Public Policy

The Medicaid Gap


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.

Do the legwork now. Get your IT systems in place to be able to provide the coordinated care.—Ellen Kugler, executive director, National Association of Urban Hospitals, Sterling, Va.

“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.

Another unresolved issue is how to pay for the long-term care of chronically ill patients, which in New York accounts for nearly half of its Medicaid spending. Kugler says the high incidence of chronic conditions, including mental illness, among patients in urban settings can contribute to the high readmission rates the new law is set to begin penalizing in 2012. Other studies have found that among Medicaid patients at high risk for frequent hospital admissions, substance abuse can be a major contributor.2

The difficult task, then, is to ensure that the hospitals serving these populations don’t lose even more resources through penalties due to subpar quality metrics. “Do the legwork now. Get your IT systems in place to be able to provide the coordinated care,” Kugler advises. Identifying efficiencies while maintaining the appropriate level of care will be key, whether in appropriate reductions in length of stay or in increased focus on communication with outpatient providers and other forms of outreach.

Dr. Lopez and his colleagues found that among patients with chest pain admitted to EDs, blacks, Hispanics, and those who lacked insurance or were on Medicare were less likely to receive urgent triage care.

Hope for the Safety Net

Despite the financial and logistical challenges, Lenny Lopez, MD, MPH, a hospitalist at Brigham and Women’s Hospital and an assistant in health policy at Massachusetts General Hospital, both in Boston, says the situation is far from hopeless for safety-net hospitals. “The idea that if you’re a DSH hospital you’re somehow pegged and destined to provide low-quality care—that does not have to be the case,” he says. Nor do problems such as disparities in how patients are treated necessarily require expensive solutions.

In a recent paper in Academic Emergency Medicine, Dr. Lopez and his colleagues found that among patients with chest pain admitted to EDs, blacks, Hispanics, and those who lacked insurance or were on Medicare were less likely to receive urgent triage care.3 “These are problems that are fixable in a low-cost way,” he argues. “We don’t need another fancy machine to diagnose chest pain.” Rather, he suggests, the problem is really one of quality improvement that centers on boosting guidelines, not buying more equipment or involving more personnel.

Properly defining the problem, Dr. Lopez says, can lead to effective measures to boost quality. Amid the continuing budget crunch, pinpointing where interventions could provide the biggest bang for the buck also might prove enormously helpful.

Of the roughly 4,200 acute-care hospitals in the country, Dr. Lopez and his colleagues found that less than 10% care for the bulk of minority patients, and those on Medicaid or lacking insurance. That means such care is concentrated in about 400 hospitals, “which is a huge opportunity for intervention options for this kind of an issue,” he says. TH

Bryn Nelson is a freelance medical writer based in Seattle.


  1. 1. Benefits and burdens of Medicaid. The New York Times website. Available at: Accessed Oct. 23, 2010.
  2. 2. Raven MC, Billings JC, Goldfrank LR, Manheimer ED, Gourevitch MN. Medicaid patients at high risk for frequent hospital admission: real-time identification and remediable risks. J Urban Health. 2009;86(2):230-241.
  3. 3. López L, Wilper AP, Cervantes MC, Betancourt JR, Green AR. Racial and sex differences in emergency department triage assessment and test ordering for chest pain, 1997-2006. Acad Emerg Med. 2010:17 (8):801-810.

The Fight Over Child-Only Insurance Plans

In another unresolved skirmish over healthcare insurance, the federal government and major insurers are continuing their feud over covering children with pre-existing conditions. In September, on the eve of new regulations that would prohibit insurers from denying coverage to such children, several major companies, including Aetna and Cigna, announced they would no longer offer standalone policies for children in some states. Department of Health and Human Services Secretary Kathleen Sebelius hit back in mid-October in a letter to the National Association of Insurance Commissioners, saying insurers “reneged on their commitment.”

Acknowledging that they can’t compel insurers to offer specific policies, federal and state officials have instead tried an assortment of carrots and sticks. In California, Gov. Arnold Schwarzenegger signed a bill that would punish companies that refuse to sell child-only policies by barring them from selling any individual plans for five years. Sebelius also has suggested incentives to encourage workers to enroll their children in employer-sponsored insurance plans rather than standalone child policies.

Insurers say they fear parents will enroll their children only when a child becomes ill, thus unfairly raising costs. The industry has proposed year-round enrollment for healthy children, based on questionnaires, but a more limited open-enrollment period for those with pre-existing conditions. Sebelius rejected that proposal as incompatible with the intent of healthcare reform but pointed out that charging higher premiums based on health status—as long as the practice adheres to state law—is still permissible.—BN

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