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By Taylor Sisk
North Carolina’s rural hospitals could soon be paying a steep price for the state legislature’s standing position not to expand Medicaid, according to the findings of a recently released UNC-Chapel Hill study.
The researchers examined rural hospitals across the country in 2013, before any states had expanded Medicaid, which is allowed for under the Affordable Care Act. They found that rural hospitals in North Carolina and the 18 other states that have yet to expand Medicaid had, on average, higher dollar values of unrecoverable debt and charity care than rural hospitals in states that have since elected to expand the program.
While hospitals in both expansion and non-expansion states no longer have to provide as much uncompensated care as a result of more people being insured under the Affordable Care Act, hospitals in states that have elected to expand Medicaid are seeing even fewer uninsured patients.
The Supreme Court ruled in 2012 that states have an option not to expand Medicaid, which provides health coverage for some 1.8 million North Carolinians who live in poverty, have disabilities or are elderly.
But here’s the rub: Anticipating that Medicaid would be expanded nationwide, the ACA, as written, calls for reducing payments from the federal government to hospitals that treat high percentages of Medicaid and uninsured patients.
These are known as disproportionate share reimbursement payments.
The effect of those reductions and already high percentages of uncompensated care, the researchers write, could leave rural hospitals in non-expansion states “in a financial predicament.”
The study, titled “Uncompensated Care Burden May Mean Financial Vulnerability For Rural Hospitals In States That Did Not Expand Medicaid,” was co-authored by Kristin Reiter, an associate professor of health policy and management at the UNC Gillings School of Global Public Health and a research fellow at UNC’s Cecil G. Sheps Center for Health Services Research, Marissa Noles, formerly a research assistant at the Sheps Center, and George Pink, a professor in the Gillings School’s department of health policy and management and deputy director of the North Carolina Rural Health Research Center.
The results were published in the journal Health Affairs.
An unsustainable business model
Uncompensated care includes both bad debt – the cost of care for people who are unable or unwilling to pay their bills – and care the hospital provides at a reduced cost or for which it never expected to be paid.
Jeff Spade, executive vice president of the North Carolina Hospital Association’s NC Center for Rural Health Innovation and Performance, says that when he first came to North Carolina almost 20 years ago, he asked a rural hospital executive what challenges most threatened his hospital’s viability.
“He said, ‘Let me tell you who my top three payers are,’” Spade recalled. “‘My number-one payer is Medicare. My number-two payer is Medicaid. And my number-three payer is no pay.’”
According to the UNC study, the percentage of revenue of uncompensated care for rural hospitals in expansion states is about 8 percent; for rural hospitals in non-expansion states, it’s between 10 and 11 percent.
“There’s no business model that I’m aware of that is sustainable in the long run with that amount of uncompensated work being done,” Spade said.
The researchers point to several factors that will only add to the burden on rural hospitals in non-expansion states.
They found that in the year prior to the implementation of Medicaid expansion, rural hospitals in these states were, on average, operating in communities with higher rates of poverty than those that have subsequently expanded Medicaid.
This helps explain why these hospitals were already providing higher percentages of uncompensated care than hospitals in expansion states.
The study also found that hospitals in non-expansion states are located in less-densely populated communities, with smaller markets from which to draw patients. Per-patient costs for hospitals in non-expansion states are higher compared with those in expansion states because fixed costs are spread over fewer patients.
The Gillings researchers address bad debt, pointing out that in 2012 reimbursement for Medicare bad debt was cut from 100 percent of bad debts to 65 percent, and that the federal government’s proposed 2016 budget calls for a further reduction to 25 percent.
“This cut, if it occurs,” they write, “will come at a time when – according to anecdotal evidence – the amount of bad debt is increasing for some hospitals. Some newly insured patients are now accessing health care via high-deductible health plans but are unable to meet their deductible, which forces hospitals to bear the costs of the patients’ care.”
Joann Anderson is president and CEO of Lumberton-based Southeastern Health and outgoing president of the American Hospital Association’s Small and Rural Hospital Council. She said the AHA made an agreement with the federal government to take cuts to reimbursement for Medicare patients who can’t pay their deductibles and co-pays – an agreement predicated on the understanding that Medicaid expansion would help offset the lost revenue.
Hospitals in states that didn’t expand Medicaid, Anderson said, “are becoming more and more unstable.”
According to a December 2014 report from the Cone Health Foundation and the Kate B. Reynolds Charitable Trust, expanding Medicaid by 2016 would have enabled North Carolina to collect more than $21 billion in federal funds over five years.
While the state would have to cover about $1.7 billion in additional state Medicaid costs, the report counters that the increase could be fully offset by tax revenues from economic expansion and potential savings in other health costs – including hospitals’ uncompensated care.
Rural communities would benefit most.
“The coverage provisions in the ACA were predicted to have relatively greater benefits for rural residents, who are more likely than urban residents to work for small businesses, earn lower wages, and lack insurance,” the Gillings researchers write. “Yet we found that the decision of many states to not expand Medicaid could widen rural-urban coverage disparities and, in turn, threaten the financial viability of many rural hospitals.”
Co-author Kristin Reiter suggested that among measures policy-makers could take to address the issue is delaying disproportionate share cuts for hospitals in non-expansion states.
Julie Henry, the N.C. Hospital Association’s VP for communications, said the NCHA is working with the state Department of Health and Human Services to try to maintain supplemental payments, “at least during this period while hospitals are getting their legs underneath them and adapting.”
“I also think policy-makers could consider things like extending access to marketplace subsidies to low-income, uninsured individuals who remain in the coverage gap in those states that did not expand Medicaid,” Reiter said.
“My hope is that policy-makers do monitor levels of uncompensated care and the financial health of rural hospitals as the ACA is implemented,” she said.[box style=”2″]This story was made possible by a grant from the Winston-Salem Foundation to examine issues in rural health in North Carolina. [/box]