Hospitals Worry Rule Could Lead to Medicaid Rate Cuts

Hospitals hardly were comforted by the fact that the rule change applies only to fee-for-service rates, since Medicaid managed care plans frequently base their capitated rates on those.

May 23—Proposed changes to federal Medicaid rules could hit hospitals’ bottom lines, advocates warned.

In March, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule to implement changes to access and fee-for-service (FFS) rates in Medicaid. The provision that has drawn the most concern from hospital organizations would waive reviews of rate reductions of up to 4 percent for a single state fiscal year or 6 percent for two consecutive years.

“When rates already are low—below cost, below market, below Medicare—even small reductions have an effect, on both providers’ willingness to treat and ability to provide high-quality care to Medicaid beneficiaries,” Bruce Siegel, MD, MPH, president and CEO of America’s Essential Hospitals, wrote to CMS. “Allowing exemptions based on the proposed payment rate changes could mask underpayments of services and potentially make it more challenging for providers to understand the effect of a state’s proposals—which, in turn, could negatively affect beneficiary access to vital services.”

The existing Medicaid shortfall—the difference between a hospital’s costs of providing services to Medicaid-enrolled patients and the total amount of Medicaid payment received for those services—increased by about $3 billion in 2015 to reach $16.2 billion, according to the latest report by the Medicaid and CHIP Payment and Access Commission (MACPAC). Additionally, MACPAC concluded the shortfall was increasing because of larger Medicaid enrollment under the Affordable Care Act (ACA).

And the growth in the shortfall appears to be accelerating. From 2014 to 2015 the shortfall increased by $2.1 billion, more than twice as large as the $900 million shortfall from 2013 to 2014.

Total hospital uncompensated care—charity care, bad debt, and the Medicaid shortfall—in 2015 reached $44.9 billion, according to MACPAC.

Hospital advocates also identified potential state-specific impacts.

“Not accounting for utilization changes and other factors that impact Medicaid reimbursement, a six percent reduction over two years could equate to a more than $94 million decrease in Medicaid reimbursement in Virginia,” wrote James Andrews III, vice president of financial policy for the Virginia Hospital and Healthcare Association. “Such a decrease would put additional financial pressures on many Virginia hospitals and potentially result in the closure of additional services, thereby negatively impacting access to care.”

Hospitals worried that the rule change would be a waiting trap since states historically cut Medicaid rates to balance budgets that are hit by declining tax revenues during recessions. Of further concern, hospitals recently lost their right to challenge such rate cuts in court due to the Supreme Court’s decision in Armstrong v. Exceptional Child Center, Inc.

“Provider rate changes are often tied to the economy. During economic downturns and budget shortfalls, states often turn to rate restrictions to contain costs and are more likely to increase rates during periods of recovery and revenue growth,” noted the latest Kaiser Family Foundation (KFF) survey of state Medicaid programs.

Despite the optimistic expectation of increased rates with a historic economic expansion entering its eighth year in FY18, 33 states froze or cut inpatient hospital Medicaid FFS rates and only 17 states increased them. In addition, six states cut outpatient hospital rates and 16 states increased them, according to the KFF survey.

National Trends

Nationally, base Medicaid payments in 2015 were 82 percent of Medicaid costs for hospitals that qualified for Disproportionate Share Hospital (DSH) payments. When DSH payments and non-DSH supplemental payments were accounted for, total Medicaid payments to DSH hospitals were 108 percent of Medicaid costs, according to MACPAC. However, hospitals are bracing for 2020, when $2 billion in DSH cuts is scheduled, as required by the ACA.

The California Hospital Association and other providers noted the CMS rule does not include a cap or a specified time frame in which to implement any rate reduction, so it would allow a compounded 4 percent rate reduction over five years totaling 15.1 percent, for instance.

Moody’s Investors Service warned in a March report that large-scale changes to Medicare or Medicaid payment methodologies would cause financial stress for not-for-profit health systems since about 60 percent of hospital revenue comes from government payers.

And hospitals found little comfort in knowing that the change applies only to FFS rates, since Medicaid managed care plans frequently base their capitated rates on those.

“At a minimum, states need to monitor the average Medicaid rate compared to commercial and/or Medicare rates to determine disparities that could place unnecessary stress on network adequacy for Medicaid managed care and fee-for-service,” Andrews, the Virginia hospital advocate, wrote. “This is particularly important since a ‘sufficient rate to provide access’ can vary from service to service, and managed care rates often mirror fee-for-service rates.”

Alternatively, CMS could create a framework to benchmark Medicaid payments for key services in each state against a relevant rate standard, such as prevailing commercial rates, wrote Casey Dungan, senior vice president of the Tennessee Hospital Association. That approach would allow CMS to monitor the gap between Medicaid rates and those of other payers and take action before any resulting hospital closures create more underserved areas.

Changes to Access Review Processes

The proposed rule also would exempt states from developing Medicaid access-monitoring review plans (AMRPs) if they have a Medicaid managed care enrollment rate of more than 85 percent. Provider advocates said AMRPs are needed to evaluate access for Medicaid enrollees to important services such as primary care, mental health and substance use disorder services, pre- and post-natal care, and home health care.

States have been required to submit AMRPs only since 2016, but the process already has led some to develop strategies to increase access to providers, such as creating response teams to investigate the root causes of access issues and developing corrective action plans, according to another MACPAC report.

The CHA and other California providers noted that the 85 percent threshold for managed care enrollment would still leave many FFS enrollees who would lose oversight under the rule change. For instance, in California, where nearly 82 percent are covered by managed care plans, another 2.5 million residents—including dual-eligibles—still receive care through the FFS system.

“Considering that California’s FFS population is greater than the entire Medicaid program in many states—such as Colorado, Massachusetts, Oregon and Washington, to name a few—our organizations believe strongly that California’s FFS population should be subject to an equal assurance of access and CMS oversight,” the California providers wrote.

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare