Hospitals should take several steps now to prepare for the financial impact of any reform package, advisers say.

March 15—Fourteen million of the 24 million additional people who are expected to lack insurance coverage in 10 years under a pending healthcare overhaul will come from Medicaid.

The projections that the Congressional Budget Office (CBO) released this week underscored the potential impact of the provisions of the American Health Care Act (AHCA) on Medicaid programs and on the hospitals that serve many of those patients.

“The Medicaid piece is going to be most impactful overall, even beyond the changes in the [individual insurance] marketplace,” Chad Mulvany, HFMA’s director of healthcare finance policy, strategy and development, said about the financial effects for hospitals.

The coverage losses were expected to begin in 2017 with 4 million joining the 26 million existing uninsured as the individual mandate is eliminated. But unlike the steadily increasing Medicaid coverage losses, individual-market enrollment losses were expected to reach only 2 million over a decade as premiums become more affordable for some. Hospitals may take little comfort from the fact that about 5 million of the projected 14 million Medicaid losses are not yet covered but were expected to gain coverage as some of the 19 remaining non-expansion states finally agreed to expand the program.

“If coverage declines as CBO predicts, the likely rise in uncompensated care costs would fall hardest on hospitals for vulnerable patients—essential hospitals,” Bruce Siegel, MD, president and CEO of America’s Essential Hospitals, said in a written statement. “These hospitals, which already operate with little or no margin, could not sustain these additional costs. Fewer services and workforce reductions almost certainly would follow in many communities.”

Delphine O'Rourke, a managing partner with Hall, Render, Killian, Heath & Lyman, agreed that the coverage reductions—together with $290 billion in coming Medicare cuts that were established by the Affordable Care Act (ACA) and are not slated to be overturned by the AHCA—would likely lead some hospitals to either merge with others or close.

“The hospitals are already trying to get ready to absorb those costs, and when you have additional costs on top of that it is going to be difficult for many hospitals to survive,” O'Rourke said

Other adverse hospital impacts that could be expected include an increase in bad debt, which became more severe under the ACA, and more balance billing for patients with high-deductible health insurance, O'Rourke said.

In response to reduced Medicaid enrollments, which CBO attributed to the loss of the individual mandate and reduced federal funding, states likely would cut providers’ Medicaid rates—to the extent they could—and more aggressively implement alternative payment models, Mulvany said. Those models could echo waiver-driven initiatives such as the shared-savings models in Oregon, the Medicaid accountable care organizations in Vermont, bundling programs used in Arkansas and Tennessee, or Delivery System Reform Incentive Payment models in California, Texas, and New York.

O'Rourke warned that some of the 31 expansion states could curtail such pilots in the face of reduced federal funding.

Jeff Myers, president and CEO of Medicaid Health Plans of America (MHPA), said innovation could be limited by the $880 billion reduction in federal Medicaid spending that CBO projected would occur under the AHCA.

“That number is stunningly large,” Myers said in an interview. “If you’re going to have a per-capita-cap model, it needs to be funded so that the states can start to rationally think about the services provided and not [implement] it in a manner that puts the patients in the states at risk.”

Other cost-saving initiatives that states likely would increasingly push include transferring remaining able-bodied beneficiaries into managed care and experimenting with doing the same for greater numbers of elderly and disabled beneficiaries.

“I would expect more aggressive use of the waivers to manage coverage—the services and how they are provided,” Mulvany said.

New approaches by the Centers for Medicare & Medicaid Services (CMS) to granting Medicaid waivers could include establishing requirements to pursue employment or volunteer work, along with mandating greater cost sharing.

Many waivers focus on keeping patients out of hospitals, O'Rourke noted.

“Go to the hospital when it is most appropriate,” O'Rourke said. “When people are uninsured, they are going to the hospital because it is their only recourse.”

Employer Coverage

The CBO score concluded that the second-largest loss of coverage over the next 10 years—7 million people, compared projected levels under the ACA —would occur in employer-sponsored coverage. However, Mulvany noted that CBO similarly predicted the ACA would produce a massive loss in employer-sponsored insurance (ESI) coverage, which never occurred.

“It’s going to depend on how competitive the job market is in your area and whether skilled labor that is currently gaining coverage is in demand or not,” Mulvany said about the AHCA’s ESI impact.

The bill also is expected to have a disproportionate impact on rural areas, which tend to have higher payments to hospitals and physicians due to the higher costs of providing care.

The bill is expected to fuel coverage gains among younger enrollees in the individual-insurance marketplace, a demographic that comprised only 27 percent of ACA marketplace enrollees in the latest open enrollment, according to a new CMS report. The bill’s relatively larger subsidies for younger enrollees will be counterbalanced by lesser subsidies for older enrollees, who would be expected to see their premiums increase compared to the ACA.

Hospital Preparation

Although the provisions of the AHCA remain in flux during negotiations among Congress and the Trump administration, Mulvany said hospitals can begin to prepare for the effects by identifying and aggressively pursuing internal cost-structure savings.

Other prudent steps include establishing ways to communicate with patients in advance of service provision whenever possible to let them know what their out-of-pocket cost going to be.

“If this bill or something like it is passed, then we are likely to see ‘skinnier’ coverage, less ACA cost-sharing subsidies, so you’re going to see more out-of-pocket costs,” Mulvany said. “So make those people aware of their financial obligation in advance, help develop a collection plan, and understand whether or not they are eligible for your charity care policy.”

Developing ways to better understand the extent to which patients lack the ability to pay will prevent hospitals from wasting money on pursuing payment from people who cannot afford it, Mulvany said.

Healthcare finance leaders also need to stay focused on developing the ability to manage outcomes-based payment models. Mulvany expects that more states will pursue those models in their Medicaid programs and that more health plans will look to partner with providers to offer less expensive insurance products.

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

Publication Date: Thursday, March 16, 2017