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.