Congress Warns Against Medicaid Cuts: ‘You Just Wait for the Firestorm’

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WASHINGTON — If President Trump allows states to convert Medicaid into a block grant with a limit on health care spending for low-income people, he will face a firestorm of opposition in Congress, House Democrats told the nation’s top health official on Tuesday.

The official, Alex M. Azar II, the secretary of health and human services, endured more than four hours of bipartisan criticism over the president’s budget for 2020, which would substantially reduce projected spending on Medicaid, Medicare and biomedical research. Democrats, confronting Mr. Azar for the first time with a House majority, scorned most of the president’s proposals.

But few drew as much heat as Mr. Trump’s proposed overhaul of Medicaid. His budget envisions replacing the current open-ended federal commitment to the program with a lump sum of federal money for each state in the form of a block grant, a measure that would essentially cap payments and would not keep pace with rising health care costs.

Congress rejected a similar Republican plan in 2017, but in his testimony on Tuesday before the Health Subcommittee of the House Energy and Commerce Committee, Mr. Azar refused to rule out the possibility that he could grant waivers to states that wanted to move in that direction.

Under such waivers, Mr. Azar said, he could not guarantee that everyone now enrolled in Medicaid would keep that coverage.

“You couldn’t make that kind of commitment about any waiver,” Mr. Azar said. He acknowledged that the president’s budget would reduce the growth of Medicaid by $1.4 trillion in the coming decade.

Representative G. K. Butterfield, Democrat of North Carolina, said that “block-granting and capping Medicaid would endanger access to care for some of the most vulnerable people” in the country, like seniors, children and the disabled.

Mr. Trump provoked bipartisan opposition by declaring a national emergency to spend more money than Congress provided to build a wall along the southwestern border. If the president bypasses Congress and allows states to convert Medicaid to a block grant, Mr. Butterfield said, he could face even more of an outcry.

“You just wait for the firestorm this will create,” Mr. Butterfield said, noting that more than one-fifth of Americans — more than 70 million low-income people — depend on Medicaid.

As a candidate, Mr. Trump said he would not cut Medicare, but his new budget proposes to cut more than $800 billion from projected spending on the program for older Americans in the next 10 years. Mr. Azar said the proposals would not harm Medicare beneficiaries.

“I don’t believe any of the proposals will impact access to services,” Mr. Azar said. Indeed, he said, the cutbacks could be a boon to Medicare beneficiaries, reducing their out-of-pocket costs.

After meeting an annual deductible, beneficiaries typically pay 20 percent of the Medicare-approved amount for doctor’s services and some prescription drugs administered in doctor’s offices and outpatient hospital clinics.

Mr. Azar defended a budget proposal to impose work requirements on able-bodied adults enrolled in Medicaid. Arkansas began enforcing such requirements last year under a waiver granted by the Trump administration. Since then, at least 18,000 Arkansans have lost Medicaid coverage.

Mr. Azar said he did not know why they had been dropped from Medicaid. It is possible, he said, that some had found jobs providing health benefits.

Representative Joseph P. Kennedy III, Democrat of Massachusetts, said it would be reckless to extend Medicaid work requirements to the entire country without knowing why people were falling off the rolls in Arkansas.

If you are receiving free coverage through Medicaid, Mr. Azar said, “it is not too much to ask that you engage in some kind of community engagement.”

Representative Fred Upton, Republican of Michigan, expressed deep concern about Mr. Trump’s proposal to cut the budget of the National Cancer Institute by $897 million, or 14.6 percent, to $5.2 billion.

Mr. Azar said the proposal was typical of the “tough choices” in Mr. Trump’s budget. He defended the cuts proposed for the National Cancer Institute, saying they were proportional to the cuts proposed for its parent agency, the National Institutes of Health.

The president’s budget would reduce funds for the N.I.H. as a whole by 12.6 percent, to $34.4 billion next year.

Mr. Azar was also pressed to justify Mr. Trump’s proposal to cut federal payments to hospitals serving large numbers of low-income patients. Representative Eliot L. Engel, Democrat of New York, said the cuts, totaling $26 billion over 10 years, would be devastating to “safety net hospitals” in New York and other urban areas.

Mr. Azar said that the Affordable Care Act, by expanding coverage, was supposed to “get rid of uncompensated care” so there would be less need for the special payments.

While Democrats assailed the president’s budget, Mr. Azar relished the opportunity to attack Democrats’ proposals to establish a single-payer health care system billed as Medicare for all.

Those proposals could eliminate coverage provided to more than 20 million people through private Medicare Advantage plans and to more than 155 million people through employer-sponsored health plans, he said.

But Mr. Azar found himself on defense on another issue aside from the president’s budget: immigration. He said he was doing his best to care for migrant children who had illegally entered the United States, were separated from their parents and are being held in shelters for which his department is responsible.

He said he was not aware of the “zero tolerance” immigration policy before it was publicly announced in April 2018 by Attorney General Jeff Sessions. If he had known about the policy, Mr. Azar said, “I could have raised objections and concerns.”

Representative Anna G. Eshoo, Democrat of California and the chairwoman of the subcommittee, summarized the case against the president’s budget.

“The Trump administration,” she said, “has taken a hatchet to every part of our health care system, undermining the Affordable Care Act, proposing to fundamentally restructure Medicaid and slashing Medicare. This budget proposes to continue that sabotage.”





Healthcare as a zero-sum game: 7 key points

This article sets out seven thoughts on healthcare systems.

The article discusses:

  1. Types of Healthcare Systems
  2. Mergers and Key Questions to Assess Mergers
  3. Headwinds Facing Systems
  4. The Great Fear of Systems
  5. What has Worked the Last 10 Years
  6. What is Likely to Work the Next 10 Years
  7. A Few Other Issues

Before starting the core of the article, we note two thoughts. First, we view a core strategy of systems to spend a great percentage of their time on those things that currently work and bring in profits and revenues. As a general rule, we advise systems to spend 70 to 80 percent of their time doubling down on what works (i.e., their core strengths) and 20 to 30 percent of their time on new efforts.

Second, when we talk about healthcare as a zero-sum game, we mean the total increases in healthcare spend are slowing down and there are greater threats to the hospital portion of that spend. I.e., the pie is growing at a slower pace and profits in the hospital sector are decreasing.

I. Types of Healthcare Systems

We generally see six to eight types of healthcare systems. There is some overlap, with some organizations falling into several types.

1. Elite Systems. These systems generally make U.S. News & World Report’s annual “Best Hospitals” ranking. These are systems like Mayo Clinic, Cleveland Clinic, Johns Hopkins Hospital, NewYork-Presbyterian, Massachusetts General, UPMC and a number of others. These systems are often academic medical centers or teaching hospitals.

2. Regionally Dominant Systems. These systems are very strong in their geographic area. The core concept behind these systems has been to make them so good and so important that payers and patients can’t easily go around them. Generally, this market position allows systems to generate slightly higher prices, which are important to their longevity and profitability.

3. Kaiser Permanente. A third type of system is Oakland-based Kaiser Permanente itself. We view Kaiser as a type in and of itself since it is both so large and completely vertically integrated with Kaiser Foundation Health Plan, Kaiser Foundation Hospitals and Permanente Medical Groups. Kaiser was established as a company looking to control healthcare costs for construction, shipyard and steel mill workers for the Kaiser industrial companies in the late 1930s and 1940s. As companies like Amazon, Berkshire Hathaway and JPMorgan Chase try to reduce costs, it is worth noting that they are copying Kaiser’s purpose but not building hospitals. However, they are after the same goal that Kaiser originally sought. Making Kaiser even more interesting is its ability to take advantage of remote and virtual care as a mechanism to lower costs and expand access to care.

4. Community Hospitals. Community hospitals is an umbrella term for smaller hospital systems or hospitals. They can be suburban, rural or urban. Community hospitals are often associated with rural or suburban markets, but large cities can contain community hospitals if they serve a market segment distinct from a major tertiary care center. Community hospitals are typically one- to three-hospital systems often characterized by relatively limited resources. For purposes of this article, community hospitals are not classified as teaching hospitals — meaning they have minimal intern- and resident-per-bed ratios and involvement in GME programs.

5. Safety-Net Hospitals. When we think of safety-net hospitals, we typically recall hospitals that truly function as safety nets in their communities by treating the most medically vulnerable populations, including Medicaid enrollees and the uninsured. These organizations receive a great percentage of revenue from Medicaid, supplemental government payments and self-paying patients. Overall, they have very little commercial business. Safety-net hospitals exist in different areas, urban or rural. Many of the other types of systems noted in this article may also be considered safety-net systems.

6. National Chains. We divide national chains largely based on how their market position has developed. National chains that have developed markets and are dominant in them tend to be more successful. Chains tend to be less successful when they are largely developed out of disparate health systems and don’t possess a lot of market clout in certain areas.

7. Specialty Hospitals. These are typically orthopedic hospitals, psychiatric hospitals, women’s hospitals, children’s hospital or other types of hospitals that specialize in a field of medicine or have a very specific purpose.

II. Mergers and Acquisitions

There have seen several large mergers over the last few years, including those of Aurora-Advocate, Baylor Scott & White-Memorial Hermann, CHI-Dignity and Mercy-Bon Secours, among others.

In evaluating a merger, the No. 1 question we ask is, “Is there a clear and compelling reason or purpose for the merger?” This is the quintessential discussion piece around a merger. The types of compelling reasons often come in one of several varieties. First: Is the merger intended to double down and create greater market strength? In other words, will the merger make a system regionally dominant or more dominant?

Second: Does the merger make the system better capitalized and able to make more investments that it otherwise could not make? For example, a large number of community hospitals don’t have the finances to invest in the health IT they need, the business and practices they need, the labor they need or other initiatives.

Third: Does the merger allow the amortization of central costs? Due to a variety of political reasons, many systems have a hard time taking advantage of the amortization of costs that would otherwise come from either reducing numbers of locations or reducing some of the administrative leadership.

Finally, fourth: Does the merger make the system less fragile?

Each of these four questions tie back to the core query: Does the merger have a compelling reason or not?

III. Headwinds

Hospitals face many different headwinds. This goes into the concept of healthcare as a zero-sum game. There is only so much pie to be shared, and the hospital slice of pie is being attacked or threatened in various areas. Certain headwinds include:

1. Pharma Costs. The increasing cost of pharmaceuticals and the inability to control this cost particularly in the non-generic area. Here, increasingly the one cost area that payers are trying to merge with relates to pharma/PBM the one cost that hospitals can’t seem to control is pharma costs. There is little wonder there is so much attention paid to pharma costs in D.C.

2. Labor Costs. Notwithstanding all the discussions of technology and saving healthcare through technology, healthcare is often a labor-intensive business. Human care, especially as the population ages, requires lots of people — and people are expensive.

3. Bricks and Mortar. Most systems have extensive real estate costs. Hospitals that have tried to win the competitive game by owning more sites on the map find it is very expensive to maintain lots of sites.

4. Slowing Rises in Reimbursement – Federal and Commercial. Increasingly, due to federal and state financial issues, governments (and interest by employers) have less ability to keep raising healthcare prices. Instead, there is greater movement toward softer increases or reduced reimbursement.

5. Lower Commercial Mix. Most hospitals and health systems do better when their payer mix contains a higher percentage of commercial business versus Medicare or Medicaid. In essence, the greater percentage of commercial business, the better a health system does. Hospital executives have traditionally talked about their commercial business subsidizing the Medicare/Medicaid business. As the population ages and as companies get more aggressive about managing their own healthcare costs, you see a shift — even if just a few percentage points — to a higher percentage of Medicare/Medicaid business. There is serious potential for this to impact the long-term profitability of hospitals and health systems. Big companies like JPMorgan, Amazon, Berkshire Hathaway and some other giants like Google and Apple are first and foremost seeking to control their own healthcare costs. This often means steering certain types of business toward narrow networks, which can translate to less commercial business for hospitals.

6. Cybersecurity and Health IT Costs. Most systems could spend their entire budgets on cybersecurity if they wanted to. That’s impossible, of course, but the potential costs of a security breach or incident loom large and there are only so many dollars to cover these costs.

7. The Loss of Ancillary Income. Health systems traditionally relied on a handful of key specialties —cardiology, orthopedics, spine and oncology, for example — and ancillaries like imaging, labs, radiation therapy and others to make a good deal of their profits. Now ancillaries are increasingly shifted away from systems toward for-profits and other providers. For example, Quest Diagnostics and Laboratory Corporation of America have aggressively expanded their market share in the diagnostic lab industry by acquiring labs from health systems or striking management partnerships for diagnostic services.

8. Payers Less Reliant on Systems. Payers have signaled less reliance on hospitals and health systems. This headwind is indicated in a couple of trends. One is payers increasingly buying outpatient providers and investing in many other types of providers. Another is payers looking to merge with pharmaceutical providers or pharmacy and benefit managers.

9. Supergroups. Increasingly in certain specialties and multispecialty groups, especially orthopedics and a couple other specialties, there is an effort to develop strong “super groups.” The idea of some of these super groups is to work toward managing the top line of costs, then dole out and subcontract the other costs. Again, this could potentially move hospitals further and further downstream as cost centers instead of leaders.

IV. The Great Fear

The great fear of health systems is really twofold. First: that more and more systems end up in bankruptcy because they just can’t make the margins they need. We usually see this unfold with smaller hospitals, but over the last 20 years, we have seen bankruptcies periodically affect big hospital systems as well. (Here are 14 hospitals that have filed for bankruptcy in 2018 to date. According to data compiled by Bloomberg, at least 26 nonprofit hospitals across the nation are already in default or distress.)

Second, and more likely, is that hospitals in general become more like mid-level safety net systems for certain types of care — with the best business moving away. I.e., as margins slide, hospitals will handle more and more of the essential types of care. This is problematic, in that many hospitals and health systems have infrastructures that were built to provide care for a wide range of patient needs. The counterpoint to these two great fears is that there is a massive need for healthcare and healthcare is expensive. In essence, there are 325,700,000 people in the United States, and it’s not easy to provide care for an aging population.

V. The Last 10 Years – What Worked

What has worked over the last five to 10 years is some mix of the following:

  1. Being an elite system has remained a recipe for financial success.
  1. Being regionally dominant has been a recipe for success.
  1. Being very special at something or being very great at something has been a recipe for success.
  1. Being great in high paying specialties like orthopedics, oncology, and spine has been a recipe for success.
  1. Systems have benefited where they provide extensive ancillaries to make great profits.

VI. The Next 10 Years

Over the next 10 years, we advise systems to consider the following.

  1. Double down on what works.
  1. Do not give up dominance where they have it. Although it may be politically unpopular and expensive to maintain, dominance remains important.
  1. Systems will need a new level of cost control. For years hospitals focused on expanding patient volume, expanding revenue and enlarging their footprint. Now cost control has surpassed revenue growth as the top priority for hospital and health system CEOs in 2018.
  1. Systems will have to be great at remote and virtual care. More and more patients want care where and when they want it.
  1. Because there will be so much change, systems must continue to have great leadership and great teams to adjust and remain successful.
  1. As systems become more consumer-centric, hospitals will have to lead with great patient experience and great patient navigation. These two competencies have to become systemwide strengths for organizations to excel over the next decade.

VII. Other Issues

Other issues we find fascinating today are as follows.

1. First, payers are more likely to look at pharma and pharma benefit companies as merger partners than health systems. We think this is a fascinating change that reflects a few things, including the role and costs of pharmaceuticals in our country, the slowly lessening importance of health systems, and payers’ disinterest in carrying the costs of hospitals.

2. Second, for many years everyone wanted to be Kaiser. What’s fascinating today is how Kaiser now worries about Amazon, Apple and other companies that are doing what Kaiser did 50 to 100 years ago. In essence, large companies’ strategies to design their own health systems, networks or clinics to reduce healthcare costs and provide better care is a force that once created legacy systems like Kaiser and now threatens those same systems.

3. Third, we find politicians are largely tone deaf. On one side of the table is a call for a national single payer system, which at least in other countries of large size has not been a great answer and is very expensive. On the other hand, you still have politicians on the right saying just “let the free market work.” This reminds me of people who held up posters saying, “Get the government out of my Medicare.” We seem to be past a true and pure free market in healthcare. There is some place between these two extremes that probably works, and there is probably a need for some sort of public option.

4. Fourth, care navigation in many elite systems is still a debacle. There is still a lot of room for improvement in this area, but unfortunately, it is not an area that payers directly tend to pay for.

5. Fifth, we periodically hear speakers say “this app is the answer” to every problem. I contrast that by watching care given to elderly patients, and I think the app is unlikely to solve that much. It is not that there is not room for lots of apps and changes in healthcare — because there is. However, healthcare remains as a great mix of technology and a labor- and care-intensive business.


CMS eases readmission penalties for safety-net hospitals

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Partially because of a push from Congress, CMS is easing its penalties for 30-day readmissions for hundreds of safety-net hospitals, according to NPR.

The penalties were established in 2012 under the ACA in an effort to boost patient care. CMS estimates hospitals will lose $566 million in the latest round of penalties that will be assessed over the next 12 months because patients ended up back in their facilities.

Safety-net hospitals, which serve a large number of low-income patients, have argued for years that these sanctions adversely affect them. They have argued that their patients are more likely to suffer complications and have a readmission through no fault of the institution, but rather because the patients can’t afford necessary medications or don’t have primary care physicians to monitor their recovery.

However, effective Oct. 1, lawmakers mandated that CMS consider the long-standing argument from safety net hospitals: that they shouldn’t be penalized or held to the same standard of readmission as other hospitals. 

In a major change to its evaluation of readmission rates that took effect this year, CMS stopped judging each hospital’s readmission performance against all other hospitals. Rather, the agency assigned hospitals to one of five peer groups with similar percentages of low-income patients. To assess the penalties, Medicare compared each hospital’s readmission rates from July 2014 to June 2017 against the readmission rates of its peers to determine whether a penalty should be assessed and how much the penalty would be.

CMS will assess penalties or dock payments to 2,599 hospitals in fiscal year 2019, which begins Oct. 1.  The penalties resulted from fiscal year 2018 readmissions.

However, the new evaluation method has shifted the burden of those punishments away from safety-net hospitals. Penalties levied against safety-net hospitals in fiscal year 2019 will drop by a fourth on average from fiscal year 2018, according to NPR.

“It’s pretty clear they were really penalizing those institutions more than they needed to,” Atul Grover, MD, executive vice president of the Association of American Medical Colleges, told NPR. “It’s definitely a step in the right direction.”


Fate of Bay Area hospitals in doubt as hedge fund deal to save them sours

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Santa Clara County interested in buying O’Connor and St. Louise

Santa Clara County is hoping to buy a pair of struggling hospitals that have long served as a safety net for the poor, less than three years after they were sold to a New York hedge fund in a state-approved deal to ensure they remained open.

County Executive Jeff Smith said the county sees a renewed opportunity to acquire O’Connor Hospital in San Jose and St. Louise Regional Hospital in Gilroy as public hospitals to extend its reach and help relieve overcrowding at the county-run Santa Clara Valley Medical Center in San Jose.

“We’re watching carefully,” Smith said. “We’ve told them that we’re interested and asked them to let us know what their process is going to be.”

The county’s interest comes after Verity Health System, the Redwood City-based secular nonprofit that now runs the hospitals, announced the “potential sale of some or all” of the hospitals among options “to alleviate financial and operational pressures.”

It was less than three years ago that the Catholic Daughters of Charity, which provided medical care for California’s poor since the Gold Rush, announced the largest nonprofit hospital transaction in state history with the $260 million sale of six hospitals to a hedge fund.

The deal, blessed by a state attorney general under conditions that included facility improvements and no cuts to charity care, jobs or pay, was welcomed with guarded optimism: As hospitals struggle nationwide, a half dozen in the Bay Area and Los Angeles would stay open.

But already, the deal has soured. Verity saw operating losses of $55.8 million in the nine months that ended March 31.

The hospitals in San Jose, Gilroy, Daly City, Half Moon Bay and Los Angeles provide 1,650 inpatient beds, emergency rooms, a trauma center and a host of medical specialties, and employ 7,000.

But insurers are pushing to cut hospital stays to keep a lid on costs and premiums, shrinking hospital business. At the same time, demand for housing and commercial space has soared with California’s surging economy, raising the possibility that some of the hospitals could be turned into homes or offices.

Who would buy the hospitals, and what other alternatives are under consideration, is unclear. No hospital chains have announced interest.

“I don’t know of a system in California that would pick them up,” said Wanda J. Jones, a veteran health system planner and writer in San Francisco who has followed the deal.

San Mateo County officials could not say what might happen to Seton Medical Center in Daly City and Seton Coastside in Moss Beach, near Half Moon Bay.

“The potential closure of the hospitals and the impact on the residents they serve is very important to the county,” said Michelle Durand, spokeswoman for the San Mateo County county manager’s office. “However, we currently have made no decisions and also cannot speculate as to the potential interest of private hospital operators.”

But Santa Clara County officials have been vocal about their interest.

Daughters of Charity Health System had declined to sell the two hospitals to Santa Clara County because it wanted to sell all the hospitals as a package. After for-profit Prime Healthcare Services walked away from a potential $843 million deal to buy the six hospitals in 2015, calling then-Attorney General Kamala Harris’ conditions too burdensome, Daughters sold them to hedge fund BlueMountain Capital Management under similar terms.

A year ago, a Culver City company owned by billionaire doctor and entrepreneur Patrick Soon-Shiong, who also owns the Los Angeles Times and San Diego Union-Tribune, bought the hedge fund’s Integrity Healthcare division that owns Verity.

Smith said that in the current landscape for hospitals, O’Connor and St. Louise would always be money-losers for a private owner, but could pencil out as public hospitals. That’s because public hospitals get reimbursed by Medi-Cal, the state’s coverage for the poor, at higher rates than private hospitals, which rely on a mix of insured patients to cover charity care costs. O’Connor and St. Louise, he said, are in areas where they won’t attract enough insured patients.

For the county, acquiring O’Connor and St. Louise would make sense, Smith said. The county’s Santa Clara Valley Medical Center in San Jose is “filled to the brim with patients, and we have great need for services,” said René G. Santiago, deputy county executive and director of the Santa Clara Valley Health and Hospital System.

Some of the money to buy the hospitals could come from funds set aside for VMC renovation, Smith said.

But the six hospitals share debt and employee retirement obligations, which is what made Daughters of Charity unwilling to sell them piecemeal, Smith said.

There’s also the possibility that potential buyers may see greater use for some of the hospital properties for housing or offices. Smith said that while that wouldn’t satisfy the attorney general’s approval conditions, a seller could argue those terms were unworkable and seek a new deal.

Jones said the attorney general’s conditions made it impossible for the hospitals to survive in today’s environment, calling terms like no job cuts “insane.”

“Kamala Harris was so overboard in her requirement for what she wanted to happen,” Jones said. “You don’t put a condition like that on a buyer.”

The office of the attorney general, now under Democrat Xavier Becerra, had no comment.

Sean Wherley, a spokesman for SEIU-United Healthcare Workers West, which represents the hospitals workers, said when the possible sale was announced earlier this month that they were “disappointed.”

He said the union expects “Verity and any new buyer to be held accountable to keep hospitals open, maintain vital services, fund pension obligations, protect jobs and honor our collective bargaining agreements.”


Senate poised to approve budget redistributing state Medicaid funding


The Senate proposal, which would funnel away higher state Medicaid payments to hospitals with a large fraction of Medicaid patients, would need to be reconciled with the House’s budget preserving the current policy.

Safety net hospitals in Florida could see their state Medicaid payments decrease by $170 million under a proposal in the budget the state Senate is poised to approve Thursday. The proposal, which would target about $318 million in payments that currently go to 28 hospitals with a higher percentage of Medicaid patients, would funnel those funds into the base rates paid to all hospitals instead.
The reshuffling in the Senate budget would largely affect safety net hospitals, which include public and teaching hospitals, while for-profit hospitals could gain more than $63 million, according to the Safety Net Hospital Alliance of Florida.
Miami’s Jackson Memorial Hospital would lose $59 million, Broward Health would lose about $17 million and Tampa General would lose $14 million, according to Safety Net’s analysis. Nicklaus Children’s Hospital in Miami and Johns Hopkins All Children’s, which each see about 70 percent of patients covered by Medicaid, would lose $10.5 million and $5 million respectively. In contrast, for-profit chain HCA could see its reimbursements rise more than $40 million.
Senate Health and Human Services Appropriations Chairwoman Anitere Flores, R-Miami, said the new system would more fairly distribute funds to all hospitals, which she said also provide charity care like the 28 hospitals that currently meet the 25 percent threshold of Medicaid patients to receive automatic rate enhancements.
“We’re making sure that the dollars actually follow the patient that is being served,” she said.
Flores contended that the new proposal corrects an “arbitrary” formula that set the higher payment rates in past years, and that the hospitals that had been reimbursed at a higher rate would be able to recoup their losses through federal Low Income Pool funding, which reimburses hospitals for charity care serving the uninsured.
But Lindy Kennedy, vice president of the Safety Net Alliance, told the Senate Democratic Caucus that the policy is needed because Medicaid rates do not cover the cost of care. Those 28 hospitals, which largely comprise public or not-for-profit private institutions in the state, lose proportionately more money because a larger slice of their patients are covered by Medicaid, she said.
“If Medicaid would pay these costs and if didn’t go into the red for every Medicaid patient we had, we wouldn’t need this policy,” she said. “This puts us back to status quo.”
“These hospitals cannot afford this type of cut,” she added.

Lidia Amoretti, a spokeswoman for Jackson Health System, called the Senate’s plan “alarming,” though she added “it is still early in the process.”

“We trust that the Miami-Dade delegation will fight fiercely – as it always does – to protect the people who rely upon Jackson for world-class care,” she said in a statement. 
Sen. Jose Javier Rodriguez, D-Miami, proposed an amendment that would revert the Senate proposal to match the House’s version this year, though it was rejected on the floor.
Tony Carvalho, president of the Safety Net Hospital Alliance, said that the Senate plan would also cut $94 million from three of the four largest teaching hospitals — UF’s Shands in Gainesville, Jackson Memorial and Tampa General.
“All hospitals lose money, and I appreciate that, but the average annual margin for the three largest teaching hospitals is $57 million over the last five years…for the operation of in-patient out-patient services in hospitals,” he said. “The Senate bill would cut them $95 million — that’s $30 million more than their operating margin in the last five years.”
By contrast, he said, HCA makes an operating margin, on average over the last five years, of $868 million per year.
Carvalho said one of the biggest cuts to hospitals are employees and this would be “damaging some of your premier medical institutions.”
“Their slogan is the money follows the patient,” he said. “That would be pertinent if all hospitals were paid their cost of care or all hospitals did the same percentage of Medicaid. That’s not the case. If you are going to pay hospitals way below the cost of care, our position is — and it has been the legislative position for years — is that you make a special adjustment when one of four of their patients are in the Medicaid pool.”
The Senate is expected to pass its budget tomorrow, setting up a clash with the House, whose version of the budget preserves the higher reimbursement system. The Senate’s plan also includes $130 million in nursing home funding, which differs from the House plan.

Keep Harmful Cuts in Federal Medicaid Disproportionate Share Hospital Payments at Bay

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  • While the ACA has had a major impact on reducing hospitals’ uncompensated care burdens, compensated care remains a challenge for many hospitals in poor communities
  • The White House and Congress have a final shot at once again ensuring that the poorest communities are not left without vital health care resources

Congress may delay a funding reduction for state Medicaid disproportionate share hospital (DSH) payments — direct, supplemental payments to hospitals serving high numbers of low-income patients — as part of end-of-year legislation. Although protecting the poorest communities from the loss of DSH funds has emerged on a short list of must-dos, final passage is far from certain. It may hinge on finding a funding strategy other than the one originally chosen by the House of Representatives — a more than $6 billion cut in critical public health funding from the Prevention and Public Health Trust Fund.

For nearly four decades, DSH payments have been a crucial part of Medicaid policy. But in light of the major gains in coverage anticipated for the poor under the Affordable Care Act’s adult Medicaid expansion, Congress scheduled a substantial reduction in federal Medicaid DSH payments beginning in 2014. Lawmakers assumed, not unreasonably, that the coverage expansions would translate into additional hospital revenue, thereby alleviating the need for as much direct DSH payment supplementation.

The relatively rosy scenario for DSH hospitals — especially those serving the poorest communities — changed dramatically in 2012 when the United States Supreme Court made Medicaid expansion optional; as of the end of 2017, nearly 3 million poor adults in 19 states continue to go without the Medicaid coverage they should be receiving.

To be sure, the ACA has had a major impact on reducing hospitals’ uncompensated care burdens. The Medicaid and CHIP Payment and Access Commission (MACPAC), which advises Congress on federal Medicaid policy, reports that between 2013 and 2014, hospital uncompensated care spending dropped by $4.6 billion, a 9 percent decrease, with the greatest declines occurring in Medicaid expansion states. But uncompensated care remains a crucial issue for many hospitals, especially those located in the poorest communities, and, in particular, hospitals serving poor communities in Medicaid nonexpansion states.

Additionally, even in Medicaid expansion states, a considerable number of low- and moderate-income adults who qualify for subsidized marketplace coverage remain uninsured. Even among those with subsidized marketplace plans whose incomes also are low enough to qualify for cost-sharing assistance (250 percent of poverty, or an annual income of about $30,000, and below), unpaid medical bills continue to add to hospitals’ uncompensated care burdens.

Should final congressional action before the holiday include a DSH cut delay, it would be the latest in a line of postponed Medicaid DSH cuts enacted by Congress over several years. Without another postponement, hospitals will lose $2 billion of the almost $12 billion federal allotment for fiscal year 2018. If this last-minute effort to stop the cuts once again as part of the spending bill does not succeed, then over 10 years, the cuts would reduce DSH payments by some $43 billion according to MACPAC.

For many reasons — the number of states that have failed to expand Medicaid; the number of Americans who continue to report that insurance coverage is unaffordable; high deductibles and other patient cost-sharing even among those with private health insurance — continuing to push back the day of reckoning on federal DSH funding reductions is a matter of high importance, not only for individual hospitals but for the communities whose health care systems these hospitals help anchor. The situation facing hospitals in nonexpansion states is especially grim; according to one estimate, failure of 19 states to implement the ACA Medicaid expansion can be expected to translate into an additional loss of $81.5 billion by 2026.

The White House and Congress have a final shot at once again ensuring that the poorest communities are not left without vital health care resources — and doing so in a way that does not pit health care against public health.


Medicaid Expansion Has Improved the Financial Outlook for Safety-Net Hospitals


  • Issue: Safety-net hospitals play a vital role in delivering health care to Medicaid enrollees, the uninsured, and other vulnerable patients. By reducing the number of uninsured Americans, the Affordable Care Act (ACA) was also expected to lower these hospitals’ significant uncompensated care costs and shore up their financial stability.
  • Goal: To examine how the ACA’s Medicaid expansion affected the financial status of safety-net hospitals in states that expanded Medicaid and in states that did not.
  • Methods: Using Medicare hospital cost reports for federal fiscal years 2012 and 2015, the authors compared changes in Medicaid inpatient days as a percentage of total inpatient days, Medicaid revenues as a percentage of total net patient revenues, uncompensated care costs as a percentage of total operating costs, and hospital operating margins.
  • Findings and Conclusions: Medicaid expansion had a significant, favorable financial impact on safety-net hospitals. From 2012 to 2015, safety-net hospitals in expansion states, compared to those in nonexpansion states, experienced larger increases in Medicaid inpatient days and Medicaid revenues as well as reduced uncompensated care costs. These changes improved operating margins for safety-net hospitals in expansion states. Margins for safety-net hospitals in nonexpansion states, meanwhile, declined.


Through their missions or legal mandate, safety-net hospitals provide care to all patients, regardless of their ability to pay.1 They include public hospitals, which are often providers of last resort in their communities; academic medical centers, which combine their teaching function with a mission to serve vulnerable populations; and certain private hospitals.

Safety-net hospitals deliver a significant level of care to low-income patients, including Medicaid enrollees and the uninsured, typically providing services that other hospitals in the community do not offer — trauma, burn care, neonatal intensive care, and inpatient behavioral health, as well as education for future physicians and other health care professionals. They are also an important source of care to uninsured individuals who are ineligible for Medicaid or subsidized marketplace coverage because of their citizenship status.2

Several studies have suggested major reductions in uncompensated care and improved financial status at safety-net institutions in states that expanded Medicaid compared to those in states that did not expand.3,4 However, these results were based on interviews with a limited number of safety-net health system executives and staff. Our analysis expands on this research by examining changes in key financial metrics — that is, uncompensated care, Medicaid costs and revenues, and total hospital margins–across safety-net hospitals nationally using standardized data.

When compared to other short-term acute care hospitals, hospitals that met our safety-net hospital criteria had substantially higher Medicaid revenue and uncompensated care levels than non-safety-net hospitals. Safety-net hospitals, however, had lower operating margins (Exhibit 1).

Below we discuss findings on the impact of the Affordable Care Act’s (ACA) Medicaid expansion on safety-net hospitals’ financial status. The ACA allowed states to expand Medicaid eligibility to nonelderly adults with incomes up to 138 percent of the federal poverty level. The reduction in the number of uninsured under the ACA coverage expansions was expected to reduce the uncompensated care that hospitals provide, thus improving their financial status. As of 2015, 31 states and the District of Columbia had expanded Medicaid, while 19 states had not.5

We measure changes in the financial status of safety-net hospitals in states that expanded Medicaid prior to 2015 (326 hospitals) versus safety-net hospitals in states that did not expand or expanded in 2015 or after (268 hospitals). (See “How We Conducted This Study” for complete methods.)

Key Findings

Our analysis of Medicare cost report data for federal fiscal years 2012 and 2015 shows a sizable contrast in financial performance between safety-net hospitals in states that expanded Medicaid under the ACA and those in states that did not. Performance metrics included the following:

    • Hospital operating margins.6 Operating margins improved for safety-net hospitals located in Medicaid expansion states compared with declines for those in states that did not expand. From 2012 to 2015, operating margins for safety-net hospitals in Medicaid expansion states increased from –3.2 percent to –2.1 percent in 2015 (Exhibit 2, Appendix A). In contrast during the same period, operating margins for safety-net hospitals in nonexpansion states declined from 2.3 percent to 2.0 percent. Largely accounting for this difference were increased Medicaid revenues and reduced uncompensated care costs. Even after expansion, safety-net hospitals’ operating margins in Medicaid expansion states were lower than those in nonexpansion states.
    • Medicaid inpatient days. From 2012 to 2015, safety-net hospitals in Medicaid expansion states experienced larger growth in Medicaid utilization than those in nonexpansion states (Exhibit 3). During the study period, Medicaid inpatient days in expansion states rose 13.5 percent. In comparison, Medicaid inpatient days in nonexpansion states fell slightly, by 0.9 percent.
    • Medicaid revenues and costs.7 The rise in use of safety-net hospitals in Medicaid expansion states resulted in these hospitals’ increased Medicaid revenue and costs compared to a slight decline in nonexpansion states (Exhibit 4). From 2012 to 2015, safety-net hospitals’ Medicaid revenues as a share of net patient revenues rose 12.7 percent in Medicaid expansion states. In contrast, during the same period, safety-net hospitals’ Medicaid revenues as a share of net patient revenues declined 1.8 percent in nonexpansion states. However, safety-net hospitals’ profit margins on Medicaid patients fell from 6.8 percent to 0.7 percent in expansion states, suggesting that the revenues received for newly eligible patients did not keep pace with the higher cost of treating these patients.
    • Uncompensated care costs.8 In 2012, safety-net hospitals’ uncompensated care costs as a percent of total hospital operating costs equaled 6.7 percent in expansion states compared to 5.7 percent in nonexpansion states (Exhibit 5). By 2015, however, the safety-net hospitals’ share of uncompensated care declined to 3.5 percent in expansion states, or a reduction of 47.4 percent. By comparison, in nonexpansion states that year, uncompensated care costs as a share of total hospital operating costs fell to 5.3 percent, a 7.8 percent reduction.


These data suggest that the Medicaid expansion created by the ACA had a significant positive financial impact on safety-net hospitals in states that expanded Medicaid eligibility relative to those in states that did not expand. Safety-net hospitals in expansion states saw larger increases in Medicaid patient volume and revenue, reduced uncompensated care, and improved financial margins compared to safety-net hospitals in nonexpansion states. Although our study’s results are specific to safety-net hospitals, other studies have found similar trends across all hospitals in expansion and nonexpansion states.9

The improved financial stability of safety-net hospitals could allow these hospitals to continue expanding outpatient capacity, invest in strategies to improve care coordination, hire new staff, and develop better infrastructure to monitor costs.10 Such investments can also help prepare hospitals for new payment arrangements that may require them to assume more financial risk for patient care and outcomes. Improvements not only benefit the institutions and Medicaid patients but the communities these hospitals serve.

Current attempts to repeal the ACA aim to eliminate the Medicaid expansions over time and curtail Medicaid spending by more than $800 billion over 10 years. The Congressional Budget Office estimates that about 14 million people could lose their Medicaid coverage by 2026, which would have an adverse effect on safety-net hospitals in those states. Specifically, safety-net hospitals’ gains in reduced uncompensated care and improved overall financial margins could be lost in the future.


Houston hospitals may not be back to normal for a month

Amid the evacuation of approximately 1,500 patients from Houston-area hospitals, officials are commending the emergency response by health providers — while also cautioning that it may be weeks before the facilities are back to business as usual.

The SouthEast Texas Regional Advisory Council — which has overseen catastrophic medical operations since Hurricane Harvey as part of Houston’s emergency command center — estimates that nearly two dozen hospitals have evacuated patients by ambulance and airplane over the course of the past week.

“The storm was so huge it was uncertain what hospitals might be in harm’s way,” said Darrell Pile, chief executive officer of SETRAC. Had they known Harvey would grow into a Category 4 storm, Pile said, they would have staged evacuations three days in advance. But Harvey was unpredictable from the start — and grew stronger without much warning.

Evacuations have been slow not only because of the perils involved in moving patients but also because it has taken time to find other hospitals to accept them. “Some patients may have had gone to Dallas, San Antonio, Austin, or even Waco,” Pile said. “You’ve got to find the hospital to handle the unique needs of the patients you want to transfer.”

Evacuation numbers continued to climb on Tuesday. But Pile said numerous hospitals also scaled back or suspended plans for evacuations. One such facility was Ben Taub, one of Houston’s major safety-net hospitals, which only evacuated three patients after originally seeking to move all 350 patients after flooding occurred inside the hospital basement.

“In the case of Ben Taub, as the waters went down, and additional staff were able to arrive, they whittled down their list,” Pile said, speaking Wednesday. “They may even open back up to full service later today.”

Bryan McLeod, director of external and online communications at Harris Health System, said in a statement Tuesday afternoon that Ben Taub, the system’s largest hospital, is now seeking to “offload some of the patients that we currently have” in anticipation of a “surge of patients” expected as roads clear.

“I can only imagine the burden is going to increase,” said Vivian Ho, a health care economist with Rice University. “It’s going to get tough on them.”

Coordinated response

Pile praised the coordination of hospitals, first responders, and civic leaders. In other major storms elsewhere, he said, some hospitals have failed to communicate effectively; ambulances would bring patients to their doors even though the facilities might be unable to meet their needs.

By contrast, Pile said, roughly 25 hospitals affected by Harvey declared an “internal disaster” — a status that reflects a hospital facing problems in carrying out normal daily operations — that allowed SETRAC to pass along timely information along to first responders who could, in turn, divert patients toward care at hospitals capable of treating them.

“The majority of our hospitals stayed open,” Pile said. “The teamwork of hospitals and EMS agencies through our coalition kept it from becoming an even a bigger disaster.”

Pile hasn’t heard of any hospitals in the Houston area devastated to the point of shuttering — something that’s also occurred in other storm-ravaged cities. It’s because of that he believes nearly all Houston-area hospitals will be fully up and running by the end of September.

“This storm was paralyzing,” Pile said. “Within a month, [I expect] 90 to 95 percent of hospitals will be back in full service. That’s a first.”


Safety Net CEO: AHCA Passage Rests on Backs of Poorest, Sickest

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The CEO of Grady Health System says the bill’s passage by the Senate would cut $50 to 60 million from the health system’s annual revenues and many who gained insurance through Obamacare will lose it.

The recent passage by the U.S. House of Representatives of the American Health Care Act, will affect all hospitals to some degree, but none more than safety net hospitals, which treat a large percentage of poor patients.

Why? Because a much larger percentage of their revenue depends on reimbursement from Medicaid, which expanded under the ACA, but is targeted for the majority of cuts under the AHCA.

John Haupert is not just CEO of Grady Health System, the $917 million (operating revenue) Atlanta safety-net health system. He’s also the board chair of America’s Essential Hospitals, the 275-member safety net hospital association.

In the wake of the House’s passage of the AHCA, and in anticipation of the Senate’s upcoming consideration of the Republican bid for repeal and replacement of the Affordable Care Act, HealthLeaders spoke with Haupert about his thoughts on the bill (or its Senate version) and the effects it could have on hospitals and health systems like Grady.

Following is a lightly edited transcript of that conversation.

California Dreamin’ in a post-Trump healthcare world

California flag and American flag

The consensus among policymakers and observers: Not good.

“At risk is insurance coverage for literally millions of Americans,” said Anthony Wright, executive director of the advocacy group Health Access California.

Jim Lott, who teaches healthcare policy at USC and Cal State Long Beach and was the longtime executive vice president of the Hospital Association of Southern California, noted that even if parts of the law are preserved the way Trump suggests, it would still be imperiled.

“If you don’t have an employer mandate and an individual mandate, the market would self-destruct,” Lott said. “It will create havoc.”

Barcellona, an attorney by training, concurred with Lott. “The law matters and these federal programs are conditioned on the act being implemented in a certain way,” he said.

Barcellona also brought up a consequence that would be utterly disastrous for millions of middle-class Americans: If the ACA is eliminated in the middle of a calendar year, it could put them on the hook for repaying billions of dollars in premium tax credits.