Amid the recent focus on Medicare’s spiraling costs and efforts to rein in government spending, media accounts have painted a grim picture of Medicaid financing as well:
- With record enrollment, Kentucky’s Medicaid program is facing a budget shortfall of nearly $500 million. In Arizona, the gap is expected to be $1 billion.
- In September, Washington state announced $112.8 million in Medicaid cuts, a reduction that the state’s Medicaid director described as “devastating.”
- According to the Kaiser Family Foundation, Louisiana cut Medicaid inpatient hospital rates 3.5% in fiscal year 2009, 12.1% in 2010, and an additional 4.6% for 2011 to help close budget gaps.
- Maine politicians are facing off over a $380 million state debt owed to hospitals providing Medicaid services.
Safety-net hospitals that care for a disproportionate share of uninsured and Medicaid patients are likely to feel the most pain. So what does that mean for hospitalists? Experts say they will be increasingly looked to for guidance and leadership in identifying cost-saving measures and in helping hospitals avoid further penalties by focusing on such critical metrics as readmission rates.
Political ‘Hot Potato’
The pressure isn’t likely to ease anytime soon. The American Recovery and Reinvestment Act provided $87 billion to help states pay for Medicaid costs from October 2008 through the end of this year by temporarily boosting the federal Medicaid matching rate, officially known as the Federal Medical Assistance Percentages (FMAP). In August, Congress passed legislation that provided an additional $16.1 billion to provide six more months of scaled-back relief through June, when the fiscal year ends in most states.
That’s when things could get really sticky. According to an annual survey conducted by the Kaiser Family Foundation, average state spending on Medicaid jumped 8.8% last year, the biggest increase in eight years and higher than the initial prediction of 6.3%. State Medicaid officials reported swelling ranks of eligible families due to the recession as a main reason for the rise. The pace is expected to cool slightly next year, but states that had relied heavily on federal aid to meet budget shortfalls are now facing the prospect of doing without amid a continued expansion of Medicaid enrollees.
“That’s the catch-22 that you’re in right now,” says Ellen Kugler, executive director of the National Association of Urban Hospitals, based in Sterling, Va. “There is increased demand and increasing numbers of uninsured. States are still in fiscal crisis, and there’s a delay before new dollars become available.”
New federal funds become available in 2014 to help pay for insuring those who currently lack insurance. That money will flow either through subsidies to state-administered exchanges or through direct Medicaid payments. But that same year, Kugler says, safety-net hospitals will begin seeing hefty reductions in Medicare disproportionate share (DSH) payments and possibly Medicaid DSH payments, too.
In theory, more people will have some form of health insurance by then, lessening the need to pay hospitals to help them recoup the cost of treating uninsured and underinsured patients. However, Kugler is urging caution on the DSH pay cuts, warning that it’s not clear what the ranks of the newly insured will be. Current projections, she says, suggest that half of those insured patients will fall under Medicaid programs, meaning that significant cuts could pose a financial hardship to hospitals that serve those populations.
Beyond reductions in services and reimbursement rates to doctors and hospitals, few politicians have had the stomach to propose major overhauls in how Medicaid is managed and financed. In New York state, however, a suite of proposals by Lt. Gov. Richard Ravitch has earned praise from The New York Times.1 One would streamline management of the program, now administered by 58 local governments and multiple state agencies. Ravitch also supports reducing the political wrangling over how reimbursement fees are calculated by wresting that power away from the state legislature and giving it to the state’s Medicaid director, who would be advised by an expert panel.