US hospitals face financial problems

Last updated: July 10, 2012 9:13 pm

US hospitals face financial problems

By Stephanie Kirchgaessner in Washington

Hospitals in some US states are facing a potential financial crisis after a string of Republican governors rejected a provision of President Barack Obama’s healthcare law that would have expanded their number of insured patients.

The governors of Texas, Florida, Louisiana and South Carolina, among others, have announced they will not accept federal funds to increase their state-run Medicaid programmes, which provides health services to the poor, because they are staunchly opposed to the administration’s Affordable Care Act .

In announcing his decision on Monday, Rick Perry, the conservative Republican governor of Texas, said those provisions of the law represented “brazen intrusions in to the sovereignty of the state”.

The development spells bad news for roughly 4m uninsured people – the working poor, as some analysts have defined them – who would have been eligible for insurance in those states. It is also devastating for hospitals who are legally obliged to treat those patients and take a hit to their bottom line whenever one walks through their doors.

In 2010, the hospital industry took a gamble on the ACA. They backed the president’s sweeping law and agreed to accept $155bn in cuts in government reimbursements over 10 years to help to pay for it.

In exchange, they were promised tens of millions of additional insured patients in the healthcare system who would no longer turn to hospital emergency rooms as a destination of last resort for free health services.

“It was the leading, if not the only, reason hospitals made the deal with the administration to exchange cuts for coverage,”says Sheryl Skolnick, co-head of research at the CRT Capital Group.

The Supreme Court last month broadly upheld the constitutionality of the ACA provisions. But it said states had the right to opt out of the broad Medicaid expansion outlined by the law.

Under the ACA, the federal government promised to pay for 100 per cent of the cost of expanding state Medicaid programmes to uninsured adults with incomes of up to 133 per cent of the federal poverty line – or about 16m new patients nationwide – for three years. After that time, the states would have to pay for up to 7 per cent of the cost of the expanded programme, while the federal government would pay for the rest.

The state governors that have been at the forefront of the move to say “no” to Medicaid expansion are the same states with the highest number of uninsured patients, including Florida and Texas.

For now, hospitals are still grappling with the stark new reality that they may have to accept the deep cuts agreed under the law, but will not see the benefit of more insured patients in certain states.

Some analysts predict that hospitals will be using their lobbying clout in those Republican states to try to convince state legislatures to accept the Medicaid expansion or take other actions to increase coverage.

They are also looking at other options. Jennifer Schleman of the American Hospital Association says Congress may have to pass a new law to “revisit” the cuts that were agreed.

“The Supreme Court decision is still fresh, so right now there are more questions than answers,” she says.

The Texas Hospital Association, which says hospitals in the state paid for $4.6bn in uncompensated care in 2010, said it wanted to see the state adopt its own health insurance exchange and use subsidies to help insure the very poor.

John Hawkins, the THA’s senior vice-president of government relations, says: “At the end of the day, we need coverage expansion to make the commitment for the payment cuts to work.”

For now, the White House is suggesting that the political pressure that will come down on governors who are rejecting a federally funded Medicaid expansion in their states will be too much to bear, and that they will eventually be forced to accept the taxpayer funds.

That relief cannot come soon enough for the hospital industry.

Ms Skolnick adds: “In some states, those hospital associations will scream bloody murder. There will be plenty of political pressure, but I am rather cynical and think it is not going to matter.”