The University of Kentucky’s Chandler Hospital has seen its inpatient numbers rise by 5 percent and its outpatient numbers rise by 10 percent since July. But its number of uninsured patients has dropped, from about 9 percent to 2.5 percent.
Prior to this year, says Chandler’s Dr. Michael Karpf, “we were getting paid 10 cents on the dollar” serving low-income patients. “Now we are getting 40 cents on the dollar, so the cost of care for these people isn’t totally covered, but there is a lot more reimbursement. It means we are having very strong bottom lines in the hospital.”
The financial transformation, he says, has been fueled by the state’s expansion of Medicaid.
Kentucky and Arkansas, unlike other Southern states, adopted the Affordable Care Act’s expansion of Medicaid, adding more people to the program. Although the two states took different approaches, hospital officials in both say it is working better than expected.
Besides extending insurance to millions of Americans, the ACA has brought increased reimbursements to hospitals for patients who were previously uninsured. Gradually, though, the health reform law will cut federal “disproportionate share’’ funds to hospitals that care for many indigent patients.
Georgia Health News contacted health care experts and officials in Arkansas and Kentucky to gauge the impact of Medicaid expansion thus far on hospitals, and found both states are experiencing significant benefits.
Kentucky, with a Democratic governor and Democratic-controlled House, chose to expand its Medicaid program as originally mandated by the ACA. Federal funding covers 100 percent of the expansion for three years and then drops to 95 percent after 2017 and to 90 percent by 2020.
A 2012 decision by the U.S. Supreme Court, while generally upholding the health care law, said states had the right to opt out of expanding Medicaid. That complicated the issue of expansion, which drafters of the new law had envisioned would be nationwide.
The expansion is designed to cover all individuals and families with incomes below 138 percent of the federal poverty level (FPL). Roughly half the states, including Georgia, have refused to expand Medicaid.
Arkansas, with a Democratic governor and Republican-controlled House and Senate, reached a compromise. It did not directly expand its Medicaid program, but received a waiver from the federal government to use expansion funds to create a “private option” alternative. The state is buying commercial health insurance for those low-income citizens on Arkansas’ health care exchange.
The federal funds pay the premiums for the insurance plans. The money also covers co-pays and out-of-pocket expenses for beneficiaries below 100 percent of the poverty level. Between 100 percent and 138 percent FPL, individuals and families are responsible for shared expenses up to 2 percent of their annual income.
“The impact has been remarkable,” said Joseph Thompson, director of the Arkansas Center for Health Improvement, a nonpartisan, independent health policy center. Of the state’s 250,000 uninsured low-income adults, 205,000, or 85 percent, are enrolled in the private option program.
Other data, Thompson said, show overall emergency room visits statewide were down 2 percent for the first four months of 2014, compared with the same time last year. Uninsured ER visits decreased by 24 percent, and uninsured hospital stays dropped 30 percent.
Dr. Roxane Townsend, CEO of the University of Arkansas for Medical Sciences Medical Center in Little Rock, says, “Our monthly uninsured patient rate has been consistently below 4 percent down from nearly 15 percent prior to insurance expansion.”
UAMS is in the process of evaluating the financial impact, but Townsend says the medical center already has seen improvement since the start of its fiscal year this past July 1.
She also notes, “The rates in the private option are nearly the same as our other commercial contracts. This is a higher rate than traditional Medicaid, and this has a positive impact on a hospital’s ability to cover all the costs of care.”
Several rural hospital CEOs reported a positive effect from expansion, according to an article in Arkansas Business this month.
Darren Caldwell, CEO of DeWitt Hospital and Nursing Home, a rural hospital in DeWitt, Ark., told Arkansas Business that the ACA and the private option have led to a decrease in his organization’s uncompensated care, an increase in insured patients and a decline in bad debt.
“We’ve seen really good numbers,” he said. “In talking with my counterparts in other hospitals in this region, they too have seen good numbers.”
The earliest impact for patients, Thompson says, was at pharmacies. People who had prescriptions for medicines but could not afford to purchase them were able to fill their prescriptions with their newly acquired commercial insurance.
Thompson also has heard from front-line providers at community health centers who say they have been able to connect low-income patients to hospital care more readily, including specialist care.
Other states showing interest
The Arkansas alternative to Medicaid expansion has drawn attention from other states such as Iowa, Michigan and Pennsylvania. Thompson notes it represents a hard-fought compromise made palatable to the GOP legislature by Gov. Mike Beebe’s support for a $100 million tax cut.
“From an impact perspective, the program is performing even better than originally expected because of the uptake,” Thompson says. “We didn’t think we could be at 85 percent in the first year. We thought it would take a little longer, but that’s because of the need that’s out there.”
In Kentucky, Democratic Gov. Steve Beshear used his executive authority to expand Medicaid under ACA and had enough support in the Legislature to defeat several Republican bills to stop it.
The state has experienced significantly greater enrollment than expected, according to Jill Midkiff, director of communications for the Cabinet for Health and Family Services (CHFS).
Of 640,000 uninsured Kentuckians, 521,000, or 81 percent, have acquired insurance under the ACA through the state’s health care exchange. Of those, more than 310,000 enrolled through the Medicaid expansion.
CHFS Secretary Audrey Haynes says, “More than 80 percent of those who qualified for the Medicaid expansion have used their benefits at least once this year, clearly demonstrating a need in this population who likely were not receiving the preventive care and treatment they required.”
She says Kentucky hospitals, pharmacies, physicians and dentists have received more than $591 million in Medicaid expansion reimbursements.
Other data reveal a significant decrease in hospitals’ uncompensated care costs. For the first six months of this year, those costs dropped by nearly 60 percent to $218 million from $511 million in the first half of 2013.
Another benefit has been an increase in jobs. The U.S. Bureau of Labor Statistics reported Kentucky added 3,000 health care jobs and 8,000 administrative and support services jobs from July 2013 to July 2014. The job growth, Midkiff says, “is a result of Kentucky fully embracing the ACA, including Medicaid expansion.”
Karpf, University of Kentucky executive vice president for health affairs and head of the school’s Chandler Hospital, agrees the Medicaid expansion is having a positive impact.
In the long term, however, Karpf predicts the current strong financial performance of hospitals fueled by the Medicaid expansion won’t last. After 2017, he said, Kentucky will be hard-pressed to pay its amount for the expansion.
“Kentucky is an overutilizer,” he explains. “Our hospital utilization is 120 percent or 125 percent of the national average. That is a problem, and that problem will get compounded when the state has to start picking up its share of the Medicaid costs.”
By 2020, he says, the state’s share of the costs for Kentucky’s newly eligible Medicaid patients will be substantial, in the hundreds of millions of dollars annually.
With a fixed budget for Medicaid, Karpf anticipates the state will push “for decreased utilization and for providers to take more risk and more responsibility for utilization.”
That means reducing inpatient care and supporting fewer hospitals, he added. In the long run, he predicted, some small rural hospitals may close as the state’s portion of Medicaid reimbursements fails to keep pace with the higher volume of patients.
Karpf favors Medicaid expansion, but says he would have delayed it until greater efficiencies in hospital utilization were in place.
The eventual state match for Medicaid expansion was a focal point of Gov. Nathan Deal’s refusal to support expanding Medicaid to up to 600,000 uninsured low income adults in Georgia. The state, Deal said, could not afford the expansion, which state officials have calculated at $2.5 billion over 10 years.
Deal is in a tight race for re-election with Democrat Jason Carter, a state senator, who has indicated his support for expansion.
A variety of challenges
Meanwhile, many Georgia hospital officials, especially those in rural areas, report facing financial challenges greater than ever before.
Regardless of who is governor, Medicaid expansion would have to be authorized by Georgia’s General Assembly. The Legislature is currently Republican-dominated and generally to hostile tot he ACA. In fact, it put considerable effort recently into blocking the state government from helping implement the health law.
In Arkansas, Thompson’s Center for Health Improvement is charged with evaluating the state’s private option experiment. The evaluation will determine if the program is cost-effective compared with conventional Medicaid expansion, such as in Kentucky.
In securing its waiver, Arkansas estimated the program would be revenue-neutral for the federal government after 10 years. The U.S. Government Accountability Office has projected the program will cost the federal government considerably more than conventional Medicaid expansion.
Thompson clearly hopes the evaluation supports the state’s experiment.
“There are 50 different Medicaid programs, and each one has been developed in its own unique way,” he says. “You overlay on top of that the political division that is present within our nation now between the two parties, and it becomes difficult for constructive policy to emerge.
“We found a way to craft a constructive and acceptable new way to provide health care to our lowest income individuals.”