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Teaching Hospitals and the Maze of Medicaid
Loyal to their service mission, teaching hospitals across the United States deliver health care to a substantial proportion of this country's poor, including the uninsured and Medicaid patients. Our teaching hospitals' staunch commitment doesn't come without a cost, however, as the pressure of providing 45 percent of the charity care in this country, combined with under-reimbursement for Medicaid services, has made it extremely difficult for these institutions to maintain financial stability. Teaching hospitals' Medicaid budgetary problems are not likely to disappear any time soon, and in some states, they could potentially become even more complicated. A January New York Times article warned that Medicaid is in a fiscal crisis, "forcing state legislators around the country… to look for ways to cut benefits and reduce payments to hospitals, nursing homes, and pharmacies." Managed MedicaidAttempting to get better value for their costs, states have opted to adopt managed Medicaid plans and, in the process, have made it even more difficult for teaching hospitals to make ends meet. More than one-half of Medicaid participants nationwide are enrolled in HMO plans. Reese Fawley, associate director at the University of California's San Francisco Medical Center (UCSF), who is responsible for the center's health plan strategy and revenue management, points out that more than 50 percent of Californians enrolled in Medi-Cal, the state's Medicaid program, are in HMO plans. "It's very hard to balance a teaching hospital's budget in an environment where more than half of the [Medi-Cal] population is enrolled in HMOs," says Fawley. With an increasing number of HMOs participating in California's Medi-Cal program, the health care market in the region has become extremely price competitive. As a consequence, all HMO payers are reducing their payments to teaching hospitals, which are unable to bill at rates that reflect their actual costs. Medi-Cal managed care programs allot a set monthly amount of money for each Medi-Cal patient covered by hospitals. "The problem is that Medi-Cal members who sign up to be treated at the university usually need more specialized care," Fawley explains, which is generally more expensive for hospitals to provide. "The Medi-Cal managed care programs don't make adjustments for individual cases' complexity. The consequence of this is that teaching hospitals end up with a sicker population to care for and are given literally the same amount of money per member as other providers." John Coombs, M.D., associate vice president for medical affairs and associate dean for regional affairs rural health, and graduate medical education, at the University of Washington School of Medicine (UWMC), sees similar budgetary problems at the University of Washington Medical Center. "We have a lot of pressures," says Dr. Coombs. "We have seen a progressive drop in the amount of money given to us for payment of Medicaid services. When we started [with managed care Medicaid] we were getting approximately $115 per member each month to care for Medicaid patients, [and the payments dropped] down to $93." Effective last January, the medical center payers abandoned capitated payments for Medicaid and started reimbursing UWMC on a fee-for-service schedule. But the change hasn't been helpful to the institution since "the fee-for-service schedule for [the] faculty physicians is approximately 30 percent of the average commercial fee-for-service rate," Dr. Coombs points out. Some academic medical centers have dealt with their states' adoption of managed Medicaid programs by starting their own HMOs. The University of Missouri Hospital and Clinics created an HMO about four years ago and, like most other new businesses, had some losses in the initial years. "In our first year, we lost about $4 million in this enterprise," says Daniel Windship, M.D., CEO, and vice chancellor for health affairs. "By our third year, we were down to a $1.5 million loss, whereas now, we are essentially breaking even." Disproportionate Share HospitalsRecognizing that teaching hospitals and other community providers committed to serving the poor face substantial financial strains, states give additional funding to hospitals treating a disproportionate number of Medicaid and low-income persons under the Disproportionate Share Hospital (DSH) program. Despite their commitment to serve low-income individuals and the uninsured, not all teaching hospitals fit the eligibility criteria defined by each state to be considered under the DSH program. The University of California at Los Angeles' medical center serves a large number of Medi-Cal patients, but their percentages aren't high enough to make the academic medical center eligible for DSH relief. "When one looks at absolute numbers as opposed to proportions, we are as large a Medi-Cal provider as many DSH hospitals are," says Michael Karpf, M.D., UCLA's vice provost of hospital systems, medical center director, and practice plan operations director. But proportionally, 16 percent of the patients are covered by Medi-Cal, a number that falls short of the 25 percent minimum required, he explains. "However, Medi-Cal is critically predominant in two areas of our training programs: pediatrics, where about 50 percent of cases are Medi-Cal patients, and OB-GYN." Although UCLA doesn't receive DSH payments, a substantial amount of its operating costs are Medi-Cal related. "We perform a significant number of liver and heart transplants on Medi-Cal patients, who are, proportionally, very poor payers," says Dr. Karpf. "We find ourselves in a very difficult spot: it is hard to be a Medi-Cal participant, but it is necessary to be a participant, because of our service mission." The University of Chicago Medical Center, with close to 60 percent of all pediatrics patients enrolled in Medicaid, receives DSH funding. "There are times when policies go in our favor and times when they don't," says Michael Riordan, president and CEO of University of Chicago Hospitals and Health Systems (UCMC). "For example, we get reimbursed pretty well for taking care of very low-birth-weight babies." About one percent of very low-birth-weight babies in the country are born in this medical center, according to Riordan, and the state has recognized the crucial role UCMC plays in this aspect of health care by reimbursing it quite well through the Medicaid system. "On the flip side, there isn't the same policy or the same level of reimbursement with the pregnant women themselves," he explains. "So we end up having to cross-subsidize, and it often creates an interesting dynamic within the medical center. We have to transfer monies between the practice plan or the medical school and the hospital, and on top of that, also have to move dollars to cross-subsidize different programs so we can still afford to have OB-GYN. This creates an interesting and oftentimes controversial dynamic amongst us." The issue isn't going to get better, particularly as federal DSH allotments to states will be cut by 13 percent in FY 2003, unless Congress takes legislative action. The AAMC supports federal legislation reversing this reduction. The Upper Payment Limit IssueGiven the limits of Medicaid, academic medical centers have financed otherwise under-funded programs through other revenues, and a number of states have coped similarly by taking advantage of upper payment limit (UPL) policies. These policies allow states to make payments to non-state government owned or operated hospitals of up to 150 percent of the estimated Medicare cost for these services, compared to the 100 percent Medicare cost payment limit all other institution types are restricted to under federal law. Many non-state owned-hospitals have used the additional funds acquired through the UPL to offset losses incurred from treatment given to Medicaid and uninsured patients. Under recent regulations, however, these policies will no longer be permitted. The UPL program has been controversial, as some have regarded it as a mechanism for states to inflate their federal compensation for Medicaid services. But advocates argue that this program provides much-needed relief to safety-net hospitals and other institutions treating the indigent. In California, one of the states that have implemented UPL policies, teaching hospitals might lose millions of dollars in funding when the new UPL regulations are implemented, according to Fawley. "Three of the five University of California hospitals are DSH hospitals, and the upcoming restrictions will have a great impact on them," he explains. "But although UCSF doesn't receive DSH compensation, it will also be affected by the upper payment limit." The University of California co-sponsored a program, named Medi-Cal Medical Education, that accessed matching funds limited by the new regulations, and which have been used to help teaching hospitals with significant numbers of Medi-Cal patients. "For us at UCSF, this could potentially have the impact on our Medi-Cal funding by as much as $10 million a year," he adds. The total cuts nationwide resulting from the upper payment limit restrictions will reach $27 billion over ten years, an amount that is alarming a number of hospitals and hospital associations across the country. The National Association of Public Hospitals and Health Systems, the American Hospital Association, the National Association of Children's Hospitals, the AAMC, and a few other groups have filed a lawsuit against the U.S. Department of Health and Human Services contending that restricting the UPL policy will jeopardize health care services for the indigent, uninsured, and disabled. New Waiver Initiatives under the Health Insurance Flexibility and Accountability InitiativeThe latest governmental actions affecting the poor and the uninsured have been the adoption of Medicaid and State Children's Health Insurance Program (SCHIP) waivers in Arizona, California, and Utah, approved under the Health Insurance Flexibility and Accountability (HIFA) Initiative. These waivers make it possible for states to expand health coverage to the uninsured through Medicaid and SCHIP by giving states more flexibility in administering their programs and by offering a simpler, streamlined application system. Each state's waiver program is slightly different, with unique criteria for selecting the new populations that will receive health coverage. The above policy hasn't come without controversy. Utah's waiver expands access to 25,000 people but in exchange reduces the benefits of current Medicaid enrollees, including hospital inpatient services. Such benefit reductions could likely result in more uncompensated services for teaching hospitals. Although the California and Arizona states waivers don't include similar clauses, opponents of Utah's waiver policy fear other states could follow suit considering the budget deficits many states are now confronting. As states face financial pressures and look to Medicaid reductions to address their financial woes, some could opt to further reduce payments to doctors and hospitals. Under this scenario, teaching hospitals will face additional pressures that could compromise their ability to serve this nation's poor, worries AAMC President Jordan J. Cohen, M.D. "The Medicaid program is a critical component of this nation's health care system, and adequate Medicaid payments are necessary to enable our teaching hospitals to continue giving high-quality and specialized care to the poor and the uninsured," says Dr. Cohen. "As states struggle with budget deficits, we must ensure that Medicaid programs retain adequate funding to ensure the continuation of our teaching hospitals' crucial services." |
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