States have several options to try to make up for lost federal funding, but provider rate cuts are a likely response, industry advisers say.

Feb. 21—Hospitals are likely to face payment cuts if the Medicaid provisions in the latest GOP overhaul of the 2010 healthcare reform law are enacted, according to industry advisers.

House Speaker Paul Ryan (R-Wis.) recently issued an outline of where Republican efforts to repeal and replace the Affordable Care Act (ACA) are headed. Although the plan lacks much detail, it provided more direction than Ryan’s 2016 Better Way Plan, which congressional and industry advisers previously looked to as a gauge of the direction of ACA repeal-and-replace efforts.

The latest proposal was most detailed about provisions affecting the ACA’s government-run marketplaces, including enrollee subsidies, which the GOP plan would replace with a “universal health care tax credit.”

But some industry advisers raised the biggest concerns regarding the plan’s Medicaid provisions, which would repeal the ACA’s Medicaid expansion funding and provide per capita block grants to states set at pre-ACA federal matching rates. After an unspecified transition period, the replacement plan would reduce the federal match from its current 95 percent rate for expansion populations to the rate each state receives for its pre-ACA covered population, which ranges from 50 percent to 75 percent.

“Past proposals for block grants and per capita caps would have, over time, dramatically cut federal spending on the Medicaid program,” said Bruce Siegel, MD, president and CEO of America’s Essential Hospitals. “Substantial cuts would be unsustainable for our hospitals and their patients.”

Although the GOP plan did not include estimates (Ryan said the Congressional Budget Office was evaluating it), a March 2016 House budget resolution—described by some observers as very similar—would have reduced federal spending on Medicaid by $2.1 trillion (or 41 percent) over 10 years, estimated the Kaiser Commission on Medicaid and the Uninsured. A recent Avalere analysis concluded that block grants would cut federal Medicaid spending by $150 billion over five years, while per capita caps would eliminate $110 billion over that span.

When previously faced with steep federal funding reductions to Medicaid, states have most frequently turned to provider cuts to offset the losses, advisers said.

“In the past, they have most typically cut provider rates,” said Deborah Bachrach, a partner at Manatt Health Solutions. “But if you cut provider rates or health plan rates too much, you don’t have access.”

Provider Rates

Another challenge is that in the three years since up to 31 states have utilized the ACA’s authority to expand Medicaid eligibility with a 100 percent federal match, few have increased overall provider rates—especially among hospitals where most of the spending occurs.

Specifically, 37 states froze or cut hospital Medicaid rates in FY17, up from 31 states that did so in FY16, according to the latest Kaiser Family Foundation survey of Medicaid directors. Medicaid programs paid hospitals only 90 cents for every dollar they spent caring for Medicaid patients in 2015, according to the latest assessment by the American Hospital Association (AHA).

“It would be difficult for providers to take much of hit,” said Justin Birrell, a fellow of the Society of Actuaries and a consulting actuary with Milliman.

Fitch Ratings agreed that the Medicaid changes in the Ryan plan “could significantly challenge hospital and healthcare systems,” especially those in Medicaid expansion states. However, the rating agency and industry analysts noted that many important details about the plan remain unknown. For instance, it’s uncertain whether the expansion population would qualify for block-grant funding or fit under the per capita cap—even at the pre-ACA federal-state match, Bachrach said.

“So not only are we repealing the expansion, but the proposal dramatically alters the financing for the Medicaid program,” Bachrach said.

The U.S. Department of Health and Human Services estimated that $58 billion in federal funding covered 9.1 million Medicaid expansion enrollees as of FY15.

Funding Offsets

If steep cuts in federal Medicaid spending are approved, states have several levers to try to provide additional funding, including one-time grants to hospitals. However, hospitals have worried that one-time funding sources are unreliable for addressing ongoing financial challenges stemming from the treatment of large numbers of uninsured patients.

“In this scenario, that might be something that has some risk to it—that there might be lower funding there,” Birrell said.

One area where the Ryan plan was expected to improve hospital funding was in disproportionate share hospital (DSH) payments, which it would restore. 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.

Other options for states facing a loss of federal Medicaid funding might include expanded use of provider taxes, according to industry advisers. Previous Republican proposals have sought to limit the use of Medicaid provider taxes to fund a state’s share of the program, but the Ryan plan did not address that point.

Among the 49 states that use provider taxes to boost their Medicaid programs’ federal funding, 15 increased at least one provider tax rate in FY16 and 13 planned at least one increase in FY17, according to the Medicaid directors’ survey. Hospital tax rate increases, specifically, were approved in six states in FY16 and were planned in seven states in FY17.

Provider and insurer taxes have taken an increasingly prominent role in funding the Medicaid expansion. In 2017, when the federal share of the expansion cost dropped from 100 percent to 95 percent, eight expansion states (Arkansas, Arizona, Colorado, Illinois, Indiana, Louisiana, New Hampshire, and Ohio) said at least some of the state cost would be funded by new or increased provider taxes or fees, or by insurance premium taxes.

But that funding tool is facing increased federal pushback. The Centers for Medicare & Medicaid Services issued a Medicaid managed care final rule in April 2016 to limit related pass-through payments, which states pay to Medicaid managed care plans as extra funding for certain providers. Among the new limitations was a requirement to phase out pass-through payments for hospitals within 10 years.

“I would expect that there would be some sorts of limits on that going forward,” Birrell said about Medicaid provider and insurer taxes.

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


Publication Date: Tuesday, February 21, 2017