SUNDAY EDITION | Kentucky's Medicaid expansion delivers hundreds of millions of new dollars to Louisville healthcare providers
A look at the financial impact of Kentucky's Medicaid expansion on healthcare providers like hospitals and doctor's offices.
LOUISVILLE, Ky. (WDRB) – Only two years ago, one in every five patients who sought care at University of Louisville Hospital had no health insurance.
As the region’s safety net hospital for the poor, University treats everyone, regardless of ability to pay. In previous years, that’s meant racking up big unpaid bills for people without health insurance.
But now that Kentucky has expanded Medicaid eligibility under the Affordable Care Act, only 1 in 20 patients at University Hospital is uninsured. And the hospital has received $146.5 million in new Medicaid payments, according to state figures, in less than two years.
“From a financial perspective, we have more people coming through the door who have the means to pay for the services we provide, so it’s had a positive impact,” said University Hospital President Ken Marshall.
Kentucky’s full embrace of Obamacare – including expanding Medicaid to cover 425,000 additional people -- is in the crosshairs now that Republican Matt Bevin has been elected governor.
And while much of the focus has been on what Bevin’s reforms will mean for people who have obtained health coverage, any rollback of Kentucky’s Medicaid expansion would also have big implications on the state’s hospitals, doctor’s offices and pharmacies.
In all, the program has delivered $2.9 billion in new payments – all federal money -- to Kentucky healthcare providers since it began in January 2014, according to the administration of outgoing Gov. Steve Beshear, who championed the Medicaid expansion.
State figures released Nov. 13 show that providers in Jefferson County alone have received $527 million in additional payments for providing care to the newly covered under Medicaid from the program’s inception in January 2014 through October 2015.
Medicaid, the federal-state health insurance program for the poor, now covers Kentuckians who earn up to 38 percent more than the federal poverty level – or up to $16,000 a year for an individual or about $33,000 a year for a family of four.
Locally, University Hospital has received the most new revenue from the Medicaid expansion, state figures show.
But Norton Healthcare’s hospitals have received $124 million in new Medicaid money, and Jewish Hospital and its affiliated hospitals have received $74 million.
Apart from the Beshear administration figures, the hospital companies’ own financial reports underscore the impact of the Medicaid expansion.
Norton, for example, reported earlier this month that its Medicaid revenue for the first nine months of the year was up nearly 30 percent, to $312 million, from the same period last year.
The Medicaid expansion also helped the company’s bottom line by reducing Norton’s “bad debt” – or the money that patients owe but have not paid. Norton’s “bad debt” expense is down 15 percent so far this year, or $9.7 million.
Michael Gough, Norton’s chief financial officer, said in an interview that the Medicaid expansion is “not the singular reason” for Norton’s recent financial success, but “one component” of it.
“Mostly we think it’s great for the patients, in terms of being able to have coverage for themselves,” Gough said. “What we were having before was a lot of ER (emergency room) visits. They weren’t quality ER visits; they were things that could have been handled at the physician’s office, but they didn’t go to the physician’s office because they didn’t have coverage.”
Like other hospital executives, Gough was quick to point out that Medicaid doesn’t cover the full cost of treating patients. (Medicaid pays about 82 percent of the cost, according to the Kentucky Hospital Association).
But Gough said the incremental dollars help defray “fixed costs” like the $140 million electronic medical records system Norton recently installed throughout its hospitals, doctor’s offices and urgent care clinics.
University Hospital – along with Jewish Hospital and St. Mary’s Healthcare – is now part of the statewide conglomerate KentuckyOne Health, which does not disclose the hospital’s specific financial performance.
Marshall’s staff provided figures to WDRB showing University Hospital’s operating income improving from $18.4 million in the calendar year 2012 to $53.5 million in the fiscal year ended June 30, 2015. (No figure for 2013, the final year before the Medicaid expansion, was provided).
Meanwhile, KentuckyOne Health as a whole has turned its struggling finances around – in part because of the state’s Medicaid expansion, according to its parent company, Colorado-based Catholic Health Initiatives.
KentuckyOne squeaked out a $73 million profit in the year ending June 30, compared to a $69 million loss the year before, according to CHI’s most recent financial report.
‘A substantial economic injection’
Janet Kelly, director of the Urban Studies Institute at the University of Louisville, said the Medicaid expansion is not unlike a new Ford plant or other manufacturing operation pumping new money into the state’s economy.
That’s because for now, the federal government pays all of the bills for newly insured under Medicaid, with only a negligible amount of that burden is shared by Kentucky residents’ federal taxes, Kelly said.
“It is a substantial economic injection,” she said.
But Kentucky will have to start picking up a share of the expanded Medicaid cost in 2017, and eventually the state will be on the hook for 10 percent of the program in 2020 – or $363 million a year, according to a state consultant’s estimate.
Bevin has said the state can’t afford that, so he wants to get the federal government’s permission to move to a “waiver” program in which Medicaid enrollees would have cost-sharing responsibilities like premiums, similar to the waiver plan that Indiana implemented earlier this year.
In an interview with WDRB News earlier this month, Bevin said he’s not going to make any “rash” changes that would throw people off their health coverage.
But, “Ultimately, it’s going to be yanked out from under them if we don’t have the money to pay for it,” Bevin said. “And that is more cruel, to me, than if we have a thoughtful, logical process that ensures we have healthcare options for everybody in Kentucky.”
At the same time, it’s clear Bevin wants to scale back Medicaid coverage to some degree.
“We cannot continue to enroll people at up-to 138 percent of federal poverty level, so we are not going to continue to enroll folks at this level,” Bevin told WDRB News. “…We’re going to ultimately ensure that we have coverage for those who need it. For those who don’t, it’s not going to be as much of a priority.”
Because Bevin has not yet produced a plan, industry representatives say it’s hard to know whether – or to what extent – the new Medicaid money flowing into the state might be curtailed.
“It’s like looking into an empty bucket; I don’t know what’s in it,” said Joseph Smith, executive director of the Kentucky Primary Care Association.
Smith said any additional patient costs in the Medicaid program, like premiums and co-pays, might decrease coverage. He also worries about Bevin’s plan to do away with Kynect, the state’s health insurance exchange, and have participants sign up for coverage on the federal site, healthcare.gov.
“We work with a population that are basically marginal, and by changing -- by going to the federal exchange -- it’s going to create a barrier,” he said.
Michael Rust, president of the Kentucky Hospital Association, noted that any changes to the Medicaid program appear to be a long way off, as it’s a timely and complex process for the federal government to grant a waiver allowing Bevin to change the program.
“At the minimum, it would probably be a year before there would be any impact whatsoever, depending on how this waiver may be structured,” Rust said.
He added that it’s possible Bevin’s changes will mean very little for the state’s hospital industry.
“People would still have coverage. Now, they may have a different payment structure. Their benefits may be focused differently. But until we see exactly how he’s planning on doing that waiver, I mean, we don’t know (what the impact would be),” he said.
For hospitals, the additional Medicaid revenue in Kentucky has been one positive of the Affordable Care Act, which is actually expected to hurt them in the long run, Rust said.
Obamacare cut the rate of growth in Medicare payments and introduced financial penalties when hospitals readmit patients within 30 days, among other changes, according to a report from the hospital association earlier this year.
Gough, of Norton Healthcare, said the Medicaid expansion represents “the plus side” of Obamacare, but other looming changes will – in the end – make the health reform law a net-loser for Norton by $95 million a year.
“You have the pick-up part of it – the good side of it – to prepare for all when all the reductions in revenue in Medicare come,” he said.
At University Hospital, Marshall worries about Obamacare’s scheduled reductions in “disproportionate share” payments – in which the federal government helps hospitals like University that deliver a lot of uncompensated care.
Medicare disproportionate payment cuts took effect in 2013, but Congress has delayed the cuts in the Medicaid program until 2017. University Hospital received $56.7 million in disproportionate share payments in fiscal 2015, according to the state.
A reduction in those payments would offset the positive impact of the Medicaid expansion, Marshall said.
“I don’t think you’re going to find that what our financial picture looks like today is going to be the same as what it looks like in five years,” Marshall said. “It’s going to be slimmer in five years.”
Marshall acknowledged concerns about Kentucky’s ability to pay for the Medicaid expansion in the long run, but he does not want return to the days when so many of University Hospital’s patients were uninsured, he said.
“Letting a vulnerable population go, I do not agree with,” he said. “How we deal with it? I think that’s what everybody in Frankfort is having a thoughtful discussion about.”
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