Hospitals worry about closures, layoffs as they brace for Medicaid funding changes

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It wasn’t long ago that Charles Holland was giving opening-day tours of the gleaming outpatient center at St. Bernard Hospital in the Englewood neighborhood, built to bring a bevy of health care services — and optimism — to a community in need of both.

A year and a half later, the carpets still look brand-new, but the CEO’s tour is tinged with great anxiety about the future of the 114-year-old hospital.

As the state revamps an outdated formula that distributes hospital Medicaid funding, many hospitals like St. Bernard whose budgets rely heavily on the money are bracing for a financial hit they say they can’t afford.

“We can’t be cut a dollar,” said Holland, who last year laid off more than 20 managers and instituted a pay and hiring freeze to control costs amid rising expenses. “In fact, I need more money to keep the hospital viable for the future.”

St. Bernard is among the state’s 22 safety net hospitals — those where more than half of patient stays are covered by Medicaid. Across the Chicago area, those institutions are worried that the revised funding formula will cut deeply into their budgets. They say the prospect of mass layoffs, reduced services or outright closures of their facilities will be devastating to the communities they serve, which already lack adequate health care and jobs.

“It’s just unconscionable; it’s detrimental to our very being,” said George Miller, president and CEO of the 189-bed Loretto Hospital, where about 68 percent of inpatient stays are for Medicaid patients. Loretto is the largest employer in the Austin neighborhood, where the unemployment rate is nearly 20 percent, and 40 percent of its 585 employees live in the community, Miller said.

At issue is the state’s hospital assessment program, which distributes about $3.5 billion in Medicaid funding to 200 hospitals across Illinois. That’s more than half of the institutions’ total Medicaid money.

The program requires nearly all of the state’s hospitals to put money into a fund, which is then grown through a federal match before it is redistributed to the hospitals based on a complex formula that takes into account the size of their Medicaid population as well as their dependency on Medicaid funding. For some hospitals with mostly Medicaid patients, the assessment program makes up nearly half of their budget, while for others with many patients on private insurance, it’s a much smaller portion of their funding.

The problem is that the formula hasn’t been updated in over a decade and still bases the amount hospitals pay and receive on 2005 inpatient data and 2009 outpatient data, which officials say doesn’t reflect how and where Medicaid recipients are currently getting their care. A decline in hospital stays, growth in outpatient services, population shifts and an expansion of Medicaid to include some 680,000 more Illinois adults has spread the Medicaid market to more hospitals than were serving the population a decade ago.

The current assessment program expires after June 30, and the Illinois Health and Hospital Association, a trade group representing all the hospitals, has developed a model to modernize the formula. It has been working with the state’s Department of Healthcare and Family Services, plus the bipartisan Medicaid working group in the state legislature, to get a bill drafted.

That’s proving to be a race against the clock, as the plan has to be approved by the General Assembly before being sent to the federal Centers for Medicaid & Medicare Services for final approval and implementation. Lawmakers are expected to vote on the redesigned plan by the end of January or early February.

If July arrives without the new plan in place, some hospitals will not be able to pay their bills or keep their doors open.

To guard against that scenario, crafters of the bill hope to include a bridge provision that would keep the current assessment plan in place until the new one is approved, though that plan also has to get the OK from the Medicaid agency.

The formula changes haven’t been finalized, so it isn’t clear how much more or less money each hospital will receive, but payments will increasingly reflect actual patient and procedure volume, rather than allocating a fixed sum. And the new formula will be based on Medicaid services provided by the hospitals in 2015, with regular updates to keep the data current.

Hospitals that have seen a decline in Medicaid patients since 2005 could see reduced reimbursement, though the complexity of the formula means it’s not so clear-cut. For example, a hospital that has seen an increase in Medicaid patients could still get less money under the new plan if its share of the statewide Medicaid population has declined.

To cash-strapped safety net hospitals that call the assessment their lifeblood, the notion that their funding could be reduced is flabbergasting.

“There are providers that are making profits that are earmarked to take our money,” said Tim Egan, CEO of Roseland Hospital. The far South Side hospital laid off 35 of its 500 employees in December and instituted a pay cut for executives and all nonunion staff, while Egan himself won’t collect a salary for at least 60 days.

Roseland gets $23 million from the assessment program, about half of its budget, and the most recent draft of the proposed changes has it losing $6.6 million of that money, Egan said. That would lead to certain closure of the only hospital within 7 miles in the high-violence community, he said. He calls the situation “absolutely immoral.”

State statistics showing declines in patient volume don’t tell the full story, he added. The state is increasingly moving people into Medicaid managed care organizations, which have higher rates of denying patient claims, and those denied patients are not counted in the state’s Medicaid statistics even though they are still treated. Egan says well over 60 percent of Roseland’s patients are on Medicaid, though the state lists the rate at 53 percent.

But non-safety net hospitals that have seen dramatic growth in Medicaid patients over the last decade also need adequate funding to cover those rising expenses, officials said. Big hospital systems, like Advocate Health and Presence Health, with large patient volumes are among those that could get funding bumps.

“While the assessment hasn’t been finalized, we support a new program that is based on updated data in which funds more closely follow Medicaid patients and the services they receive,” Meghan Woltman, vice president of government and community relations at Advocate Health Care, said in a statement. Advocate, the largest system in the state, has 12 hospitals in Illinois.

“In addition to Medicaid beneficiaries, these dollars are critical to the health care infrastructure of the state,” she said.

Rep. Greg Harris, D-Chicago, a member of the Medicaid working group, said legislators have twin goals: Giving stability to safety net and critical-access rural hospitals, which also are disproportionately affected by the changes, while putting more money where more patients are going.

At the start of discussions, the working group asked the state’s biggest hospital systems if it would be good or bad for them if the safety nets closed, and all said it would be bad, because they don’t have the capacity to absorb tens of thousands of new patients, he said.

“It’s good public policy to be sure that as we set this up for the next five to six years we are sending money to support the transformation of health care to more efficient models but also protecting access to health care,” Harris said.

To support hospitals that will lose money, there is a proposed funding pool of several hundred million dollars to help them adapt to the changing needs of their communities, such as by converting underused facilities to address growing needs like behavioral health, substance abuse and senior rehabilitation.

“We don’t want to put hospitals out of business,” said Rep. Tom Demmer, R-Dixon, a member of the legislature’s Medicaid working group. “We want to make sure health care providers are available in communities to provide the care they need.”

A critical point of contention as the redesign unfolds is how much money the state should be trying to get from the federal government to swell the assessment pot. The Illinois Health and Hospital Association, as well as the Association of Safety Net Hospitals, a lobbying group, are pushing the state to pursue more — one consultant estimated $300 million more could be available. There is a limit to how much money the state can receive from the federal government, though determining that limit involves still more complex calculations.

“We are working diligently to ensure that we maximize the funding for this Medicaid program to allow all of our hospitals to fulfill their mission of caring for their communities,” said A.J. Wilhelmi, CEO of the Illinois Health and Hospital Association.

John Hoffman, spokesman for the Department of Health and Family Services, said in a statement that the department “is committed to drawing down as much federal revenue as it can, within the boundaries of what is permissible under federal law, to support our hospitals. We remain strong advocates of our safety net hospitals and will continue to work with the IHA to ensure their viability to support our communities in the years ahead.”

The 22 safety net hospitals in Illinois, most in the Chicago area, together employ 25,000 people, according to the Association of Safety Net Hospitals.

Many are independent community hospitals like Norwegian-American Hospital in the Humboldt Park neighborhood, which sees 112,000 patients a year. Nearly 80 percent of its patient population is on Medicaid and it receives $31 million from the assessment, according to state figures. About 60 percent of its 900 employees live in the community.

The hospital’s CEO, Jose R. Sanchez, is not confident the state has its back.

“There is no support for safety net hospitals, there is no concern for poor communities right now,” he said.

The safety net hospitals argue their community service provides value beyond a balance sheet.

Dr. Angeles Valdes, director of Norwegian’s wound clinic, is a native of Puerto Rico, like many residents of the neighborhood, and said patients travel there for care from throughout Chicago’s Hispanic community.

“We are not only bilingual but multicultural,” said Valdes, who works to save limbs in the high-diabetes community.

“We have patients who come in from everywhere because they are looking for hope,” she said.

St. Bernard Hospital is the largest employer in Englewood, where economic and safety challenges have driven the population down 35 percent since 2000. Three hundred of its 850 workers live in the neighborhood or surrounding areas, filling cafeteria, cleaning, security and nursing jobs.

The assessment funding constitutes a third of St. Bernard’s budget, and the $1.7 million decrease it is facing would force serious decisions about layoffs and service cuts after so much effort to improve services, Holland said. It recently opened a behavioral health outpatient practice that includes a methadone clinic that sees 220 patients a day.

The $33 million outpatient center it opened in June 2016, financed entirely by the religious order that has operated St. Bernard since 1904, is the best evidence of the hospital’s efforts to respond to the needs of its community. An immediate care clinic, full of waiting families, has helped cut emergency room visits, and specialists like cardiologists have designated hours so people don’t have to travel far for care.

Dr. Daria Terrell, an orthopedic surgeon at the hospital, said the proximity is a huge relief for her many patients who walk with canes or crutches, while others come from hours away because they can’t find another hospital that takes their insurance.

The opening of the sunny building, on a lot that had been vacant for 40 years, was also “a symbol that you’re not giving up on the neighborhood,” and the prospect of a closure would be psychologically damaging, she said.

The hospital doesn’t limit its role to health care. In a conference room designated for community events, it has held mass baby showers for new moms who didn’t have baby showers themselves, collecting gift donations from staff.

It also hosts a monthly senior bingo night, where players can get their blood pressure taken between games.

“It’s just something to do, get out of the house, and have fun and mingle with other people,” said Olivia Taylor, 78, who walks the block from her home to attend. “I look forward to it.”

To Holland, the debate about how to fund hospitals like his shouldn’t be about complex calculations.

“It’s a compassion issue,” Holland said. “Where is the compassion?”

aelejalderuiz@chicagotribune.com

Twitter @alexiaer

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Hospitals worry about closures, layoffs as they brace for Medicaid funding changes

EDITORIAL: It’s up to Illinois lawmakers to protect Obamacare from Trump

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The Trump administration is trying to give millions of Americans yet another terrible deal on health care. Illinois lawmakers can — and should — pass legislation to prevent the president from bringing watered-down health care coverage to this state.

A plan proposed earlier this month by the U.S. Department of Labor would expand the ability of small businesses to band together as groups to buy health insurance. It would help strengthen their bargaining power for pricing and getting a wider selection of plans, the Department of Labor says. Up to 11 million people who work for small businesses or are self-employed could be better off — supposedly.

Those advantages sound great, until you realize a sure-fire way to get cheaper rates is to exclude coverage for prescriptions, hospitalizations and other important services. You know, the kinds of things you buy insurance for. They are benefits Trump wants to drop.

EDITORIAL

Currently, under the Affordable Care Act, health insurance plans have to provide coverage for things like medications and hospital stays. They are part of 10 mandatory essential health benefits that also include maternity and pediatric care. Trump’s plan would let companies exclude those critical benefits.

Illinois Rep. Greg Harris. | Seth Perlman/AP file

The public can weigh in on the Trump administration’s plan at regulations.gov until March 6. We want lawmakers in Illinois to pass legislation that would prevent health care plans in this state from eliminating those basic and vital health services. A bill proposed by state Rep. Greg Harris of Chicago could do that.

Under the ACA Protections bill, a majority of lawmakers in the House and Senate would have to give an OK for officials to work with the federal government to undercut protections for pre-existing conditions and coverage for 10 essential health benefits. Those benefits are for outpatient care; emergency services; hospitalization; mental health; prescription drugs; rehabilitative services; laboratory services; maternity and newborn care; pediatric care; and preventive and wellness services.

Over the years, Illinois has enacted laws to mandate several health care benefits, including maternity care and cancer treatment. The Legislature now should go a step further by making Harris’ bill airtight against the Trump administration’s continued efforts to assail Obamacare.

This latest proposal by the Trump administration could weaken Obamacare by taking healthier people from individual marketplaces to these skimpy small business health plans, also known as association health plans. This could cause premiums to rise for those still covered by Obamacare.

The Department of Labor is emphasizing that, under its proposal, people couldn’t be charged more because they’re sick and they couldn’t be refused because of pre-existing conditions. But premiums could be affected by gender and age. And sick people would be discouraged from applying if the plans don’t cover basic needs.

Scaled-back coverage can be OK for a young, healthy person. But if a life-altering illness hits, the patient gets a rude awakening when he or she learns about the limitations of their health policy.

 

“This plan will indeed likely allow more people to access options for purchasing coverage, which should be a good thing … except that the coverage will almost certainly be substandard, narrow, and result in the ultimate shifting of greater health care costs on to individuals,” Dr. Philip A. Verhoef, assistant professor of medicine and pediatrics at the University of Chicago, told the medical news website Healio.

Just last month, Trump and other Republicans moved toward weakening the Affordable Care Act by no longer requiring people to carry health insurance or pay a fine.

This latest proposal is another step to undermine it. Illinois needs to tell Trump it isn’t welcome here.

Send letters to: letters@suntimes.com

 

EDITORIAL: It’s up to Illinois lawmakers to protect Obamacare from Trump

State Of Trump: Illinois Makes Headway With LGBTQ+ Policies

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President Donald Trump’s administration has been in power for a year now. “State of Trump” is our series discussing what’s changed in the state, and what might be ahead.

Brian Johnson, is CEO of Equality Illinois, in the interview below he tells us about the organization’s focus going forward, as well as the laws related to LGBTQ+ rights and protections that passed in 2017:

Johnson says LGBTQ+ advocates had a banner year in 2017. He noted three laws: one puts an end to the “gay-panic” defense in murders, one requires the state to collect data on the sexual orientation of those serving on certain public boards and commissions, and another lets a person change the gender marker on their birth certificate without the requirement of sexual reassignment surgery. 

Two anti-LGBTQ+ measures that were introduced in the legislature, as is monitored by the Human Rights Campaign, did not get through. As for the national conversation on rights for people who are LGBTQ+? “One the national level we are seeing a really big rise in anti-LGBTQ sentiments … In that context, seeing all of that happen in Washington, so many of our allies and champions here in the state were willing to say those efforts and actions don’t represent our values in Illinois,” says Johnson. He says lawmakers in Illinois showed their support with bi-partisan support of the three bills passed into law, listed previously.

Johnson says as for the coming year and beyond, “The question that we’re really wrestling with is, how can we make sure schools are safe and affirming places for all students, including LGBTQ students.” 

State Of Trump: Illinois Makes Headway With LGBTQ+ Policies

State Senator Cullerton Requesting Documents Pertaining to Legionnaire’s Disease Outbreak

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State Senator Cullerton Requesting Documents Pertaining to Legionnaire’s Disease Outbreak

An Illinois lawmaker is making a sweeping request for documents on anything related to the Legionnaires Disease outbreak at the Illinois Veterans Home in Quincy.

Democratic state Senator Tom Cullerton sent letters to seven state agencies and the Centers for Disease Control, asking for copies of all correspondence from June 2015 through earlier this month related to the outbreak.

Cullerton has asked for the documents by next week. He says that material will help lawmakers develop better protocols to prevent such situations in the future.

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State Senator Cullerton Requesting Documents Pertaining to Legionnaire’s Disease Outbreak

A Prescription For Fruits And Veggies: One Solution To Food Insecurity in Illinois

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Health centers in Illinois are forming partnerships with local food banks to offer fresh fruits and vegetables to some patients. With an estimated 1.5 million residents in the state classified as food insecure by the U.S. census, could this be a key approach to improving food access?

On a Thursday morning in January, Susan Stolkes makes her first visit of the year to Springfield’s Central Counties Health Centers on the city’s east side. She’s not there for a checkup, but to pick up fresh food to take home, as suggested by her physician.

“I’ve always tried to feed myself – and that’s not always easy. I get $11 in [government food assistance], and produce is very expensive,” says the Springfield resident, who lives in a senior residential complex near the health center. “Food insecurity is a real hardship for me.”

The fresh fruits and vegetables she’s picking up are delivered to the health center as part of a pilot program that began last year. Not unique in the country, it is one-of-a-kind in central and southern Illinois and aims to increase the use of health care as a way to address food accessibility problems.

Some experts advocate increasing partnerships between community organizations, food banks and health centers to develop tailored solutions. Communities in Sangamon and Cook counties are already forming such partnerships. Increasing awareness, especially of the health-related risks of living in poor food environments, is a pressing issue, some say. But with so many layers to the issue and so much diversity in communities, there is not one solution that can be effectively applied universally.

Sangamon County, where Springfield is located, had 27,160 residents facing food insecurity in 2015. That’s out of the estimated 1.5 million food-insecure individuals across Illinois, according to the U.S. Census statistics from that year. That means 11 percent of households statewide are unable to predict where their next meal will come from. The issues revolve around economic instability and other socioeconomic factors.

Complicating the problem for many food-insecure individuals like Stolkes is living in a food desert, a neighborhood without a grocery store. Central Counties Health Centers serves a community considered to be both a food desert and a low-income area, according to data from the U.S. Department of Agriculture. In these food deserts, transportation and affordability are added to the already difficult mix. In many rural food desert communities, for example, the nearest food store can be anywhere from 10 to 20 miles away. In urban areas, while transportation options are available, food prices might be unaffordable for someone on a fixed income.

“The food accessibility issue is both a geographical challenge of people not being able to access the grocery store, but even some people who live relatively close to fresh food, they are not able to afford it,” says Christopher Merrett, director of the Illinois Institute for Rural Affairs at Western Illinois University. His research looks at bringing economic development into communities that need it most.

Some community programs use technology to form partnerships with volunteers and other agencies. Kimberly Ann Keenan is program manager for the Gifts in The Moment “gitm” Foundation, which operates in Peoria, Tazewell and Woodford counties. Its Good Food Recovery Program uses ChowMatch – software that connects organizations to food before it goes bad at grocery stores or food banks. Keenan says this allows her organization to partner with all county health departments, as well as all health care-based organizations to deliver food where it is most needed. She calls it “Uber for food.”

Keenan says more of this kind of collaboration is needed to cover and address the health impacts of food accessibility and amplify the issue with lawmakers and other community leaders.

“Food as medicine is hardly a new concept,” she says.

Meanwhile, local food banks and health centers are making strides at conceptualizing the idea of “food as medicine.”

One state lawmaker says a start to getting a solution is tracking food desert communities in the state.

State Rep. Sonya Harper, a Chicago Democrat, sponsored legislation that goes into effect later this year to mandate the tracking of food desert communities. The Illinois Department of Agriculture and the Illinois Department of Health will work together to send lawmakers annual reports on the health consequences of living within these environments.

Harper says she believes in the health-related connections and wants other lawmakers to review the issue in the communities they represent. At 36, she is the oldest living Harper in her family; her older relatives suffered from diabetes or heart-related diseases and died young. This, she says, is because of being raised in West Englewood, a neighborhood on Chicago’s southwest side that has been classified by the U.S. Department of Agriculture as a food desert.

“Food is medicine. You can’t do anything without it,” Harper says. “We have literal cities and neighborhoods of people living without food. … They are going to end up needing some very costly care at some point in their life.”

Local food banks and health centers are making some progress. Most recently, the Central Illinois Foodbank received a grant from the Walt Disney Foundation to deliver fresh food items to the Southern Illinois University School of Medicine’s Family and Community Medicine and the Central Counties Health Centers, both in Springfield. Patients who receive care from these facilities can access the food pantries on site. Many times, physicians will encourage healthier eating habits as part of their patients’ health care regimen or “prescription.” In Chicago, John H. Stroger Jr. Hospital of Cook County screens food-insecure patients and sends them with coupons or vouchers to pantries for fresh fruits and vegetables to pantries or food trucks.  

Dr. Janet Albers is chair for the Department of Family and Community Medicine at SIU Medicine. She’s worked in the area of food accessibility for decades and says it’s just now that diet and access to healthy food options have become integral parts of work for her and her colleagues.

“It’s really hard for people to be healthy if I give out medicines, but they don’t have enough food to eat, or if they don’t have a place to live, or if they aren’t able to have a job,” she says. “I think that’s something that, since I’ve trained, it’s really changed our perspective.”

And it’s important to introduce these healthy eating options early in life, says Dr. Sameer Vohra, executive director for the Office of Population Science and Policy at SIU Medicine. He is also a pediatrician who has looked at the health issues children face when they don’t have access to a good diet.

In vulnerable communities, families “are often malnourished,” he says. “They are having failure to thrive. Or they are off the curb in terms of obesity. They’re having higher cholesterol rates. They’re having early onset diabetes.”

Both Albers and Vohra say they hope the statewide tracking initiative will bring increased awareness to these health issues, but also to fill holes in the already available data on food deserts and to focus on overlooked areas.

“I think we all need to be more aware of where our patients are able to get food and transportation. If you don’t have transportation, you’re not going to get to a grocery store that’s three miles away, right?” asks Albers.

While the statewide food desert tracking goes into effect in June, Harper plans to hold town hall meetings in affected communities to hear from those who work to improve food accessibility and health. She says she wants the data used by communities and lawmakers to implement change.

Mari Gallagher, who in 2006 popularized the term “food desert” in her report on Chicago’s hunger issues, says she would like to offer her input if additional data will be collected. A researcher and consultant, Gallagher says the U.S Department of Agriculture already compiles data on food desert areas across the country by looking at low-income communities and their access to food, but might be lacking in some areas or overlooking some factors.

The report “has to be a very customized analysis,” she says, for it to be meaningful and add to what’s already out there. “There is not one single problem, and there is not one single solution to food deserts. Everything has to be looked at locally.” Gallagher says she previously helped the state of Florida to map out its food desert areas and used specific methods, unique to Florida’s communities.

So far, the initiatives in Sangamon County seem to be working – at least on a temporary basis. Patients at both SIU School of Medicine and the Central Counties Health Centers like the partnership with the foodbank, says Kristy Gilmore, the food and agency resources director for the Illinois Central Foodbank. The only logistical problem at its early phase was a shortage of food. A grant renewal added money to increase the amount to almost 2,000 pounds of food delivered at each site, each week.

The $15,000 Disney grant is slated to run out by July, but Gilmore says she hopes the partnership will continue in another capacity until additional funding is secured.

For Susan Stolkes, the Springfield resident who uses the food pantry services, this has changed the way she obtains food. She hopes the program continues.

“I used to order food online to pick up or be delivered to me,” she says, but this was not affordable. “It’s been difficult for me.”

One day during a routine checkup, her doctor suggested she pick up some fresh produce on her way out, to help keep her healthy. That’s how she learned of the food pantry, which is run on Tuesdays and Thursdays in the lobby.

Of the food and service, she says: “I love that it’s produce, and it’s produce I would use.”

“I love it, love it.”

Illinois Issues is in-depth reporting and analysis that takes you beyond the headlines to provide a deeper understanding of our state. Illinois Issues is produced by NPR Illinois in Springfield.  

A Prescription For Fruits And Veggies: One Solution To Food Insecurity in Illinois

State attorneys general ask Congress for a law on banking for legal pot

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As the legal marijuana industry navigates uncertainty on the federal level, state attorneys general are asking Congress to pass a law allowing banks to work with cannabis companies.

Along with Illinois, 28 other states, Washington, D.C., and several U.S. territories have legalized medicinal cannabis, and eight states and the District of Columbia allow recreational use. But in the eyes of federal law, weed is still illegal, and the cash earned selling it is drug money.

Illinois’ highly regulated medical cannabis industry, operating under a state pilot program, has been fighting to expand. Earlier this week, a judge ordered the state to add intractable pain — pain that’s resistant to treatment — to the list of 41 conditions that qualify patients to use medical marijuana.

The state Department of Public Health plans to appeal, but if the court ruling stands it could greatly expand access to the drug. Without banks, though, operations and growth could be hindered.

The federal government has issued guidance for how banks can work with with cannabis companies, but without a law, banks hesitate to enter the growing industry. Illinois Attorney General Lisa Madigan and 18 other attorneys general — from 16 states, the District of Columbia and Guam — signed a letter this week saying they want that to change. Madigan was not available Wednesday for further comment.

Passing a law “would bring billions of dollars into the banking sector, and give law enforcement the ability to monitor these transactions,” according to the letter. “Moreover, compliance with tax requirements would be simpler and easier to enforce with a better-defined tracking of funds. This would, in turn, result in higher tax revenue.”

In Illinois, there are a handful of financial institutions that provide banking services to medical marijuana growers and sellers. Operators in the state say having that stability has helped the industry grow.

“Banking here has been smooth for the most part, but it’s very tenuous,” said Ross Morreale, co-founder of Ataraxia, which owns a cultivation facility in southern Illinois and co-owns three dispensaries. “If something were to happen to (the few banks that work with us), it would be a bad situation.”

Marijuana companies in some states have learned to operate without banks, paying bills with duffel bags full of cash and finding other workarounds. But all-cash businesses can become targets for criminals. Losing banks also would take away one factor that legitimizes the industry, said Mark de Souza, CEO of Revolution Enterprises, which owns cultivation facilities in downstate Delavan and Barry.

Even with banking relationships that allow Illinois cannabis businesses to deposit and distribute funds, there are still limitations, said Charles Bachtell, CEO and co-founder of Cresco Labs, which operates three cultivation facilities in Illinois.

“We still don’t have access to lines of credit or any of those other financial mechanisms that traditional industries have access to,” he said.

Banks that have ventured into the cannabis industry took guidance from an Obama-era policy that discouraged prosecution of those operating under state marijuana laws. But U.S. Attorney General Jeff Sessions rescinded that policy earlier this month.

Now it’s even more urgent to get the cash the industry generates into traditional banks, according to the letter from the state attorneys general.

Illinois medical marijuana businesses maintain that existing laws will protect them, but Sessions’ recent announcement led one of the main financial institutions that works with the industry to re-evaluate its position.

Bank of Springfield recently told some of its cannabis clients that it is reviewing the recent Justice Department decision, sources said. The bank also is waiting to see whether Congress takes action to preserve a federal law that prohibits the department from using federal funds to prevent states from implementing medical marijuana programs, the sources said. That law is set to expire Friday.

The bank declined to comment.

Banks that work with the cannabis industry can take further guidance from the Treasury Department’s Financial Crimes Enforcement Network. But, again, that’s just guidance.

“That’s not enough for the national and international banks,” said Cresco’s Bachtell, who has a background in mortgage banking. “They’re not comfortable with guidance; they want real regulation.”

The letter from the state attorneys general asks Congress for legislation that would provide a “safe harbor” for financial institutions that work with cannabis companies in states where the drug is legal in some capacity. It points to a bill that was introduced in the Senate in May that would do just that.

More banks would likely expand operations into the marijuana industry if such a law were instituted, though it might take time for financial institutions to become comfortable with it, said John Hudak, a senior fellow at the Washington, D.C.-based Brookings Institution.

“It would absolutely, without a doubt, be a game-changer,” he said.

amarotti@chicagotribune.com

Twitter @AllyMarotti

State attorneys general ask Congress for a law on banking for legal pot

State attorneys general ask Congress for a law on banking for legal pot

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As the legal marijuana industry navigates uncertainty on the federal level, state attorneys general are asking Congress to pass a law allowing banks to work with cannabis companies.

Along with Illinois, 28 other states, Washington, D.C., and several U.S. territories have legalized medicinal cannabis, and eight states and the District of Columbia allow recreational use. But in the eyes of federal law, weed is still illegal, and the cash earned selling it is drug money.

Illinois’ highly regulated medical cannabis industry, operating under a state pilot program, has been fighting to expand. Earlier this week, a judge ordered the state to add intractable pain — pain that’s resistant to treatment — to the list of 41 conditions that qualify patients to use medical marijuana.

The state Department of Public Health plans to appeal, but if the court ruling stands it could greatly expand access to the drug. Without banks, though, operations and growth could be hindered.

The federal government has issued guidance for how banks can work with with cannabis companies, but without a law, banks hesitate to enter the growing industry. Illinois Attorney General Lisa Madigan and 18 other attorneys general — from 16 states, the District of Columbia and Guam — signed a letter this week saying they want that to change. Madigan was not available Wednesday for further comment.

Passing a law “would bring billions of dollars into the banking sector, and give law enforcement the ability to monitor these transactions,” according to the letter. “Moreover, compliance with tax requirements would be simpler and easier to enforce with a better-defined tracking of funds. This would, in turn, result in higher tax revenue.”

In Illinois, there are a handful of financial institutions that provide banking services to medical marijuana growers and sellers. Operators in the state say having that stability has helped the industry grow.

“Banking here has been smooth for the most part, but it’s very tenuous,” said Ross Morreale, co-founder of Ataraxia, which owns a cultivation facility in southern Illinois and co-owns three dispensaries. “If something were to happen to (the few banks that work with us), it would be a bad situation.”

Marijuana companies in some states have learned to operate without banks, paying bills with duffel bags full of cash and finding other workarounds. But all-cash businesses can become targets for criminals. Losing banks also would take away one factor that legitimizes the industry, said Mark de Souza, CEO of Revolution Enterprises, which owns cultivation facilities in downstate Delavan and Barry.

Even with banking relationships that allow Illinois cannabis businesses to deposit and distribute funds, there are still limitations, said Charles Bachtell, CEO and co-founder of Cresco Labs, which operates three cultivation facilities in Illinois.

“We still don’t have access to lines of credit or any of those other financial mechanisms that traditional industries have access to,” he said.

Banks that have ventured into the cannabis industry took guidance from an Obama-era policy that discouraged prosecution of those operating under state marijuana laws. But U.S. Attorney General Jeff Sessions rescinded that policy earlier this month.

Now it’s even more urgent to get the cash the industry generates into traditional banks, according to the letter from the state attorneys general.

Illinois medical marijuana businesses maintain that existing laws will protect them, but Sessions’ recent announcement led one of the main financial institutions that works with the industry to re-evaluate its position.

Bank of Springfield recently told some of its cannabis clients that it is reviewing the recent Justice Department decision, sources said. The bank also is waiting to see whether Congress takes action to preserve a federal law that prohibits the department from using federal funds to prevent states from implementing medical marijuana programs, the sources said. That law is set to expire Friday.

The bank declined to comment.

Banks that work with the cannabis industry can take further guidance from the Treasury Department’s Financial Crimes Enforcement Network. But, again, that’s just guidance.

“That’s not enough for the national and international banks,” said Cresco’s Bachtell, who has a background in mortgage banking. “They’re not comfortable with guidance; they want real regulation.”

The letter from the state attorneys general asks Congress for legislation that would provide a “safe harbor” for financial institutions that work with cannabis companies in states where the drug is legal in some capacity. It points to a bill that was introduced in the Senate in May that would do just that.

More banks would likely expand operations into the marijuana industry if such a law were instituted, though it might take time for financial institutions to become comfortable with it, said John Hudak, a senior fellow at the Washington, D.C.-based Brookings Institution.

“It would absolutely, without a doubt, be a game-changer,” he said.

amarotti@chicagotribune.com

Twitter @AllyMarotti

State attorneys general ask Congress for a law on banking for legal pot