Hospitals could lose 5 percent of their Medicaid revenue in states that drop the availability of three-month retroactive coverage, according to one analysis.

Nov. 20—Hospitals and insurers see both promise and peril in the potential financial impacts of several major Medicaid policy changes that emerged this month.

The Trump administration earlier in November issued new Medicaid Section 1115 demonstration policies through policy guidance, a redesigned website, and a major speech by Seema Verma, administrator of the Centers for Medicare & Medicaid Services (CMS).

The changes followed a March letter to governors from Verma and Tom Price, MD, who at the time was secretary of the Department of Health and Human Services, encouraging states to apply for waivers to test innovations in Medicaid.

The November policies include several changes:

  • Offering a new openness to work requirements
  • Implementing process changes, such as 10-year waivers, fast-track approval, and reduced reporting requirements
  • Creating first-time Medicaid and Children’s Health Insurance Program “report cards”

Cumulatively, the policy changes might have a noticeable effect on hospitals, said Gail Wilensky, former administrator for the precursor agency to CMS, especially if the changes induce some of the 19 non-expansion states to expand their Medicaid program’s eligibility.

“If there were more sign-ups and/or more states wanted to expand Medicaid, that would clearly help the hospitals—hospitals have significantly benefited from the increase in coverage,” Wilensky said in an interview. “Medicaid might not be great, but it sure beats being uninsured any day of the week, in terms of the institutional or clinical providers of care.”

An advocate for safety net hospitals said it was unclear whether the policy changes would entice more states to expand eligibility.

“It’s really hard to say how states will respond to the changes that have been announced or any changes coming down the pike,” said Erin O’Malley, director of policy for America’s Essential Hospitals (AEH).

However, recent electoral results in Maine and Virginia may drive those states to expand eligibility, she said.

Total hospital uncompensated care for Medicaid and uninsured patients fell by $4.6 billion (9.3 percent) between 2013 and 2014, with the largest declines in states that expanded Medicaid, according to a March 2017 report of the Medicaid and CHIP Payment and Access Commission.

Work Rules

Although it is too early to discern the cumulative impact of the new policies on hospitals, O’Malley said, states may still seek to implement them. Specifically, the work requirements may garner state interest, “especially if that really is one of the signature requirements, if you will, in this new administration.”

“We’re hearing from the states that there’s definitely a lot of interest in work requirements,” said Josh Archambault, a senior fellow at the Foundation for Government Accountability.

At least three states have submitted waivers that include work requirements, and Archambault expects at least six more states to follow suit. Previous research by his organization indicated work requirements have led many people in other public assistance programs to obtain employment.

However, Jeff Myers, president and CEO of Medicaid Health Plans of America, said the data he has seen indicates that most Medicaid enrollees obtain jobs if they are able to work. And he suspects that those most likely to be ejected from Medicaid for failing to meet work requirements will be enrollees with mental illnesses or substance use disorders.

“The state should really consider not just whether it is going to save Medicaid money because less people are going to be covered, but does it have significant impacts that the state is going to have to pick up otherwise because they end up in the criminal justice system or the emergency room,” Myers said in an interview.

After the large enrollment surge following the Affordable Care Act’s Medicaid expansion, Medicaid plans recently have seen small enrollment decreases, Myers said. But the enrollment drop generally was attributed to Medicaid enrollees becoming employed and obtaining insurance through their job.

As part of the Partnership for Medicaid, AEH joined a report several years ago recommending that CMS create a “comprehensive measurement and reporting system” for Medicaid.

O’Malley was optimistic that the coming report cards could “help to advance comprehensive and standardized quality measurement and reporting; that is something that would be welcome.”

“There is definitely a need just for a general baseline of quality across the Medicaid program, and through these report cards it could be helpful to identify any gaps in the Medicaid program and any areas where standardization could be infused,” O’Malley said.

Additionally, hospitals have long sought to expedite CMS’s processing of state waiver requests, O’Malley said in an interview. Wilensky was skeptical that the push for expedited review would overcome an intractable bureaucracy.

“Good luck, Seema,” she said about the plans for expedited reviews.

Retroactive Coverage

Hospital advocates also are eyeing a possible shift away from the availability in Medicaid programs of retroactive coverage for the three months before new enrollees signed up. So far, four states—New Hampshire, Indiana, Arkansas, and Iowa (each of which is a Medicaid expansion state)—have received federal approval to provide coverage only as far back as the first day of the month in which enrollees apply.

States said the change was needed to eliminate waste, and Wilensky said the change brings those programs into line with commercial insurers.

But hospitals warned that applications may take a while to process while costly care is provided, which will add to their uncompensated-care burdens.

A Commonwealth Fund analysis of a similar policy change, which was included in one of the defeated Republican healthcare overhaul bills, concluded that eliminating three-month retroactive eligibility nationally would affect about 5 percent of Medicaid payments, which cover services provided in that period. Eliminating retroactive eligibility would cut hospitals’ Medicaid revenue by about 5 percent, according to interviews by Commonwealth researchers with safety net hospital executives.

“Based on these results, we assume that eliminating these provisions would result in lost Medicaid revenue of $13.3 billion over 2017 to 2026,” the Commonwealth researchers wrote. “However, we assume that the cost of treating these patients would still be incurred by the hospitals, and this provision would therefore result in increased uncompensated care.”

Insurers also are worried that a move away from retroactive coverage will have unintended consequences.

“There is a concern that getting rid of the coverage is going to destabilize the system because [the new enrollees] actually do have costs and needs that may not be accounted for when that big emergency room visit hits,” Myers said. “In some states that do that, you will see some minimal reduction in the rolls.”

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

Publication Date: Monday, November 20, 2017