Medicaid Cuts Worry Hospitals

July 11, 2003
Print
Text Size:
A A
Hospitals across Michigan could find their bottom lines squeezed even tighter under a Medicaid payment cap the state wants to implement.

It’s a change for which that employers and employees ultimately might pay through higher group health premiums.

If approved by the federal government and implemented, the change would cap payments to hospitals for adult Medicaid patients to $900 per admission, no matter how long a person stays and what kind of care they receive. In many cases, the payment would equate to a fraction of the actual cost of caring for a Medicaid patient who’s admitted to the hospital.

“It’s so unbelievable you don’t expect it to materialize. You don’t expect to see it happen, that’s how absurd it is,” said Mark DeVirgilion of West Michigan Assured Services, an arm of Trinity Health.

DeVirgilion handles reimbursement payments for three western Michigan hospitals owned by Trinity Health: Saint Mary’s Mercy Medical Center in Grand Rapids, Mercy General Health Partners in Muskegon and Battle Creek Health System. Saint Mary’s and Mercy General each stand to take about a $2 million hit annually under the so-called adult benefits waiver, DeVirgilion said.

He and others point to the proposal, designed to enable the state to maintain benefits in the wake of a budget crisis, as the result of underfunding of government health programs at the state and federal level.

One of the biggest losers under the proposed adult benefits waiver is Spectrum Health in Grand Rapids, which already loses some $30 million annually caring for Medicaid patients based on cost.

The adult benefits waiver would push that loss far deeper, by an estimated $10 million to $12 million for the health system’s Grand Rapids hospitals that are already incurring operating losses, plus another $3 million to $3.5 million for Hackley Hospital in Muskegon, which is operating on a slim margin, Chief Financial Officer Mike Freed said.

Spectrum stands to get hit the hardest in West Michigan because, as the region’s tertiary care center, it handles the most complex medical cases that are transferred from other hospitals. Spectrum’s cost for the average Medicaid admission is $8,500.

With such an enormous difference between the $900 the state would pay and the actual cost to provide care to Medicaid inpatients, Freed is already warning of the potential impacts the waiver could have on the business community. Spectrum, which already receives disproportionately lower Medicaid payments than hospitals in southeast Michigan, will have no choice but to figure the losses into any price increases that may occur next year, which employers would eventually feel through their insurance premiums.

“There’s no way I can cut costs to get down to $900 per case,” Freed said.

The state’s proposal brings to light the struggle hospitals are having in dealing with the cost of caring for patients on public health programs and the question of who ultimately foots the bill.

Cost-shifting is a common practice in health care that’s infrequently discussed publicly. The practice — where providers shift the losses incurred from indigent care onto private payers — was at the heart of the dispute a year ago between Spectrum Health and Blue Cross Blue Shield of Michigan over higher reimbursement rates sought by Spectrum, as well as the ongoing negotiations between the Blues and Lansing’s Sparrow Health.

With Spectrum now in the final year of a price cap instituted as part of the consent decree that enabled the 1997 merger creating the health system, Freed of late has been raising the issue of chronic underfunding of Medicaid.

As hospitals cope with rising costs and a lack of corresponding increases in Medicaid funding, increased cost shifting is inevitable.

“There is, in theory, already some shifting. It’s been in place as long as hospitals have existed,” Freed said. “We’re working very hard to try to shed as much light on it to minimize the impact.”

But any further cost shifting by hospitals is likely to run head on into stiff resistance from private payers who are working to stem escalating health premiums and believe that picking up the cost of indigent and Medicaid care is not their responsibility.

“Our position is if there is a problem with government programs, the approach should be to go back to government programs and make some changes,” said Helen Stojic, a spokeswoman for Blue Cross Blue Shield of Michigan. “We know our business customers are already feeling the rising cost of health care for their employees and they feel they don’t want to take on the added burden of underfunded government programs.”

Statewide, the adult benefits waiver will cost hospitals as much as an estimated $100 million a year and push some hospitals into the red, said Sherry Mirasola of the Michigan Health and Hospital Association. Hospitals in Michigan averaged a margin of just 1.6 percent in 2002, according to the association.

“A lot have been hanging on by their fingernails and this could cause some real problems,” Mirasola said.

A spokeswoman for the Michigan Department of Community Health, which administers Medicaid, did not return phone calls from the Business Journal seeking comment.

Elsewhere in the Grand Rapids area, Metropolitan Health Corp. would take an estimated $1.5 million hit under the adult benefits waiver, Chief Financial Officer Bob Smedes said. While that’s “not a catastrophe for us,” it will hurt Metro’s bottom line, he added.

“I think we can weather this. It’s just going to make it tighter,” he said. “(But) this kind of action erodes our capacity to continue to serve this population.”

Metro’s average Medicaid admission cost runs about $3,750, said Smedes, who is in a unique position to view the issue. Prior to joining Metro as CFO in early 2002, he ran the state Medicaid program under former Gov. John Engler.

Smedes said he can understand the problem the state is having funding Medicaid in the wake of the budget crisis and the current political climate of reducing taxes.

“It’s a huge dilemma for the state,” Smedes said. “I’ve got a real feel for what they’re up against. They’re up against a real wall.”

While the current waiver proposal is hard enough for hospitals to take, the bigger question for Smedes is what the future holds. Any further major reductions in payments from public programs will only put hospitals’ finances in tougher straits and could create situations similar to what’s occurring in Detroit, where Detroit Medical Center is looking to close facilities to alleviate massive operating losses of recent years.

“The system cannot survive if we go down that path very far,” Smedes said.               

Recent Articles by Mark Sanchez

Editor's Picks

Comments powered by Disqus