Among the few possible benefits for hospitals from ACA repeal is the possibility of slowing value-based payment initiatives in Medicaid, which derive much of their savings from keeping hospital beds empty, one analyst notes.

Nov. 22—In the expected push to repeal the Affordable Care Act (ACA), proposed changes to Medicaid are likely to have the largest financial impact on hospitals, according to analysts.

The impact of a range of Medicaid changes, including shifting the state-federal public insurance program to a block grant and allowing wider state spending discretion, has drawn the concern of several financial analysts.

Proposed Medicaid changes come in the context of Republican plans to repeal and replace the ACA, although the specifics of a replacement plan remain far from certain.

Most analyses of the financial impact of repeal-and-replace on hospitals do not track the sources of coverage for the 20 million people who the Obama administration says gained insurance coverage under the ACA. A total of 12.7 million were covered through the ACA’s government-run marketplaces—as of the end of the previous open enrollment period—and Medicaid enrollment had grown by more than 15 million since October 2013, when expanded Medicaid eligibility started.

Although the ACA marketplaces and their enrollees drew ample attention, the financial impact on hospitals from those newly covered by Medicaid was much greater.

“Exchanges weren’t the only, or even the most visible, positive impact of the coverage expansion: Medicaid was,” Sheryl Skolnick, PhD, director of research for Mizuho, wrote in a recent hospital research note. Moving many uninsured patients into Medicaid coverage was the largest positive ACA tradeoff for hospitals, which agreed to $155 billion in Medicare cuts over 10 years under the law.

Underscoring concerns about the financial impact of replacement was a September analysis by the RAND Corporation. The authors projected ACA repeal would increase the number of uninsured by 19.7 million people, while a replacement that included Medicaid block grants would further boost the number of uninsured by 5.5 million.

Such a loss of beneficiaries under a Medicaid block grant program “hits hospitals right between the eyes,” Skolnick wrote. “The Medicaid expansion was the most clear benefit to hospitals from the ACA.”

Those losses from the elimination of the Medicaid expansion could include $1.057 billion in revenue, which hospitals gained through an increase in Medicaid days of 1,057,730 at all hospitals from 2013 to 2015, according to Skolnick.

“We saw the benefits from the Medicaid expansion as much greater than anything from the marketplaces,” Emily Wadhwani, a director at Fitch Ratings, said in an interview. Despite covering millions of new enrollees, the marketplaces impacted hospitals less than expected because the covered population was healthier and needed less hospital care compared with the newly covered Medicaid beneficiaries.

Skolnick noted that hospitals expect about half of the ACA marketplace enrollees to gain coverage from other sources if the marketplaces are repealed. A May 2015 RAND Corporation study estimated 5.9 million ACA marketplace enrollees had previous coverage that the ACA had canceled.

Future Spending Levels

Another key detail that industry observers are awaiting is whether the funding for a Medicaid block grant is set at current federal Medicaid spending levels or those from before the expansion started in 2013. Total Medicaid spending in FY15 hit $532 billion, of which about 62 percent was provided by the federal government, according to Kaiser Family Foundation data. Even if the total block-grant funding is set at the current higher level, the financial impact on hospitals could worsen in future years if the annual spending increase is set far below medical inflation—as is the case in many such proposals.

“This is the basis for being able to score savings, but it leaves the states in a position that—unless all of a sudden they can achieve greater efficiencies in the program—they are going to be particularly strapped in financing Medicaid, and that likely leads in the short run to lower hospital payments,” Paul Ginsburg, a professor of health policy at the University of Southern California, said in an interview.

The financial impact could be worse for hospitals in the 31 states that undertook the ACA’s Medicaid expansion, according to recent research.

Those states will face greater financial pressure because of their larger enrollee population, which most likely would lead them to reduce eligibility for coverage under any block-grant approach, Wadhwani said.

“The expectation would be a pretty meaningful negative impact to hospitals that saw a big bump” under expansion, Wadhwani said.

An October study in JAMA found that in states that initially expanded Medicaid in 2014, mean annual Medicaid revenue increased by $3.2 million per hospital compared with states that did not expand Medicaid eligibility. Additionally, mean annual uncompensated care costs declined by $2.8 million per hospital, compared with non-expansion states.

Most Vulnerable Facilities

Hospitals especially vulnerable to Medicaid cuts include children’s hospitals, according to a Nov. 21 report from Moody’s Investors Service. That vulnerability is tied to the median percentage of gross revenue derived from Medicaid, which is —52 percent for children’s hospitals, compared with 14 percent for other hospitals.

“Potential Medicaid funding changes under the new presidential administration could affect the top revenue stream at children's hospitals, depending on state action,” the report stated.

Wadhwani noted that, in addition to children’s hospitals, safety net hospitals in urban areas have deep exposure to Medicaid. Compared with children’s hospitals, safety net hospitals lack both large philanthropic support and exemptions from many ACA cuts.

Managed Care Impact

Another potential Medicaid policy change of interest to hospital observers is whether the ACA replacement measure or block-grant push encourages more use of Medicaid managed care by states.

“The impact of privatizing Medicare and Medicaid is worse than repeal of the ACA with the cuts remaining,” Skolnick wrote.

That concern stems chiefly from the lower payment rates of Medicaid insurers, compared to Medicaid fee-for-service (FFS) rates. For instance, revenue at the 170-hospital HCA health system differed by more than $8,000 per patient between Medicaid FFS and Medicaid managed care plans, Skolnick’s analysis found.

“Ultimately, managed Medicaid means less reimbursement,” Wadhwani said. “So, in general, moving more toward that is a credit-negative from our standpoint.”

Other Medicaid impacts on hospitals from a repeal could include an end the ACA’s push to move the state public insurance programs toward a fee-for-value approach in their payments to providers, according to Skolnick. Many such initiatives generated savings by reducing the numbers of hospital inpatients—from which hospitals derive most revenue—through prevention or diversion to lower-cost settings. Curtailing such initiatives could increase hospital revenue.

“Of course, taking away these effective cost-reducing tools simply drives per capita health care spending back up to more historic growth rates, which in turn affects the total spending on Medicare, Medicaid, and health care, in general,” Skolnick wrote.

Conversely, Ginsburg said block granting Medicaid may actually give states greater incentive to pursue value-based models because it could allow states to keep the savings from such approaches, as opposed to the current financing structure, which sends most of any such savings to the federal government.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

 

Publication Date: Wednesday, November 23, 2016