Medicaid expansion brings increased revenue to hospitals, but has also created different financial challenges

Kentucky’s hospitals have seen a $1 billion increase in revenues since the expansion of Medicaid and the launch of Kynect, the state’s health insurance exchange program, but the influx of so many new Medicaid patients into the health system has created a new set of financial challenges, Josh Shepherd reports for The Lane Report.

Mike Rust, CEO of the Kentucky Hospital Association, told Shepherd, that “many healthcare systems have seen an overall improvement in their financial position,” but Elizabeth Cobb, KHA vice president of health policy, told him that this increase in revenue varies greatly among hospitals and that “some of them are still struggling to keep their doors open despite increasing numbers of payers and a reduction in uncompensated care statewide.”

Kentucky leads the nation in reducing its uninsured population, which Health Secretary Audrey Tayse Haynes told Shepherd that the Cabinet for Health and Family Services estimates has “introduced about $2.2 billion in new revenue into the healthcare industry, $1 billion of which has been shared among the state’s hospitals.” and that the “ACA influence is credited also with the creation of 11,900 new jobs in the professional healthcare and social work sectors.”

Kentucky’s uninsured rate is currently at 9 percent, compared to the nation’s rate of 11.7 percent, according to the latest data from The Gallup Organization.

But this reduction has caused a “major payer-mix shift,” Shepherd writes.

“When it’s said that revenues are up, it’s a relative term,” Carl Herde, chief financial officer for the Baptist Health system, told Shepherd. “We are seeing more patients, doing more services and certainly our charges are up. But we are also experiencing a significant shift in our payer mix. If you are caring for the same or more patients but not getting the same (amount of revenue) as you used to get for services, it creates an operational challenge.”

Medicaid expansion changes”payer mix,” creating new financial challenge

Payer mix, loosely defined as “the ratio of patients with commercial insurance coverage, Medicaid/Medicare or other forms of government reimbursement, and those few who still self-pay,” varies per community demographic and is a “critical variable” used to assess hospital revenues, Sheila Currans, CEO of Harrison Memorial Hospital in Cynthiana, told Shepherd..

Cobb explained that even if hospitals are seeing more patients and performing more services, if most of the patients are on Medicaid, the revenue gained from these patients will not cover the cost of treatment because “Medicaid doesn’t cover 100 percent of the costs of care.” Medicaid reimburses between 70 and 80 percent of charges.

Currans from Harrison Memorial and Herde from Baptist Health told Shepherd that they have seen a shift in their payer mix to more Medicaid patients.

Currans told Shepherd that rural hospitals are affected more than urban ones because they have a proportionately larger Medicaid/Medicare patient population, but Herde said he had not seen “much difference” in this among the hospitals he monitors.

Medicaid expansion has provided free health coverage to more than 400,000 Kentuckians.

Shepherd also writes that there has been speculation that “the influx of Medicaid patients may include low-income individuals and families formerly covered by commercial insurance through an employer,” but also notes that this has not been proven.

High-deductible plans and bad debt

A KHA report to CHFS earlier this year showed “dramatic improvement in 2014 in the rate of uncompensated care,” because of Medicaid expansion and the influence of Kynect, but Shepherd also writes that the “incidence of bad-deb accounts for hospitals actually is on the rise.”

“The ACA’s intent to make healthcare more affordable to a greater number of people is happening, Rust said, but an issue of “under-insured” individuals remains,” Shepherd writes.

“This typically involves people who opt for cheaper health insurance plans with high deductibles, which they then can’t pay when they receive care.” Shepherd writes.

This is a challenge for hospitals, but is preferable to treating uninsured patients, which still accounts for nearly 10 percent of Kentucky’s population, Shepherd writes.

“It’s a lot better for both the patient and hospital to try and work out a payment plan to cover a $5,000 deductible than writing off debts of over $100,000 in cases of injury or a catastrophic illness,” Haynes told Shepherd. Rust agreed: “At least a portion of that debt is getting paid.”

ER overuse and other fiscal pains

Most hospitals are working to decrease the overuse of emergency rooms. Some are working on the development of advance triage units to assess, prioritize and treat critical cases; Baptist Health has opened medical clinics and urgent treatment centers during off-hours; Harrison Memorial is considering adding a clinic next to its ER; and KentuckyOne Health is utilizing telehealth to address this problem, Shepherd reports.

How Kentucky will pay for the expansion continues to be a topic of debate.

The federal government is currently paying 100 percent of the cost, but that will decrease to 95 percent in 2017, 94 percent in 2018, 93 percent in 2019, and then 90 percent thereafter.

Haynes told Shepherd that “she believes the program is capable of sustaining itself in the long-run and that staying the course long term will result in a healthier Kentucky population and a more vigorous economic engine moving the state’s collective private and public healthcare enterprises forward.”

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