Even with the likelihood of short-term stability for Medicaid, hospitals are concerned about underpayments from Medicaid programs.


March 27—Hospital finances in 2018 could be jeopardized by rising uncompensated-care costs, even after the withdrawal of the American Health Care Act (AHCA).

Fitch Rating warned hospitals several days after Republicans pulled the AHCA from a planned March 24 vote that expected enrollment declines in the marketplaces created by the Affordable Care Act (ACA) will increase the level of uncompensated care for hospitals in 2018. Republicans in the House pulled the AHCA, which would have repealed and replaced portions of the ACA, because of inadequate support.

“Everyone was in agreement—Democrats and Republicans—that the exchanges weren’t very healthy in 2017,” said Megan Neuburger, managing director at Fitch.

In addition to an enrollment decrease of about 500,000 between 2016 and 2017, adverse signs included a sharp increase in average premiums and the departure of some larger insurers from the marketplaces.

In February 2016, the Centers for Medicare & Medicaid Services (CMS) reported that 12.7 million people had enrolled in ACA marketplace plans during open enrollment, with health insurers reporting that an additional 7.5 million people obtained individual coverage elsewhere, according to an August 2016 blog post by Mark Farrah Associates. The total of 20.2 million individual-market enrollees was little changed from the reported March 2015 total of 20.4 million.

“We think that is likely to be worse in 2018, given that there is even more uncertainty now around the future of the ACA, what the [Trump] administration might do to defund portions of it or destabilize the exchanges even more than they already are,” Neuburger said in an interview. “All that taken together is bad news for hospitals in that it probably means fewer exchange-covered lives.”

Hospitals and insurers have clashed over CMS’s proposed rule changes to the ACA marketplaces, such as new enrollment limits, network adequacy standards, and timelines for qualified health plan certification.

Insurers also are awaiting a decision by the Trump administration on how it will handle subsidies that reduce out-of-pocket expenses for the approximately 30 percent of ACA marketplace enrollees who are eligible for such subsidies based on income, according to a report by Milliman. A federal district court ruled the subsidies illegal, but insurers say they are needed to stabilize the ACA marketplaces.

Even hospitals in the 31 states that expanded Medicaid eligibility will be impacted because people who drop marketplace plan coverage likely earn too much to qualify for Medicaid coverage.

Fitch had warned in a March 16 note that not-for-profit hospitals faced a “considerable” increase in uncompensated care under the AHCA. Those costs have been declining in recent years under the
ACA. For example, uncompensated care for a group of the largest for-profit hospital companies has dropped by an average of 250 basis points since the start of the ACA’s insurance expansion, Fitch noted.

Uncompensated care provided by hospitals in 2015 cost $35.7 billion, which was 4.2 percent of total expenses—the lowest share since at least 1990, according to an American Hospital Association (AHA) report.

But the ACA’s cost-related benefits for hospitals have come largely through state Medicaid expansions, through which 9 million people have gained coverage since 2013. Although current Medicaid enrollment was considered stable after withdrawal of the AHCA, none of the 19 non-expansion states were likely to expand eligibility due to the “uncertainty of future funding,” according to Fitch.

Vote Consequences

In the wake of the failure to pass the AHCA, Mizuho Securities moved three large, publicly traded for-profit hospital groups into its “buy” category, mainly on the expectation that a shift to Medicaid block grants now will not occur. Several large hospital company stocks also increased based on the failure of the bill.

“The AHCA would have made some really big changes to the Medicaid program that went well beyond the ACA and that would not have been good for hospital companies,” Neuburger said. “That’s part of the story in how you’re seeing the market respond to the AHCA not moving forward.”

Hospital advocates praised the withdrawal of the AHCA, which had been opposed by seven of the largest national hospital advocacy groups.

“Congressional leaders made the right choice to withdraw their legislation to repeal the Affordable Care Act,” Bruce Siegel, MD, president and CEO of America’s Essential Hospitals, said in a written statement. “With health care coverage for tens of millions of Americans in the balance, this was a sound decision.”

However, Siegel noted ongoing coverage challenges, including those caused by a lack of stability in the ACA marketplaces.

He urged Congress to avert Medicaid disproportionate share hospital (DSH) payment cuts that are required by the ACA and scheduled to start in FY18. The ACA is slated to cut $102.9 billion in Medicare and Medicaid DSH payments from 2018 to 2026, according to an AHA-sponsored study.

Chip Kahn, president and CEO of the Federation of American Hospitals (FAH), urged restoration of the Medicare payments that are required to be cut under the ACA “so community hospitals have sufficient resources to continue to deliver high-quality care to seniors and the disabled.” The ACA’s Medicare cuts will cost hospitals $289.5 billion from 2018 to 2026, according to an analysis commissioned by the AHA and the FAH.

Medicaid Impacts

The stability—for now—of Medicaid does not negate ongoing hospital concerns about underpayment from their growing shares of Medicaid patients.

A 2015 surge in hospital financial losses appeared to be driven by Medicaid, which paid $16.2 billion less than the cost of care for those beneficiaries. The shortfall was 23 percent greater than in 2013, when hospitals lost $13.2 billion on Medicaid patients.

A December Health Affairs study, based on 2011 audit data from 2,475 Medicare DSH hospitals, found that when state taxes and required government fees were included, net Medicaid payment averaged 89 percent of Medicaid cost-of-care.

Neuburger said hospital analysts looked at Medicaid patients as a net positive for hospitals if they were previously uninsured and as net losses if they previously had commercial-insurance coverage, which generally pays much higher rates.


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

Publication Date: Monday, March 27, 2017