Year after year, the Florida legislative debate rages on: how to best use Medicaid dollars to reimburse hospitals serving Medicaid recipients. This is an arcane subject built on historical funding formulas largely undecipherable by the public. Nevertheless, it will be a significant budget conference issue, as the Senate is proposing a new funding model which is not included in the House budget.
Last year, the hospitals took a $521 million Medicaid cut. At the same time, with much fanfare, the governor announced a deal reached with the feds to increase funding for the Low Income Pool (LIP). LIP provides supplemental payments to charity care providers, principally hospitals. Last year, the amount of funding available through LIP increased from $608 million to $1.5 billion. This increase was supposed to help offset Medicaid reimbursement cuts for charity care providers.
Far less is actually available, however, because the state is unable to raise the match needed to draw down all the federal funding. The state relies on local entities (hospital taxing districts, counties, municipalities, etc.) to raise these funds. It’s become increasingly difficult to do so, since locals are no longer guaranteed a return on their investment.
So, this year, the state is only drawing down $790 million, a little over half of the $1.5 billion. LIP continues to be a band-aid to help cushion Florida’s very low Medicaid reimbursement rates. While both the House and Senate budget proposals for FY 2018-19 include this overblown LIP amount of $1.5 billion for the coming year, the budget proposals on Medicaid hospital reimbursement differ significantly.
The House proposes that the current reimbursement model continue as is, providing $318 million in enhanced Medicaid payments to 28 hospitals serving a disproportionate number of Medicaid patients.
The Senate budget would eliminate these targeted enhanced payments, instead folding these dollars into base rates (Diagnostic Related Groups- “DRGs”), which flow to all hospitals serving Medicaid patients. Three non-profit hospitals would take the lion’s share of cuts caused by this new funding model: Jackson Health System, losing $59.5 million; UF Health Shands Gainesville, losing $20.2 million; and Tampa General hospital, losing $14.3 million. On the for-profit side, the biggest winner is Hospital Corporation of America (HCA), which would gain $44.7 million.
Proponents of the Senate model contend that safety net hospitals posted “profits” in excess of $1 billion in 2016. In contrast, data from the Safety Net Hospital Alliance show that the 5-year average annual net operating revenue for Jackson, Shands and Tampa General combined was $1.2 billion, compared to $7.7 billion for Florida HCA hospitals.
Not in dispute is that safety net hospitals serve a disproportionate number of Medicaid patients. Notably, the three safety net hospitals mentioned above have Medicaid patient caseloads of 25 percent and higher. In contrast, HCA’s is just 16 percent.
Rate enhancements were implemented to help safety net hospitals absorb losses due to low Medicaid reimbursement rates and less private payor revenue. Further, many of these hospitals have a strong tradition and mission of caring for uninsured populations. They are well-known in their communities as a place to get care rather than seeking uninsured care at for-profit hospitals in their communities.
Sifting through the maze of data presented on both sides is daunting for both the public and policy-makers. In the end, no matter what policymakers decide, consumers unfortunately remain in the dark on how these decisions will truly impact their access to health care. Transparency on these issues would be greatly improved through clear metrics, which could help answer key questions like:
The Senate’s justification for the new model is that it’s fairer because the dollars will follow the person. But that begs the question, if we already know that the Medicaid dollars following the person are too low without rate enhancements, how will these safety net providers absorb new losses and continue to adequately serve their disproportionately high Medicaid and uninsured caseloads?
And of course, the other gorilla in the room is Medicaid expansion, which is still the best way to have money follow the person. A recent study found that Medicaid expansion was associated with improved hospital financial performance and substantially lower likelihoods of closure, especially in rural areas and counties with large numbers of uninsured adults. The real solution for hospital reimbursement is Medicaid expansion, which will provide substantial new revenues for hospitals across the board and coverage for more than 500,000 Floridians.