.

“As the state continues to increase hospital subsidies, New Mexico is in a unique position to ensure hospitals use their revenue to improve patients’ outcomes and access to healthcare,” the report reads.

During a Legislative Health & Human Services Committee meeting this week, Rep. Tara Lujan (D-Santa Fe) said the report raised several “red flags” for the lawmakers.

“We don’t always have all the answers when we come up with legislation. But I knew that we worked together with institutions, with legislators, with the executive office particularly on this bill,” Lujan said. “It looks like we need to make some adjustments.”

When asked by Rep. Pamelya Herndon (D-Albuquerque) about solutions the legislature should consider, LFC Analyst Allegra Hernandez said lawmakers need to make sure there are measures in place to hold hospitals accountable, and to improve care.

She added that the goal should be to make sure New Mexico hospitals are in a financially “healthier place” in five years, and that she does not believe Senate Bill 17, as it is currently written, will do that.

Hernandez offered one solution – the rural emergency hospital designation through Medicare. This designation was established through the Consolidated Appropriations Act of 2021 by Congress. The idea is that smaller, often rural hospitals would transition to become a rural emergency hospital and only offer emergency care to patients. This would limit access to broader services for patients seeking care.

“The rural emergency designation possible by (Medicare) is one potential answer, although it’s not necessarily the most popular answer as it would close hospital beds and only allow for emergency services,” Hernandez said.

Hospitals that choose to transition to this designation would receive another 5% in Medicare funds and a monthly facility payment of about $272,000. According to the LFC report, Guadalupe County Hospital is the only hospital in the state that has chosen to make this transition.

“The state and hospitals will likely need to continue to make difficult decisions about when it is necessary to close hospitals or sections of hospitals,” Hernandez said. “(The rural emergency designation) is an option, although, as I said, it is controversial,” Hernandez said.