Hospitals Brace for Medicare Changes

It's a time of flux for health care, and local doctors and hospitals are buckling down for changes to Medicare and Medicaid.

Several major cuts are coming down the line for the former:

  • First, the Affordable Care Act of 2010 cuts Medicare's rate of increase by about $155 billion nationwide over 10 years, or about $2 billion for Arkansas.
  • Second, the Budget Control Act of 2011, if implemented in January, would create a 2 percent sequester reduction on total Medicare payments, resulting in a loss of about $403 million in the state.
  • Finally, Medicare's sustainable growth rate formula causes cuts to physician reimbursements each year. Instead of overhauling the formula to avoid the cuts, however, Congress postpones them each year.

"As you can imagine for a rural state like Arkansas, hospitals are already struggling," said Paul Cunningham, executive vice president of the Arkansas Hospital Association. "It's going to make things much more difficult and put a lot of hospitals financially at risk."

Arkansas hospitals are concerned especially about the ACA cuts. They relate to the way hospitals are reimbursed for Medicare.

"They have payments that are based on a complex formula," said Mark Lowman, vice president of strategic development at Baptist Health Medical Center in Little Rock. "Congress sets the Medicare increases every year, and what this $155 billion over 10 years does is reduce that increase we would have gotten."

According to Cunningham, about 42 percent of Arkansas' inpatients are covered by Medicare, and almost 50 percent of outpatients are.

"If you add in Medicaid, that's another 20 percent on the inpatient side and 24 to 25 percent on the outpatient side," he said. "When you put those two together, that's a significant number of patients involved."

Lowman said almost 50 percent of Baptist's patients are on Medicare, and 10 percent are covered by Medicaid.

"And the Medicare reductions equate to $138 million over 10 years for Baptist," he said, noting that sequestration would cut an additional $42 million.

The reductions worry hospitals due to the amount of money already lost through charity patients, Lowman said.

"In 2011, Baptist Health provided $175 million in services to people that we didn't get paid for services," he said. "It was either charity or bad debt. We're concerned that Congress will continue to use Medicare payments to providers as a cash cow for deficit reduction."


Medicaid Expansion

The Medicare cuts have an upside, however: expansion to Medicaid.

"Those funds from the ACA are used to expand Medicaid coverage in the states," Lowman said. "We think expanding Medicaid to over 250,000 adult patients is critical to Arkansas."

"I think it's the most vulnerable part of our population," said Dr. Dan Rahn, chancellor of the University of Arkansas for Medical Sciences in Little Rock. "Right now, many individuals in that age group are not getting regular, preventative services or ongoing care for chronic diseases."

Rahn said about 37 percent of UAMS' patients use Medicare and 16 percent use Medicaid.

"The reason for that is we have obstetrics services here and adult services," he said. "Our pediatric services are over at Arkansas Children's Hospital, where they're about 60 percent Medicaid."

The Affordable Care Act originally punished states that did not expand Medicaid, but the same U.S. Supreme Court ruling that found the act's individual insurance mandate constitutional rejected the strong-arm approach to Medicaid expansion. In Arkansas, however, approving the budget to expand Medicaid will require a supermajority vote in the legislature, and some Republican lawmakers are balking.

Like Gov. Mike Beebe, Rahn is in favor of participation.

"If they do, it is 100 percent covered by federal dollars for the first several years; then it goes to 90 percent federal dollars," he said, "so Arkansas residents have a net benefit."

Rahn said that if Arkansas opts out, the state will lose dollars and still have large numbers of uninsured patients.

"I believe we can't begin to get the kind of improvements in value for the public until we can get everybody included in the system, everybody under the tent," he said. "Getting people access to health care in the right setting at the right time is a critical first step in redesigning and achieving these kinds of goals for the nation's health system."

Ultimately, Lowman said, hospitals will simply need to adapt.

"We just have to remain focused on clinical quality and aligning with physicians and being efficient," he said. "Those things aren't going to change, regardless of payment structures and public policy."