Hospitals? Strategy to Boost Medicaid Enrollments Could Hurt Industry?s Long Term Financial Stability

To deal with the growing number of uninsured and underinsured patients flooding their emergency rooms, hospitals have been focusing their efforts on enrolling patients in charity care and government programs to cull swelling bad debt expenses (“Wichita Hospital Beefs Up Financial Counseling to Curb Bad Debt Expense,” October 10).  

While some industry experts say helping patients qualify for charity care programs will help health care providers fulfill their service mission and get paid, some industry experts say the strategy to get more eligible patients enrolled in state Medicaid programs is just a short term solution to hospitals’ financial woes. 

According to the American Hospital Association, 40 of 50 states face a budget deficit or are projected to by 2010, forcing them to cut Medicaid funding.  State governors have asked federal lawmakers to increase the Federal Medical Assistance Percentage (FMAP) paid into state Medicaid programs. However, with the country already a year into a recession that has lasted longer than most previous recessions, even if the FMAP is increased, the federal funding would likely only replace money states already have cut, some expert say.

Still, hospitals collect an average of just 10 cents of every dollar of unpaid medical bills after an uninsured patient leaves the hospital, said Fitch Ratings Analyst Lauren Coste.  So the strategy of getting Medicaid eligible patients covered ensures hospitals receive some reimbursement.

“Even given the budget shortfalls, it’s a chance of collecting something versus a guarantee of not collecting anything or close to nothing,” said Coste, a Fitch director of corporate finance who covers health care facilities.

Some industry observers, however, say the strategy is flawed and will hurt the hospitals’ financial stability in the long term, given how much hospitals rely on Medicaid reimbursements.   The AHA says Medicaid reimbursements accounts for 50 percent of the revenue from patient care. Hospitals, however, have long complained that it doesn’t cover the total cost of care.

<!–PAGEBREAK–>

Dennis Smith, senior fellow for the Center for Health Policy Studies at the Heritage Foundation, told insideARM that instead of asking for a higher FMAP percentage, hospitals should be encouraging both health care reform and Medicaid reform.

Smith said the current formula for federal Medicaid funding leaves hospitals vulnerable to economic downturns because states will always cut funding during a recession.  And for every dollar states cut from Medicaid spending, they lose a dollar in federal Medicaid matching funds.

“Federal dollars follow state dollars,” Smith said. “This is the second time in less than one year states are asking for increase to FMAP (Federal Medical Assistance Percentage).  It’s too vulnerable. It needs a much more predictable funding source.” 

Also, some industry observers say the more people added to the Medicaid program, the more taxes and reimbursements caps states will have to impose to cover the additional recipients.  And that, some say, will make private insurance less affordable as employers continue to pass the higher insurance and medical costs onto employees in the form of higher deductibles and co-pays.

“We’re putting more people into a flawed system,” Jack Nixon, president of CMRE Financial Services, said of the Medicaid system.  “We already have a cost shift, where low Medicaid reimbursement rates are shifted to private insurers, which increase premiums, which families and employers increasing can’t afford.”

In the end, Smith said health care providers, who already pay $12 billion a year into Medicaid through provider taxes, will be stuck with even more bad debt.

“It only invites more of the same behavior, shifting the obligation onto the provider in terms of paying for public programs,” he said.

Still, with the financial and auto industries storming Capitol Hill for money to save their industries, states may be hard pressed to get the Medicaid increases they seek in the upcoming stimulus package.

“I don’t take it as a given that they will get funding in a stimulus (package),” Smith said. “This stimulus is getting bigger and bigger. It can’t be as big as what everyone is trying to make it. You can’t say yes to everybody.  You have to set priorities.”