March 13, 2019 Tifton - Exterior of Tift Regional Medical Center in Tifton on Wednesday, March 13, 2019. A new study says 40 percent of Georgia's rural hospitals are at "high financial risk," the third worst result among states. We visit three rural Georgia hospital to see what all this looks like on the ground, and we look seriously at whether legislators' proposals are a remedy. HYOSUB SHIN / HSHIN@AJC.COM
Photo: HYOSUB SHIN / AJC
Photo: HYOSUB SHIN / AJC

Can a version of cap-and-trade save rural hospitals in Georgia?

In last Sunday’s column, I wrote that the health care plan unveiled by Gov. Brian Kemp appeared to do little to address the plight of Georgia’s rural hospitals, which contend with a vast population of uninsured patients. Seven hospitals have closed since 2010.

A text arrived the next day from state Rep. Todd Jones, a Republican from south Forsyth County. He wanted to bend my ear about an idea that has been percolating in his head since February.

Something that has never been tried before.

Jones lists his occupation as “technology executive,” but for several years in the early 2000s, he put together cap-and-trade deals for companies in Europe and Japan.

Cap-and-trade is a market-based approach to pollution control through economic incentives. A government allocates a limited number of permits allowing the discharge of specific quantities of a certain pollutant.

Polluters – think electrical plants and heavy industry – that need to increase their emissions must buy permits from companies willing to sell. And those companies sell because they’ve been able to reduce or eliminate their own emissions. An incentive to reduce pollution has been created.

It is one of those many ideas with GOP roots that is now disavowed by most Republicans. But Jones had seen cap-and-trade work. And he wants to bring it to Georgia, to save hospitals that are going broke by treating those who can’t afford to pay.

The idea arrived during yet another committee meeting on hospital survival. “They kept talking mandates, and ‘thou shalts,’” Jones said. “I thought, why aren’t we giving them a reason to be innovative?”

Instead of cap-and-trade, Jones refers to his concept as “floor-and-trade.”

“If you just look at the hospitals, there’s a little more than $100 billion in services being delivered in Georgia,” Jones began. “If you look at the filings, primarily by the non-profits, you see that the charitable or indigent care spending is around $7 billion.”

But that $7 billion burden isn’t being shared equally.

Hospitals across the state would be assigned a “floor” – a minimum amount of money they would be required to spend on indigent patients, represented by transferable credits. Let’s call them Indigent Care Units.

Certain hospitals are sure to exceed the floor. Wealthier ones might not. But they could buy ICUs from poorer hospitals. Wealthy hospitals would thereby meet their assigned goal. Poor hospitals would have a new source of income.

“The lack of market drivers is actually causing an incongruity between where the care is being given, and where the money and the capital is,” Jones said. “That, to me, is pretty important. We have to align that.”

Translation: Not to be simplistic, but the basic problem is geographic. Wealthy hospitals are most often located in wealthy, highly insured communities. Poorer hospitals are not.

We have stepped in this direction before. In 1985, Gov. Joe Frank Harris and the Legislature passed the Quality Basic Education Act, which transfers some school tax revenue collected by Georgia’s richer counties and distributes it among poorer school districts. It is still in force.

In the final days of the 2019 session, on a 165-5 vote, the House made Jones the chairman of a study committee to explore the floor-and-trade idea – which for months, the Forsyth County lawmaker thought was original.

But this summer, Jones discovered a 2015 paper in which a trio of Northwestern University researchers had proposed the very same thing.

State officials in Illinois “for years had been concerned about rising levels of uncompensated care, the rising value of the tax exemptions for many hospitals, and a seeming disconnect between hospitals that were receiving big tax exemptions, and hospitals that are being called upon to provide uncompensated care,” David Dranove, professor of health industry at Northwestern, told me over the phone.

Dranove had had the same light bulb moment that Jones did. Just earlier. To justify those tax breaks, non-profit hospitals in Illinois and all other states are required to engage in “community benefits” – programs that do good, but might not be locally essential.

“If what we really care about is uncompensated care, why don’t we tell those hospitals to forget about the other stuff – why don’t you pay for other hospitals to provide uncompensated care?” Dranove said. “We are granting huge tax breaks to wealthy hospitals and asking them to provide community benefits that frankly are not all that important. I’m not saying of no value, but I would argue that it would be more valuable to have that money spent out in the rural communities. This is a way to make that happen.”

When they pitched the idea four years ago, the Northwestern proposal fell on deaf ears. The debate over the Affordable Care Act was at its zenith, and that might have been a factor.

If Jones has his way, we would be the first state to attempt it. Major figures in Georgia hospital circles have indicated they’re willing to move forward. As hinted above, the idea has so far enjoyed a bipartisan reception. State Rep. Spencer Frye, D-Athens, who sits in front of Jones on the House floor, was one of two Democratic co-sponsors of the study committee legislation.

Frye finds the idea interesting, but wants one thing made clear at the outset – he considers Medicaid expansion under the ACA, which would offer health insurance coverage hundreds of thousands of Georgians for the first time, the best choice.

But Governor Kemp has shown himself unwilling to move on the issue. “Realizing that, I know we have to do something,” Frye said. ”If we put greater indigent care requirements on hospitals, we could spur an outflow of funding from our wealthier hospitals to our rural, less wealthy hospitals. And that would be a good thing.”

For his part, Jones says his idea would work whether under Kemp’s program, or under full Medicaid expansion.

“I believe we’ve gotten so stuck on the traditional way of looking at these macro issues – health care, of course, being one of them – that we get dug in,” he said. “No one has a side on this one, because it is so new. Everyone can have fresh thinking. From both sides of the aisle.”

His study committee meets again on Friday at the state Capitol. Jones plans to have the draft of a bill by the end of the year. “Inside the bill, we’re going to have a test year for hospitals. We want to do everything the way it would be,” he said. “We want you to trade, we want you to negotiate, we want the oversight to be there. We want everything to be happening, but it doesn’t count that year.”

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About the Author

Jim Galloway
Jim Galloway
Jim Galloway is a three-decade veteran of The Atlanta Journal-Constitution who writes the Political Insider blog and column.
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