MH: Providers told to brace for Medicaid cuts as states look to plug budget holes

September 21, 2020

The longer the pandemic goes on without adequate economic relief for states, the more likely it is that Governor’s will eventually consider cutting the largest areas of state spending.  In NY, that is the Education budget and the Medicaid Program.  And while there have been Medicaid cuts via Medicaid Redesign Team actions, the Governor has not narrowed the front door to Medicaid or proposed to cut funding for Medicaid ‘optional’ populations.  When Washington temporarily enhanced FMAP rates for states, it also prohibited them from cutting significant elements of the states Medicaid Program via a Maintenance of Effort provision that prohibits states from narrowing eligibility, raising premiums, etc.  This leaves states with fewer choices in the event they need to make additional cuts, further exposing Medicaid reimbursement rates.  Obviously this would be a disaster for mental health and substance use disorder / addiction programs and services. There’s an interesting discussion on whether states should try to renegotiate rates with Managed Care plans (below).  

Providers told to brace for Medicaid cuts as states look to plug budget holes

Modern Healthcare

21 Sep 2020

By Michael Brady

UNIVERSITY MEDICAL CENTER OF SOUTHERN NEVADAUMC CEO Mason Van Houweling said Medicaid cuts could “put us back to 2001 levels.”

LIKE MANY HOSPITALS struggling to cope with the financial fallout of the COVID-19 pandemic, University Medical Center of Southern Nevada has made tough decisions and reevaluated its business strategy to survive.

The Las Vegas hospital has gotten federal relief funding, but “it’s just not enough” to offset increasing care costs and declining revenue, UMC CEO Mason Van Houweling said. The hospital’s fortunes are deeply intertwined with the state’s tourism-heavy economy, which has been hammered for the past six months as casinos shuttered, and conferences were canceled.

UMC’s supply budget has more than tripled since the outbreak began, and it recently offered voluntary buyouts to staff to rein in its growing labor costs. It also curtailed investments in new capital projects over the next five to 10 years, even though its finances were on solid footing before the pandemic hit the U.S. The hospital reported $691 million in operating revenue and a total profit margin of 4.3% in fiscal 2019, according to a Modern Healthcare analysis of CMS cost reports.

Now reductions to Nevada’s Medicaid program threaten to cut UMC’s finances even closer to the bone. Nevada lawmakers agreed to a 6% across-the-board rate reduction during a special session in July to help close a $1.2 billion budget shortfall, saving the state $53 million, and with the loss of federal matching will cost providers more than $100 million. It’s the largest cut to Medicaid provider rates any state has made since the pandemic began and a massive blow to Nevada’s largest public hospital.

“The new proposed rate puts us back to 2001 levels,” Van Houweling said.

With Medicaid enrollment snowballing and tax revenue falling off a cliff thanks to the pandemic, many states are sharply reducing their Medicaid spending to balance their budgets.

“Nobody is going to be raising taxes in an economic downturn,” said Matt Salo, executive director of the National Association of Medicaid Directors.

In theory, states could limit benefits and eligibility, modify their Medicaid managed-care contracts or reduce provider payment rates to cut their Medicaid spending. But most states will turn to provider rate cuts to get their spending under control because of congressional limits on enhanced federal matching funds and the practical effects of curbing benefits or revisiting their Medicaid managed-care organization contracts. Experts said hospitals can expect lower Medicaid payment rates for the foreseeable future and should plan accordingly.

“It’s going to get ugly,” Salo said. According to the progressive Center on Budget and Policy Priorities, states face average budget shortfalls of 10% in 2020 and 20% in 2021. On average, states spend more than 20% of their own money on Medicaid, a National Association of State Budget Officers analysis found. Only elementary and secondary education make up a larger portion of states’ general funds at nearly 36%. The NASBO estimates federal and state Medicaid spending accounted for almost 30% of total state spending in 2018.

“When states face economic downturns, Medicaid is often one of the first programs on the chopping block,” said Erin O’Malley, senior director of policy for America’s Essential Hospitals.

Health Management Associates predicted in April that Medicaid enrollment could increase 25%, from 71 million people in December 2019 to 89 million people, by the end of 2020 depending on the economy.

“We’re seeing a surge in Medicaid enrollment, and some states are seeing a lot more than others,” said Emily Blanford, health program principal for the National Conference of State Legislatures. “States are expecting that will continue into next year.”

Coronavirus Response Act temporarily raised Medicaid’s federal matching percentage—FMAP—by 6.2% until the public health emergency ends, granting states some fiscal relief. But states can’t curb eligibility, disenroll beneficiaries or raise premiums if they want the additional federal money. They also must cover all COVID-19 testing and treatment costs and can’t force local governments to pay a higher share of the state’s nonfederal Medicaid spending.

“All states are … dealing with the uncertainty of the duration of the public health emergency,” said Robin Rudowitz, co-director of the program on Medicaid and the Uninsured at the Kaiser Family Foundation. That’s making it more difficult for states to budget.

States could trim benefits to lower their Medicaid spending, but that might create more problems than it solves. Medicaid programs must cover inpatient and outpatient hospital services, physician services, laboratory and X-ray services and home health services, among other benefits. They can also choose to cover medical expenses like prescription drugs or community-based, long-term care services. But experts said many of Medicaid’s so-called optional benefits are critical to peoples’ health.

Industry insiders said states might lower Medicaid managed-care organization spending by renegotiating rates or adding risk corridors to capitalize on the recent drop in utilization, which has provided a short-term boost to commercial insurers. But that might be a fool’s errand. Utilization is already starting to rebound, and it could force states back to the negotiating table to prevent MCOs from going bust.

States may even delay “the expansion of services that have been in the pipeline,” O’Malley said. In June, Tennessee killed its long-planned postpartum insurance expansion to save money.

Colorado, Nevada and Wyoming have made large, across-the-board rate cuts, and Florida’s governor vetoed a proposed rate increase. But states could adopt more targeted cuts in the next year or two to ensure the rate reductions are efficient and lower the risk of harming beneficiaries’ access to care. Experts worry hospitals could eventually stop participating in the program if states squeeze reimbursement rates too much and force providers to accept massive financial losses when they care for Medicaid beneficiaries.

Some states are giving safety-net providers retainer payments to ensure they can keep their doors open during the emergency period. But it will become increasingly challenging for states to make those payments if their budgets continue to shrink and the enhanced FMAP disappears.

“Once (safety-net providers) close, they close for good,” Salo said.

In the meantime, many providers will reduce service lines or focus on more profitable ones “that attract a more lucrative payer mix,” Manatt Health partner Anne Karl said.

“We’re focusing on six service lines … to help turn around the hospital,” Van Houweling said. UMC is investing in cardiology, surgical services like orthopedics, urgent and primary care, its children’s hospital and oncology. Nevada’s only safety-net hospital is still committed to its core mission. It’s just trying to make the numbers work.

Experts said the least painful option for states, beneficiaries and providers would be more fiscal relief from Congress. The House passed the Health and Economic Recovery Omnibus Emergency Solutions—HEROES—Act in May, which would increase FMAP from 6.2% to 14%, but the Senate hasn’t taken it up. The National Governors Association in July asked Congress to boost the enhanced federal match to 12% until at least September 2021.

“Given the magnitude of both the public health and economic crises the nation continues to face, state and local governments need more support to provide health care services to individuals and families,” the NGA wrote.

“When states face economic downturns, Medicaid is often one of the first programs on the chopping block.”

Erin O’Malley, senior director of policy for America’s Essential Hospitals.