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Arkansas hospitals feel pinch of uncompensated care



When lawmakers crafted the federal Affordable Care Act, they struck a deal with hospitals. The law cuts Medicare reimbursements to hospitals by more than $700 billion over the next 10 years. The hit to Arkansas hospitals is around $2 billion. These savings are a key part of funding the law's attempt to offer near-universal health coverage. In order to withstand the cuts, hospitals would get something back: A whole lot more people would have insurance, which would mean a whole lot more paying customers for the hospitals.

Then the Supreme Court threw everyone a curveball. In its ruling last summer, it upheld the ACA, but gave the states the option of whether or not to participate in Medicaid expansion. For hospitals, that meant a big source of necessary funding was suddenly in jeopardy. In states like Arkansas, where many Republican lawmakers campaigned on an anti-Obama-care platform, hospitals are worried about harmful cuts in service — and even fear for their survival — if the legislature says no to expansion of coverage. Hospitals are feeling even more vulnerable after the "fiscal cliff" deal in January that slashed reimbursement rates even more, with Arkansas hospitals projected to take an additional cut of more than $400 million.

"It's absolutely critical that [expansion] gets passed by the state legislature," White River Health System CEO Gary Bebow said. WRHS, which includes hospitals in Batesville and Mountain View, as well as clinics in various rural communities in the state, has projected a loss of $90 million over the next 10 years in Medicare reimbursement cuts. Meanwhile, if expansion goes through, they project to bring in an additional $45 million over the next decade. Things will be tight either way, but without expansion the situation begins to look dire.

Other hospitals are feeling the same financial pressure. White County Medical Center (WCMC) in Searcy projects $42 million in cuts over the next five years, which would be offset by $13 million from expansion; Conway Regional projects $42 million in cuts over the next 10 years, offset by $16 million from expansion. In total, the Arkansas Hospital Association projects that hospitals stand to gain $200 million per year from Medicaid expansion.

"This state is paying for the federal cuts under Obamacare," Bebow says. "The point is this is one way that's been a gift back to us ... if we don't take advantage of it, that's unfortunate."

Another curveball came last week with the announcement that the federal government will allow Arkansas to expand coverage to uninsured people below 138 percent of the federal poverty level (about $15,000 for an individual) via the private health-insurance exchange instead of the Medicaid program. For hospitals, this makes accepting the federal money to expand coverage an even better deal, because reimbursements will theoretically be higher from private insurance companies than from Medicaid. It's too early to speculate just what the reimbursement rates will be on the exchange, but presumably those revenue projections listed above will be going up.

The reason that hospitals stand to gain so much from expanding coverage is the problem of uncompensated care. When folks get treatment and can't afford to pay for it, hospitals typically eat most of the cost. Ray Montgomery, CEO of WCMC, said that because of the increased leverage of private insurance companies — as well as Medicare and Medicaid — it is "difficult to impossible for hospitals to be able to cost shift those charity care and uncompensated costs off to other payers." Based on AHA estimates, hospitals are losing $338 million per year at cost to uncompensated care, and those costs are growing at around 10 percent per year.

A major driver of uncompensated care is low-income people without insurance, precisely the group that would gain coverage under expansion. "We're already seeing these patients," Bo Ryall, CEO of the AHA, said. "They're uncompensated care now. Most of those will be eligible [for expansion], so we will in turn get some kind of payment, whereas we got close to zero in the past."

In other words, even under the low reimbursement rates of Medicaid, which pay hospitals below cost, "something is better than nothing on the patients who come to the hospital that we're going to treat no matter what," as Bebow put it. (And of course, higher reimbursements through the exchange under the "private option" are even better.) As Montgomery explained, for both ethical and legal reasons, "we don't turn patients away." The status quo has uninsured folks showing up to the emergency room and no clear societal plan for how to pay for them. Hospital administrators see expansion as a first step toward resolving this issue. From a hospital standpoint, Montgomery said, "philosophically, we have always been interested in health care for all paid for by all."

And it's not just dollars and cents. In a state in which a quarter of its population between the ages of 19 and 64 is uninsured, it's about the health of our citizens. "People are going to get sicker because they don't have access to health care," Montgomery said. In addition to being costlier, when the uninsured go to the emergency room instead of seeing a primary care physician — or avoid getting care at all because they can't afford it — health outcomes suffer. A study by the RAND corporation projected that expansion would save 2,300 lives a year in Arkansas.

"From a societal perspective, it's hard to argue that it's justifiable to have more than 200,000 people uninsured that could be insured by expansion," Bebow said. "Statistics show very clearly that people that don't have insurance don't have access to the medical system."

"Seeking care before you end up in the emergency room is certainly a benefit," Ryall said. "I use the example of a diabetic that may not be seeing the doctor, may not be taking their medicine [or] taking care of themselves. They end up in the emergency room instead of going to their primary care physician. They're discharged from the hospital and they do not follow up or have a primary care physician. Three months later or six months later, they end up back at the emergency room. So it's very costly to all of us."

What happens if the legislature turns down the federal money to expand coverage?

"We'll have to reassess what services we can provide, and how we can move forward and maintain the service to the community that we feel is appropriate," Conway Regional Health System CEO Jim Lambert said. "It's going to challenge us."

That means the potential for cuts in staffing, as well as services. "The fear is that you're going to be forced to make decisions that put patients and the community at risk," Lambert said. "No one wants to do that and we're going to do everything we can to prevent those decisions from being made but it's hard to avoid that that's potentially out there."

Bebow has concerns about WRHS's clinics in rural areas surviving. "We felt strongly that those communities should have access to primary care," he said. "We are the provider for those people and those communities."

"[Arkansas] is a state predominantly made up of rural, small hospitals," he pointed out. "[They] are the most vulnerable. Can this state possibly let that happen? In many cases our hospitals are the only provider, they're the safety net provider for large communities. If you remove those you're talking about a tremendous reduction in access."

The AHA released a study last summer finding that hospitals contribute more than $10 billion per year to the state economy and employ more than 40,000 Arkansans. If hospitals start laying people off or shutting down, that could have negative ripple effects throughout the economy.

"Hospitals are a key economic engine that keeps our communities intact," Lambert said.

"We're a heavily employment-related industry," Bebow said. "We're a service industry. Over 50 percent of our costs at our hospitals are really tied up in employment costs. ... You can't take $50 million out of White River Medical Center without having an adverse effect on employment."

Some legislators would like to see co-pays and other forms of cost-sharing as part of an expansion deal, but this makes hospitals nervous if they're going to be the ones stuck trying to collect. "From a general consumer, those make a lot of sense," Montgomery said. "From a provider [base], here's my concern. If we have additional co-pays that are required by these poor patients that have to pay, it's kind of like squeezing blood out of a turnip. They probably don't have much money. If that's borne by the hospitals and the providers ... those co-pays will end up translating to our bad debt or our uncompensated care bottom line. Those dollar shortfalls will get bigger."

As for drug testing, another idea popular among some lawmakers, Montgomery is skeptical. "Let's say a patient who has been on drugs [is] drug tested and they're kicked off the Medicaid rolls," he said. "What's going to happen to those patients when they get sick? Where are they going to go? They're going to come back to the emergency room. ... Once again, they're going to become uncompensated care or bad debt or charity care and it continues to add to the deficit in reimbursement that we have."

Now that Arkansas has the option to expand coverage using the exchange, the chances of the legislature saying yes to the federal money are looking much rosier. Still, to date no Republican legislator has endorsed the plan. Many of them — including representatives of the districts home to the hospitals mentioned in this article — campaigned against Obamacare and have been resistant to the idea of expansion since the session started.

Hospital administrators remain cautiously optimistic (even more so after the news of the new offer from the feds).

Montgomery said he had been in frequent contact with lawmakers. "I look at their perspective, they were voted in on a conservative platform, they were voted in to keep government as small as possible," he said. "I truly understand their positions ... but this is [an opportunity] to save lives, to be able to meet their communities' needs. If there was any reason to justify making some slight modification to that platform, this is the most important reason. This is just right for their constituents and the people in their community."

"If we can convince them that you've got to go past your political dogma and look at what's in the best interest of the community ... you hope that people are willing to hear the numbers and understand the issue," Lambert said. "Instead of just, 'oh, this is Obamacare, I don't like Obamacare' ... because I don't think anybody wants to see hospitals curtail services or close in various communities across the state. ... I think that's a real possibility and we've got to convince them that that's a real possibility."

Hospital administrators agreed that given the generous federal match rates — 100 percent for the first three years, slowly going down to 90 percent in 2021 — the deal was simply too good to pass up. They noted that the state can always opt out if cost becomes a concern or the feds don't keep their promises down the road. And, similar to Gov. Mike Beebe's oft-mentioned point that a no to expansion means that federal tax dollars will flow out of the state to pay for expansion elsewhere, hospital administrators point out that the reimbursement cuts are coming to hospitals in Arkansas no matter what, so why turn down the benefits to expansion that other states will enjoy?

"I've made a lot of decisions that I've changed my mind on after I received more information and more facts," Bebow said. "So a person who's run for office based upon opposition to Obamacare — Obamacare got passed at the federal level and it's going to be implemented. That water has gone under the bridge ... our elected officials need to respond in accordance with what is occurring, not what they hoped would occur."

Bebow offered a frame for thinking about the issue that might appeal to legislators that still feel strongly opposed to the law overall. Expansion is a component of the law, he said, "that can help our state survive Obamacare, and to turn our back on it given what we know today and have the hospitals and people in this state not benefit from this opportunity — well, I hope that they see the difference."

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