For a variety of reasons, the shift of federal funding to non-expansion states under the proposed bill has not generated hospital support.

Sept. 21—The financial effects on hospitals of a healthcare overhaul measure that the Senate is expected to vote on next week will vary largely based on the state in which they are located, according to policy analysts.

The bill—known as Graham-Cassidy, after the names of its leading sponsors—would change major elements of the Affordable Care Act (ACA), including through alterations in federal Medicaid financing and reduced federal spending for public and private health insurance coverage.

The largest impact on hospitals is expected to come through coverage provisions that cap Medicaid spending and shift funding for Medicaid and ACA marketplace subsidies to block grants, which would be allocated to states based on a complex formula.

“The hospital impacts ultimately will vary greatly,” Eddie Marmouget, national industry leader at BKD National Health Care Group, said in an interview. “There’s going to be a significant shift in federal spending among states.”

The biggest state losers under the bill would include New York (35 percent decrease in federal coverage spending), Oregon (32 percent), and Connecticut (31 percent). Winning states would include Mississippi (148 percent increase), Texas (75 percent), and Kansas (61 percent), according to an analysis by the Kaiser Family Foundation (KFF).

“In general, states that have expanded Medicaid under the ACA and/or have had substantial enrollment in the health insurance marketplaces would see reductions in federal spending for coverage expansions, while other states would see increases,” the KFF analysis stated.

That funding shift to non-expansion states was not enough to garner hospital support in those states.

For instance, the Tennessee Hospital Association (THA) this week announced its opposition to the bill over many of the same issues that led it to oppose earlier Republican efforts to replace the ACA—despite the bill’s expected 44 percent increase in federal funding to the state.

“Specifically, the potential for disruptions to the individual insurance marketplace, long-term cuts and structural changes to Medicaid funding—with a tremendous burden placed on state budgets, maintenance of steep cuts in the ACA to Medicare providers, and elimination of the Prevention and Public Health Fund, make the proposal a nonstarter for a much-needed healthcare solution,” Craig Becker, president and CEO of THA, said in a written statement.

The state was expected to gain about $1.6 billion in federal funding in the first five years, Becker said in an interview, but what the state would do with that influx of cash is unclear.

“You’re going to have 400,000 people looking for insurance coverage,” Becker said, referring to the state’s current enrollment in the ACA marketplace.

The hospital impact in Tennessee was largely unknown because of the lack of analysis of the legislation. What is known has raised hospitals’ concerns.

“It’s going to be very disruptive for a lot of hospitals,” said Becker, who has urged member hospitals to contact their senators in opposition to the measure.

Similarly, the Alabama Hospital Association (AHA) has launched a grassroots advocacy campaign against the bill, even though KFF projected a 32 percent increase in federal spending in the state during 2020-26. That projection does not take into the account the bill’s creation of per capita caps and its decrease in allowable provider taxes—after which the state is likely to have a net loss in federal funding, according to Danne Howard, executive vice president for AHA.

“So we come out way to the bad,” Howard said in an interview.

All five of the major national hospital advocacy organizations this week came out against the legislation—largely based on concerns that it will sharply decrease coverage.

Coverage Changes 

Although projections from Congress’s nonpartisan scorekeeper, the Congressional Budget Office (CBO), are not expected until next week, a variety of ACA supporters have issued projections of funding losses under the bill owing to sharply reduced growth in overall federal healthcare spending.

For instance, an analysis by Avalere—conducted for the left-leaning Center for American Progress—concluded that the bill would cut federal funding to states by $215 billion during its first 10 years.

An analysis by the left-leaning Commonwealth Fund stated that the bill includes enough elements of previous CBO-scored healthcare bills to project that the number of people with insurance would decrease by 15 million to 18 million in the first year after enactment. Much of the coverage loss that the CBO projected to occur under previous GOP bills explicitly stemmed from repeal of the individual mandate, the use of which Graham-Cassidy leaves up to the states.

Such projections are likely “directionally correct,” said Chad Mulvany, director of healthcare finance policy, strategy and development for HFMA. “There’s nothing in here that—in terms of maintaining or expanding coverage levels—is an improvement on CBO scores from the other repeal and replacement bills.”

 “There’s nothing in here that—in terms of keeping coverage—is an improvement on CBO scores from the other bills. In fact, my guess is that the CBO might score this worse,” Mulvany said.

Other Impacts

Hospitals also are expected to see financial hits from other provisions of the bill, such as a reduction in the maximum amount of provider funding that states can use to finance the state share of Medicaid. Between 2021 and 2025, the bill would ratchet down the federal cap on states’ use of provider taxes to finance Medicaid from 6 percent to 4 percent of net patient revenue.

Although the percentage change is small, the corresponding Medicaid funding amounts are massive. The amount of provider taxes is not regularly reported, but states reported $21.9 billion in provider tax revenue in FY15, according to congressional testimony by John Hagg, director of Medicaid audits in the Office of Inspector General of the U.S. Department of Health and Human Services.

“President Obama proposed a similar, slightly larger, reduction in the provider tax safe harbor in one of his budgets. Over 10 years it reduced Medicaid expenditures by approximately $48B so this has the potential to be significant. It will impact almost every state as only six have provider taxes that are well below the 2025 threshold.” Mulvany said about the effect of reducing the allowed provider tax.

The bill could cause financial headaches for hospitals also because it would not stop cuts to Medicaid Disproportionate Share Hospital (DSH) payments, which are required by the ACA and slated to begin Oct. 1.

Instead, from FY21 to FY25, states experiencing a “grant shortfall” could have their annual DSH allotment increased, while in 2026, states with a grant shortfall would be eligible for a “one time increase in the State’s DSH allotment.” The increase would be equal to the lesser of the grant shortfall amount or the total amount of the state’s DSH reduction in FY18-20, according to an analysis by America’s Essential Hospitals (AEH).

“So, Graham-Cassidy provides only marginal relief from scheduled Medicaid DSH cuts,” the AEH analysis stated.

Despite the growing hospital opposition, Marmouget gave the bill a 50-50 chance of passing when the Senate votes next week.

“There’s certainly a real chance that this might get through,” Marmouget said. 

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

Publication Date: Thursday, September 21, 2017