Dan Rahn: Expanding Medicaid Critical for UAMS

The state Legislature’s approval of the expansion of Medicaid to the 250,000 Arkansans who aren’t on it is critical, says Dr. Dan Rahn.

Although the expansion will help, it won’t solve all of the financial problems of the University of Arkansas for Medical Sciences.

Rahn, UAMS chancellor, on Tuesday told the Arkansas House Committee on Public Health, Welfare & Labor that the projected cost of treating uninsured patients at UAMS’ hospital would rise to $66 million in 2014 if Medicaid isn’t expanded. With expansion to cover Arkansans earning up to 138 percent of the poverty level, that cost could be reduced to $38 million — below the $42.5 million cost reported for 2010 in a study by the Arkansas Hospital Association.

“We cannot sustain that trend” of rising treatment costs if Medicaid isn’t expanded, Rahn told the committee.

In a recent interview with Arkansas Business, Rahn said UAMS was pushing for Medicaid expansion while trying to cope with a flurry of other potential financial emergencies:

• A possible $10 million in federal cuts stemming from budget reductions for Medicare and the National Institute of Health

• A rising number of uninsured patients this year

• A decrease in net state revenue

“The trends that we’re seeing are the increased costs associated with uninsured care,” Rahn said. “We’re going to have to seek new revenue streams, reduce expenses or both.”

For the fiscal year that ended June 30, the UAMS campus reported an operating loss of $63.3 million and a net loss of $7.9 million, even after state appropriations, gifts and investment income. That compared with an operating loss of $29.4 million and net income of $42.23 million the previous year.

Most of the loss in fiscal 2012, though, was tied to an accounting charge involving the booking of sick leave benefits to UAMS employees.

“There were a number of things that worked against us,” Rahn said of fiscal 2012.

UAMS’ hospital alone reported a loss of $568,712 on total patient revenue of $1.4 billion.

Through the first six months of the current fiscal year, UAMS’ hospital is “fundamentally breaking even,” Rahn said. He declined to say what the numbers were because he hasn’t yet presented them to the University of Arkansas Board of Trustees.

“But breaking even is not good enough,” he said. “We’re kind of operating on the edge.”

He said UAMS needs profits from the hospital to support its mission of improving health and health care in the state.

Rahn is banking on a number of cost-saving moves and increases in revenue that will help the UAMS campus, including forming a partnership with St. Vincent Health System that could save both systems money.

Under national health care reform, hospitals and doctors will have to demonstrate lower costs while providing high-quality care, which will be key metrics in governmental and commercial reimbursements.

“We’re really beginning the process here that’s the first real fundamental redesign of health care since Medicare and Medicaid came into existence 46 years ago,” Rahn said.

Health Care Reform

One of the top issues Rahn is supporting is the expansion of Medicaid for the working poor, which will add about 250,000 Arkansans to the joint federal-state program.

Approving the expansion will require a 75 percent supermajority vote in both the Arkansas House and Senate.

“We’ve got to get everybody into the [insurance] system,” Rahn said. “We have an unsustainable volume of uninsured care.”

House Public Health Committee Chairman Rep. John Burris, R-Harrison, told Arkansas Business last week many unanswered questions remain surrounding Medicaid expansion, including what kind of latitude the state will have in implementing the expansion.

“Right now it doesn’t look like we’ve got a lot of flexibility, and I think that makes the decision more difficult,” Burris said.

A vote might come in February, he said. Failure to approve the expansion, whose cost will be covered by the federal government for three years starting in 2014, would be a financial blow to UAMS Medical Center and other hospitals around the state, hospital officials have said.

In fiscal 2012, charity care and bad debt for the entire UAMS campus rose 15.2 percent to $202.1 million.

The percentage of UAMS patients who don’t have insurance is about 12 percent.

Meanwhile, UAMS is seeing more patients in its emergency room. The average number of visits per month has jumped from 4,500 in fiscal 2011 to 4,750 in fiscal 2012 to more than 5,000 in the first half of fiscal 2013, Rahn said.

“It’s critically important to the future of the health system and the health of the population” that Medicaid be expanded, Rahn said.

It is unclear what impact health care reform, which will require people to have health insurance by Jan. 1 or face a penalty, will have on UAMS.

Rahn said he doesn’t know how many of the estimated 500,000 uninsured Arkansans will be covered come Jan. 1. Even if with insurance, it’s unknown if they will seek treatment at UAMS or go somewhere else for care, he said.

One way UAMS is looking to cut expenses is by partnering.

UAMS and St. Vincent announced in August that they had started talks to see if there was a way the state-owned UAMS Medical Center could work with Catholic Health Initiatives’ St. Vincent to improve health care while reducing costs.

They hired consultants from Deloitte LLP of New York at a cost of at least $1 million to examine areas where the two could partner.

Peter Banko, the CEO of St. Vincent, told Arkansas Business recently that Deloitte’s study should be finished by the middle of February.

Meanwhile, doctors from both hospitals are meeting to discuss areas where a partnership might be formed, Banko said. The hospitals agreed to an April 1 deadline to decide if they want to move forward with partnership talks, he said.

Financial Incentives

Starting in October, health care providers could start seeing a financial reward for keeping a lid on health care costs.

Under the Arkansas Payment Improvement Initiative, health care providers who come in below the target price set by Medicaid and other payers for some episodes of care will get to share in the savings, said Rhonda Hill, director of health care finance at the Arkansas Center for Health Improvement.

The APII will look at the average price of care over a 12-month period to determine if the provider hit the goal. A provider that doesn’t could be on the hook for the difference, Hill said.

For UAMS, however, hitting the targets could be a challenge, Rahn said.

Not only does UAMS have a comprehensive, acute-care hospital, but it also teaches medical students, making the cost of care higher, Rahn said.

“We just need to work through how we deal with that,” he said, adding that nothing has been settled.

The Arkansas Department of Human Services still is developing its appeals process involving episodes of care, spokeswoman Amy Webb said.

On the national scene, many UAMS revenue streams are at risk, according to its fiscal 2012 audit.

One of the biggest potential blows to UAMS is the funding it receives from the National Institute of Health of Bethesda, Md., which accounted for $75 million in the fiscal year that ended June 30.

“It could mean a loss of a percentage of that” as a result of the uncertainty surrounding the budget in Congress, Rahn said.

The “sequester” cuts required by the Budget Control Act of 2011 were projected to cost UAMS $12 million a year, but the “fiscal cliff” deal in Congress left those reductions up in the air.

Rahn said he isn’t sure what will happen to the NIH budget or the federal Medicare health insurance program for people 65 and older. But he doesn’t think the dollars will be going up.

“We expect once a budget compromise is reached, it will involve reductions in spending,” Rahn said.

State money, accounting for 9 percent of UAMS’ budget, also isn’t going as far. State funds increased slightly to $114.8 million in fiscal 2012, but UAMS had to pay more out of that money for Medicaid match payments. The amount paid for Med-icaid match increased from $57.4 million in fiscal 2010 to $72.1 million in fiscal 2012.

“A portion of our [state] funds gets used for matching of federal dollars for uninsured in what is called disproportionate share payments,” Rahn said.

Under the disproportionate share funding formula, Arkansas’ median household income is compared with the national median. Since the state has made progress toward reaching the national average, UAMS’ match climbed from 25 percent to 30 percent, Rahn said.

“So as long as we maintain positive income growth in the state relative to the nation, we’re going to continue to see decrease in the federal match,” Rahn said.

While economic development in the state is desirable, Rahn said, it takes a bite out of the campus’ revenue.

“It’s just one more thing that we’re having to deal with,” he said.

To offset the funding cuts, UAMS is looking for more sources of revenue.

One is in cancer treatment. In June, it completed its $9.5 million purchase of nearly all assets that the Central Arkansas Radiation Therapy Institute used on UAMS’ campus. UAMS also terminated CARTI’s lease agreement on

the campus. In July, UAMS opened the UAMS Radiation Oncology Center, and that’s expected to generate $10 million in net patient service revenue in the cur-rent fiscal year.

Setting up its treatment center re-quired UAMS to buy two main pieces of equipment for $7 million, but the center should be profitable in the current fiscal year, he said.

Another revenue source will come from dental services. At the end of the month, UAMS will open the UAMS Oral Health Clinic. The center is working toward accreditation for postgraduate residency programs in advanced general dentistry and oral surgery.

The program seeks to have students in dental schools outside of Arkansas provide care in the clinic by next year.

A full dental school at UAMS still is about eight to 10 years away, Rahn said.

That is, of course, if the money is available for the project, he said.