Medicaid provider rate cuts forecast as states anticipate budget shortfalls

• Thirteen out of the 33 states with budget projections told the Kaiser Family Foundation they are anticipating Medicaid budget shortfalls for the current fiscal year, which ends June 30, according to The Hill.
• Of the 19 states with projections available for the upcoming fiscal year, 17 said a Medicaid budget shortfall is “almost certain” or “likely,” according to the same article.
• Providers will need to re-evaluate cost structure, given the anticipated lower volumes even after non-emergent procedures are brought online, shifts in payer mix and downward pressure or flat-out reductions on per unit payment growth.

The Hill is reporting, “Thirteen out of the 33 states with budget projections told the Kaiser Family Foundation they are anticipating Medicaid budget shortfalls for the current fiscal year, which ends June 30. Several of those states said broader reductions in overall revenue may require reductions in spending for Medicaid and other programs. Of the 19 states with projections available for the upcoming fiscal year, 17 said a Medicaid budget shortfall is “almost certain” or “likely.”

While the CARES Act provided a temporary 6.2 percentage point increase in payments, it prohibited states receiving increased funding from cutting benefits, increasing premiums or restricting eligibility. This limits states’ options to reduce costs, leaving provider rate cuts the quickest way to balance the Medicaid portion of their budgets unless Congress intervenes further. According to Modern Healthcare, “governors in New York, California, Colorado, Ohio, Alaska, and Georgia have already indicated they plan to cut Medicaid spending.”

Takeaway

If March was bad financially, April was worse. Kaufman Hall’s most recent Flash Report finds that “Operating EBITDA Margins fell 174% compared to the same period last year and were down 118% from March.”

While the return of non-emergent services will help staunch the bleeding, it’s clear that between anticipated lower volumes even after non-emergent procedures are brought online, shifts in payer mix and downward pressure or flat-out reductions on per unit payment growth, providers will need to reevaluate cost structure.

In this environment, everything must be on the table — including previously sacred cows. One example of this is several health systems HFMA has spoken with are using the shutdown of non-emergent services as an opportunity to test community need for services/sites of service that were duplicative and/or unprofitable. These sites will remain closed after the health system begins bringing other sites back online to determine if their absence creates a gap in access for the communities/populations previously served. If not, the sites will remain closed. If there is a gap, the systems will determine if there are more cost-effective ways to meet that need that stop short of a return to full operation of the impacted clinics/services.