Hospital finances also would suffer if the 1.9 million people who are enrolled in individual insurance plans but eligible for Medicaid switched to the public insurance program.


Aug. 7—The growing number of Medicaid waivers submitted by states and approved by the Trump administration may create negative financial impacts for hospitals.

Several states—including Indiana, Arkansas, Kentucky, Arizona, and Wisconsin—are seeking Medicaid waivers from the administration to tweak their programs in ways that were previously discouraged or barred by the Obama administration. The changes include adding work requirements for adult enrollees, adding drug testing, and requiring small premium payments.

Health and Human Services (HHS) Secretary Tom Price, MD, wrote a letter to governors in March encouraging them to submit more Medicaid waivers that his department would consider “on an expedited basis.”

The Indiana waiver, known as the Healthy Indiana Plan (HIP) 2.0 and championed by then-Gov. Mike Pence—before he was elected vice president—is considered by some to be the standard-bearer for the new approach. Some have wondered whether greater flexibility of that sort may be sufficient to finally entice the 19 remaining non-expansion states to grow their Medicaid programs.

But such approaches could come with financial downsides for hospitals in those states, an analyst said.

“Generally speaking, if a non-expansion state expands Medicaid using a Healthy Indiana Plan 2.0 model, it would likely not be a net positive for hospitals,” said Emily Evans, a healthcare analyst for investment advisory firm Hedgeye.

Such downsides would come from the model’s encouragement of primary care, penalties for non-emergent use of the emergency department (ED), and rewards for certain preventive healthcare activities.

“Indiana has reported a decline in inpatient utilization and ED visits since implementing HIP,” Evans said. The Centers for Medicare & Medicaid Services “will undoubtedly request certain similar reforms from any state wishing to expand” Medicaid.

The HIP 2.0 approach to expanding Medicaid eligibility under the Affordable Care Act (ACA) was endorsed by the Indiana Hospital Association, and funding for the state’s share of the cost—beyond a cigarette tax—was provided by hospitals in the state.

The reported decrease in ED utilization in Indiana runs contrary to the experience of hospitals in most expansion states—most of which expanded without a waiver. ED visits per capita increased by 9 percent in expansion states (from 46 to 50 per 1,000 individuals), while visits in non-expansion states barely increased by the end of 2014, according to recent research. Those increases were an important contributor to the improvement in hospital finances in recent years, according to rating agencies reports.

State officials credited the reduction in ED use in part to the use of graduated copays for non-emergent use of the ED. These were paid for through individual funds from POWER accounts, which resemble health savings accounts. Some have questioned whether hospitals actually collect such copays or just add them to bad debt, and the state is surveying hospitals on that question.

“You charge $50 to a super-low-income population, they’re probably not going to pay it,” said Matt Salo, executive director of the National Association of Medicaid Directors. “It becomes bad debt for the hospital.”

Salo acknowledged that the goal of reducing ED overuse was a primary selling point for enacting the ACA, and that so far the Medicaid expansion has had the opposite effect.

“It was a mistake to argue that, because that’s not what the immediate dynamic will be,” Salo said. “People who have been uninsured for a long time have a large number of health issues, pent-up demand, and they will increase utilization, they will increase ER visits in a short window. Once they get stabilized and once they get into a more usual source of care, then it will go back down. But it won’t happen immediately.”

The unusual drop in ED use under HIP 2.0 was accompanied by some improved financial results for hospitals, with 39 percent reporting a decline in charity cases. Sixteen percent reported an increase, while 36 percent had no change. Instances of bad debt declined for 27 percent, increased for 16 percent, and did not change for 44 percent.

The mixed financial results contrast with results from standard Medicaid eligibility expansions, which several studies have found to produce broad financial benefits for hospitals. For instance, a 2016 observational study concluded that hospitals in expansion states saw an average decline in uncompensated care of $2.8 million and an average annual increase in Medicaid revenue of $3.2 million.

Insurance Impact

An HIP 2.0-like Medicaid expansion among the 19 non-expansion states might hurt hospital finances also by causing many enrollees in the government-operated health insurance marketplaces to drop that coverage in favor of Medicaid. An estimated 1.9 million people who buy coverage in the individual market would be eligible for Medicaid coverage if their states adopted the expansion, according to an October 2016 issue brief by the HHS Assistant Secretary for Planning and Evaluation. 

Such commercial coverage offers much larger payments to providers than does Medicaid, although it usually carries out-of-pocket expenses that Medicaid beneficiaries do not have to pay.

“So, hospitals in states that did not expand are likely to be worse off as a result of an expansion,” Evans said.

Latest Waiver State

Maine is the latest state to apply for an 1115 Medicaid waiver. The waiver contains provisions targeting inappropriate ED use—including reduced payments to hospitals for non-emergent ED visits, a policy that has been used previously in the state; and implementation of $10 copay charges to beneficiaries for non-emergent ED use.

Providers in the state warned that they will face adverse financial impacts from the requirement, according to the state application. Also potentially affecting hospital finances are waiver provisions to end determinations of presumptive eligibility by hospitals.

“The department does not anticipate that the changes proposed in the waiver will have a significant impact on the ability of facilities to continue to operate,” state officials wrote.

Others warned that the copayments would not reduce inappropriate ED use but could have negative consequences, such as deterring individuals from seeking lifesaving care or leading them to postpone needed care.

Salo said in an interview that he doubted whether any financial incentive would reduce inappropriate ED use by Medicaid enrollees.

“I don’t think so. You also need to ask yourself, ‘What does it mean to be in the ER for a non-emergent use?’” Salo said. “Do you only know that once you have been triaged? And it turns out, oh well, you probably didn’t need to come. Well, you don’t know until you are already there. So it kind of stinks to make them pay in that instance.”

Instead of increasing financial charges on Medicaid enrollees to discourage inappropriate use of high-cost sites of care, Salo hoped states would target underlying reasons for ED overuse, such as convenience for those who depend on public bus networks or a lack of accessibility to other options outside of normal working hours.

“So there’s a lot of factors that lead into that,” Salo said. “You have to be more thoughtful about how you are addressing the root causes of the problem and not just the symptoms.”


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

Publication Date: Monday, August 07, 2017