Threatened cutbacks to the HIV/AIDS outpatient clinic at San Francisco General Hospital appear to have been averted after activists and the press focused sufficient attention on the crisis that local elected officials located a source of stopgap funding, but the hospital--and many others across the nation--face a continuing financial crisis. The situation stems largely from changes to the federal Medicare and Medicaid programs included in the Balanced Budget Act (BBA) of 1997.

Even though San Francisco has had a booming local economy and a generally strong commitment to health care, the budget problems at San Francisco General have produced staffing shortages, longer waits for appointments, and cutbacks in pharmacy services, resulting in longer waits for prescriptions and some low-income patients (who had previously gotten their medicine at no cost) being charged an up-front copayment. San Francisco's generally favorable political and economic climate has thus far helped avert far worse cutbacks--including a cut-off of access to viral load testing and closure of the evening HIV/AIDS clinic--that may be harder to avoid in other parts of the country if recent trends continue.

Adjustments to the BBA passed late last year will provide some relief, but still leave most of the 1997 cuts intact. While the federal cutbacks are not disease-specific, they appear to be having a particularly severe impact on public hospitals and teaching hospitals, which traditionally have handled a large proportion of HIV/AIDS care in the U.S. So far the situation has received no attention in the 2000 presidential campaign and little notice from AIDS lobbyists.

The Balanced Budget Act, signed into law by President Clinton in August, 1997, sought to bring about a balanced federal budget by this year, and included big cuts in the projected growth of Medicare and Medicaid (known as Medi-Cal in California) as part of the plan to achieve that goal. The act was projected to cut growth in Medicare spending by $115 billion and Medicaid spending by $13.6 billion for the five years from 1997-2002, largely by cutting payments to hospitals and other health care providers. Though the Medicaid cuts are smaller than the cuts to Medicare, San Francisco officials say it is the Medicaid changes that have most impacted San Francisco General, as the hospital serves large numbers of Medi-Cal patients.

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The complex and highly technical changes to Medicaid and Medicare cut payments to hospitals and other health care providers through a number of mechanisms. These included expansion and modification of Medicare's "Prospective Payment System," which pays providers on a flat-rate basis for various types of medical services--with annual cost-of-living updates intentionally pegged below the actual change in the "market basket" of medical costs used to measure inflation. Also cut were subsidies to teaching hospitals and to "Disproportionate Share Hospitals" (DSH), the (mostly public) institutions which care for the bulk of the poor and uninsured.

These changes have cost San Francisco's Department of Public Health about $6 million a year, according to Chief Financial Officer Monique Zmuda. Compounding the problem has been a growing proportion of patients with no coverage at all, public or private, as well as more aggressive federal auditing of Medicare and Medicaid billings from previous years. "It's not a fraud and abuse thing, it's more of an accounting thing, and what are the feds disallowing," Zmuda says of the audits. And while not specifically required in the Balanced Budget Act, Zmuda believes the measure's spending reduction targets have stimulated new aggressiveness by federal auditors. As a result, San Francisco has had to return up to $12 million received from the federal government in prior fiscal years.

The combined effect of these fiscal blows has been "almost unmanageable," Zmuda says. "This experience is being shared by all the public hospitals. It's hitting everybody severely."

Some of the changes were needed, argues Bill Vaughn, Democratic staff assistant to the House Ways and Means Committee. "We were being gouged" on some items, such as therapy services in nursing homes, Vaughn says. "We would pay whatever they billed... In 1997 we all agreed that we needed to cut some of the inflation" and "curb some pretty suspicious growth" in the cost of the programs.

The cuts produced howls from hospital industry trade groups such as the American Hospital Association and the California Healthcare Association. The AHA released a study indicating that hospitals would lose large amounts of money on Medicare patients, and AHA President Dick Davidson said the BBA changes "will wreak havoc on the majority of the nation's hospitals, pressuring them to cut some services which are valuable to their patients." This appears to have been precisely what has happened in San Francisco, where even those who question the adequacy of the city's response to San Francisco General's budget problems acknowledge that the federal cutbacks were a major cause of the crisis.

Vaughn thinks the AHA and CHA, which represent both public and private institutions, are exaggerating the impact of the cuts, and notes that overall "hospital profits were higher in 1998." But, he acknowledges, "The public hospitals received some DSH payment cuts and teaching hospitals got some cuts, and those are not the hospitals you'd want to cut. The public hospitals are hurting. They need help."

Public and private hospitals did get a little assistance in the form of adjustments to the Balanced Budget Act passed by Congress in late 1999. The changes give back about $16 billion to health care providers over five years by scaling back or slowing the phase-in of some of the BBA cuts. The hospital lobbying groups, though pleased to get some relief, consider the recent adjustments inadequate. Barbara Jones, senior vice president of finance for the CHA, notes that because "the largest portion of the [BBA] cuts were coming in the latter years, 2001 and 2002," most of the adjustments won't actually put more money in hospitals' pockets, but will merely reduce cuts that haven't kicked in yet.

Zmuda agrees, saying, "Nothing [in the 1999 adjustments] gives us any more money, but it stops us from losing more."

Bob Prentice, former director of the Public Health Division of San Francisco's Department of Public Health, characterizes the BBA cuts as "part of the general attack on the public sector, the general attack on poor people" that has been coming out of Washington for some time, often supported by both Republicans and Democrats. So far in this election year there has been little political pressure to reverse the trend.

The major presidential candidates have all made some mention of the need to extend health coverage to the roughly 43 million Americans who are now uninsured, with most relying on a patchwork of tax breaks and subsidies, rather than fundamental changes to the current system. But none has dealt in any significant way with the harm being done to hospitals by the BBA. Democrat Bill Bradley's plan might offer some indirect relief by partly replacing the current Medicaid structure with government-subsidized private insurance, but its overall impact is a subject of some debate. Tim Bertholt, director of public policy for Health Access, a California- based health care lobbying group, calls all of the presidential candidates' health proposals "disappointing."

The 1999 changes came largely as a result of aggressive lobbying by the hospital trade groups. AIDS organizations in particular seem to have given the issue little attention. For example, the Election 2000 Presidential Candidate Report released last summer by AIDS Action Council, the Washington, DC-based AIDS lobby, focused only on AIDS-specific issues and proposals and did not address either the ramifications of the BBA or the candidates' proposals for reforming the health care system. The lengthy health care/treatment access discussion paper posted on AIDS Action's web site, while urging such Medicaid reforms as broadened eligibility requirements, also does not address the 1997 cuts or their impact.

Grassroots, patient-oriented lobbying on health care access and funding issues has never been as strong as lobbying by the health care and insurance industries. National groups addressing these issues are: