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State owes clinics millions of dollars
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West Side Community Health Services in St. Paul is owed $1.4 million from the state. (MPR Photo/Tom Scheck)
Officials representing 16 low income health clinics say the state of Minnesota owes them about $4 million for health care services they provided to Medicaid patients. The Department of Human Services says it's working to fix the mistake, but the lack of funds has forced the clinics to take out loans to meet payroll and maintain other care services.

St. Paul, Minn. — Officials with West Side Community Health Services say the state owes them about $1.4 million in back pay. That's just a fraction of the state's $30 billion budget. But to clinic administrators who care for 30,000 people in the Twin Cities, it's a decent chunk of change.

The clinic's offices in West St. Paul are almost always busy. Many of the patients who visit the clinic are on government assistance. Others are uninsured, so the clinic pays for most of the cost of the visit.

Mary Nesvig, the clinic's medical director says tough economic times and recent cuts to government-run health care programs have increased the need for services. Nesvig wants to hire additional staff, but can't until the state comes through with its back money.

"We've had a shortage of being able to hire primary care folks with the finances on hold," Nesvig said. "We have backups of people, so they wait longer and need to be hospitalized."

The reason for the funding problem is complicated -- but here's how it works.

Federally Qualified Health Centers like West Side get federal money to treat the poor and uninsured. Many of their patients are enrolled in an HMO through Medicaid. Since HMOs negotiate discounts with providers, the clinic doesn't get back the full cost of treating those patients.

While all hospitals and clinics typically face shortages when dealing with HMOs, most can shift costs onto paying customers. Clinics like West Side don't see many fully insured patients, so they can't recoup all costs.

Congress recognized the problem and told the states to pay the clinics the difference between the cost and payment. For example, if a clinic received $50 for a $100 procedure, the state should pay the clinic the other $50. Minnesota has been late making those payments.

Mavis Brehm with West Side Community Health Services says the shortfall has forced them to take out a $500,000 loan at nearly 6 percent interest.

"Our margins are pretty break-even to begin with," Brehm said. "So to keep up with normal operations, it's critical that these dollars come in a timely fashion."

The clinics do have a legitimate issue -- that we have not paid them on a timely basis in the past. We are correcting that as we're going forward.
- DHS Assistant Commissioner Brian Osberg

The West Side clinic isn't alone. The state owes Fremont Community Health Services in north Minneapolis about $750,000, according to executive director Linda Lipkin. Her clinic also applied for a loan to ease its cash flow crunch, but she says the bank denied the loan.

"We will see the money. No one expects the state to not pay it," said Lipkin. "It's just that we don't get interest. There's certainly the time value of money. The value of a dollar that was earned in 2000 isn't the same as earned today."

Lipkin and other clinic administrators say the problem is troubling, because federal law requires the states to pay the clinics in four months.

Officials with the Department of Human Services say there have been problems with the payment system. Assistant Commissioner Brian Osberg says the department hopes to change its policy, so payments are sent to clinics more quickly.

"The clinics do have a legitimate issue -- that we have not paid them on a timely basis in the past," Osberg said. "We are correcting that as we're going forward, but there are past payments that we need to reconcile as we move forward."

Osberg says DHS has nearly caught up with payments for services done in the last two years. But the department doesn't know how much it owes clinics for services done prior to then. The department plans on hiring an outside consultant to look at the books. The state will make back payments based on the findings.

But that could take up to two years to sort out. Sherlyn Dahl with the Family Health Care Center in Moorhead says state and federal budget cuts, in addition to higher numbers of uninsured people, are straining her clinic.

"We feel we have been patient," Dahl said. "We've been waiting for two years to resolve this matter. So $85,000 may not seem like a lot to someone, but $85,000 will meet one payroll obligation for an organization this size."

Dahl says the Bush administration has shown its support for these clinics by proposing to double their capacity. Dahl and her colleagues say that's all the more reason to quickly fix the payment system.