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Hospitals Worried About Impact of Insurance Exchanges

7 min read

While hospital executives across the state welcomed the opening of the health insurance marketplace last Tuesday, several said they were worried about its financial impact.

“Obviously, there’s some concerns with the [health insurance] exchange with this being new to everyone,” said BJ Roberts, assistant vice president of fiscal services at White County Medical Center in Searcy.

He said that the payments for treating the newly insured patients might not be enough to cover the constraints applied to Medicare reimbursements, which were made to help pay for the Affordable Care Act.

“I think there are grave concerns about that,” said Paul Cunningham, executive vice president of the Arkansas Hospital Association. “It’s going to take a year — maybe longer than that — before you get a real solid idea of the impact of all this.”

To help pay for the Affordable Care Act, the rate of growth in Medicare reimbursements took a hit. For Arkansas hospitals, that means missing out on $2 billion to $2.5 billion in Medicare revenue during the next decade, Cunningham said. And some of that reduction in revenue has already started this year, he said.

“When you talk about the Affordable Care Act … you can’t do it in a vacuum,” Cunningham said. “You have to look at it in terms of what’s coming down the pike in terms of Medicare payments.”

Hospital executives also worry that people might choose high-deductible plans and not be able to afford the deductible or copays. Hospitals also expect slightly lower payments for procedures than they’re used to from private insurance carriers, which have adopted hardball pricing tactics that are forcing hospitals to look for ways to cut expenses.

Still, some hospitals think the exchanges will help their books. From the standpoint of the University of Arkansas for Medical Sciences at Little Rock, almost everything about the health insurance marketplace will be an improvement over the current system.

Roxane Townsend, the CEO of the UAMS Medical Center, said the state-owned hospital is projecting an increase in net income because more of its patients will have some sort of insurance coverage.

“Thirteen percent of our business today is uninsured,” Townsend said. “If we are able to get 75 percent of those people enrolled in the insurance exchange over a six-month period, it could mean an $8 million gain for the medical center at UAMS.”

But there are still a lot of unknowns involving the marketplace.

“Right now, as of Oct. 2, there are so many questions that are unanswered,” said Gary Bebow, the CEO of the White River Health System in Batesville. “On the plus side, we are going to have a whole segment of our population that will have insurance. That’s got to be a positive.”

Getting People to Sign Up

One of the first hurdles hospital executives face is encouraging the 500,000 uninsured Arkansans to sign up for insurance.

At Howard Memorial Hospital in Nashville, CEO Debra Wright said her frustration began with the hospital trying to become a “certified application counselor” organization to help uninsured people get insurance through the marketplace.

“It’s very important that we have these counselors on-site,” Wright said.

She said the hospital applied to be a CAC in September but, as of last week, hasn’t heard back from the federal Centers for Medicare & Medicaid Services.

“I was told that CMS was trying to hire more people to process these applications from hospitals and other organizations that were applying,” Wright said.

One source at CMS, who asked not to be identified, said last week that Howard Memorial’s application was being processed and that the hospital should hear from CMS soon.

Cunningham, of the Arkansas Hospital Association, said some hospitals in Arkansas have been notified that they will be CAC organizations while others haven’t.

Darren Caldwell, the administrator of DeWitt Hospital & Nursing Home and Delta Memorial Hospital in Dumas, said he’s trying to spread the word about the marketplace in his communities.

He also said that he will start making a stronger push beginning next week.

“I think some of the bugs will be worked out by then, and the sites won’t be hit so heavy,” Caldwell said, referring to widespread reports of health insurance exchange websites being overwhelmed with traffic during the first days of operation.

Navigating through the insurance marketplace is no easy task, said Stan Dorn, a senior fellow at the Urban Institute, a nonprofit, nonpartisan policy research and educational organization based in Washington, D.C.

“The first worry I have would be how many people will make it through the process” to buy insurance, Dorn said. “The federal government has done a good job in making it as simple as possible, but still you have to fill out a form. People don’t like to fill out paperwork.”

Chris Barber, president and chief executive officer of St. Bernards Healthcare in Jonesboro, said it will take some time to iron out the bugs in the marketplace.

“It’s like any brand new system attempting to enroll thousands of individuals,” he said. “I think patience will be important during that first enrollment period.”

High Deductibles

Administrators also are on edge over what insurance plans people will choose. A problem could arise if the uninsured make a beeline for the policies with the lowest prices, because those have high deductibles.

“They’ll have coverage, but if they get sick and they have a $5,000 to $6,000 deductible, that’s not going to do them a heck of a lot of good,” Dorn said. “It means that a hospital will have to eat a lot of the costs.”

Wright agreed. “Unlike what most people may think, a lot of the hospital’s bad debt expense is the balance after insurance,” said Wright, of Howard Memorial Hospital. “Oftentimes, patients who are just uninsured and not eligible for Medicaid, we can set up some financial assistance for them.”

Caldwell, of the DeWitt and Dumas hospitals, said hospitals in southeast Arkansas already tend to have more uncollectable accounts than hospitals elsewhere in the state, and adding even more bad debt could be disastrous.

“It’s a real drain on cash flow and productivity as well,” Caldwell said. “If you can’t collect it on the bills, you can’t replace equipment. You can’t give raises, which makes it difficult to recruit.”

UAMS’ Townsend said high-deductible plans are less of a concern for UAMS, but it’s something the hospital is “keeping an eye on.” She said many of the uninsured patients who come to UAMS will qualify for the “private option” coverage, Arkansas’ unique program of using new federal dollars to buy private insurance on the exchange for the working poor rather than expanding the Medicaid program as the federal law originally anticipated.

Rates From Carriers

Reimbursements for care from the insurance carriers participating in the exchange will also be discounted when compared to the rates the private insurers currently pay for various procedures, Townsend said.

Arkansas Blue Cross & Blue Shield is one of the four companies that will sell insurance through the Health Insurance Marketplace in Arkansas. The others that have signed up are National Blue Cross Blue Shield Multi-state Plan; QCA Health Plan of Little Rock, which does business as QualChoice of Arkansas Inc.; and Celtic Insurance Co. of Chicago, through its subsidiary NovaSys Health.

Roberts, from White County Medical Center, said that two of the four plans negotiated payment rates with the hospital “in good faith. And they’re not a lot different from the payments that we currently have with those plans.”

But the other two companies, which he wouldn’t identify, simply told White County Medical Center how much they would pay. There wasn’t any negotiation, Roberts said.

“And those rates are somewhat lower than what we’re currently receiving from those plans,” he said.

The private reimbursements will be “a little bit higher, but not a lot” higher than the reimbursements currently being paid by Medicare.

UAMS had more revenue last year than any other hospital in the state (see list, Page 26), but Townsend said even UAMS didn’t have much negotiating leverage.

“They were pretty set on the rates they were going to pay,” she said.

But she said the rates for patients insured through the exchange will only be a few percent lower than the carriers currently pay the hospital.

Dealing With Medicare Cuts

To deal with stagnant revenue from Medicare, Roberts said White County Medical Center is examining all costs to save money “while maintaining or improving quality” of health care.

For the fiscal year that ended Sept. 30, it eliminated the equivalent of 40 full-time positions.

“All of this evaluating is coming about not just because of the insurance, but because of all the changes that are currently occurring in health care,” Roberts said.

Since 2012, Northwest Health System of Springdale’s three hospitals have seen “significant cuts to hospital reimbursement due to Medicare payment reductions as result of the Affordable Care Act, Sequestration and other payment methodology changes,” Northwest Health’s spokeswoman Patricia Driscoll said in an email to Arkansas Business.

She said the system’s three hospitals — Northwest Medical Center-Springdale, Northwest Medical Center-Bentonville and Willow Creek Women’s Hospital in Johnson — are expected to see its total net income fall by $3 million for its fiscal year that ends Oct. 31 as a result of the reductions. For the fiscal year that ended in 2012, the system’s net income was $22.4 million.

Still, the Urban Institute’s Dorn said that he thinks the financial situation for Arkansas hospitals is going to improve. “You have a lot of uninsured people in Arkansas who will be eligible for Medicaid,” he said.

About 250,000 Arkansans will be able to buy private insurance using federal Medicaid money.

“The financial picture in hospitals is about to get a lot brighter … in 2014,” he said.

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