Healthcare Revenue Cycle Management, ICD-10, Claims Reimbursement, Medicare, Medicaid

Policy & Regulation News

Uncompensated Care Drops by $6B after Medicaid Expansion

A study found that uncompensated care costs have declined by $6 billion since Medicaid expansion programs were implemented in 2014, but Medicaid payment cuts could outweigh the savings.

- Numerous individuals seek necessary medical services at hospitals regardless the ability to pay, but uncompensated care costs from charity cares and patient debt can strain hospital revenue cycles. However, as states develop Medicaid expansion programs, more individuals are now insured and the unpaid medical bills are dropping.

Unpaid care costs decline by $6 billion, but hospitals still concerned about Medicare payment reductions

Through the Affordable Care Act, federal agencies aimed to decrease the number of uninsured individuals through Medicaid expansion programs. While states were left to decide whether or not to implement Medicaid expansion, a recent study from the Henry J. Kaiser Family Foundation indicates that these programs have contributed to lower uncompensated care costs.

Researchers found that unpaid hospital care costs declined by nearly $6 billion nationwide in 2014, with almost all of the decreases occurring in Medicaid expansion states. The total savings represent a 17 percent decrease in national healthcare costs from 2013, the year before Medicaid expansions took place.

States that participated in the expansions saw a 35 percent decline in uncompensated healthcare costs, whereas non-expansion states experienced only a one percent drop between 2013 and 2014.

Despite receiving more revenue, many healthcare stakeholders are concerned that savings from declining uncompensated care rates may be overshadowed by higher volumes of Medicaid payments that are lower than hospital costs.

“Early analysis of the Medicare Care Report data show national declines in uncompensated care, especially in expansion states, although the data do not permit reliable estimates of trends in Medicaid payment amounts,” wrote the authors of the report. “However, hospital margins are influenced by numerous factors, the health care and policy environment is in flux, and some hospitals will be better able to adapt to these changes than others.”

As more individuals are insured under Medicaid expansion programs, hospitals are seeing more Medicaid beneficiaries in their facilities. While more patients could lead to increases in hospital revenue, Medicaid reimbursements are generally less than the costs for medical services.

Through Medicare Cost Reports, researchers uncovered that hospitals were typically reimbursed 93 percent of total patient care costs by Medicaid in 2014.

To reduce Medicaid shortfalls in claims reimbursement, many hospitals receive supplemental payments on top of the base fee-for-service or managed care arrangements. For example, the Medicaid Disproportionate Share Hospital program makes additional payments to hospitals that treat large numbers of Medicaid and uninsured individuals.

In its March report to Congress, the Medicaid and CHIP Payment and Access Commission stated that hospitals received 107 percent of patient care costs on average after Disproportionate Share Hospital payments were made.

States also make up for Medicaid shortfalls using Upper Payment Limits, Intergovernmental Transfers, provider taxes, and waivers to finance supplemental payments.

In 2014, all supplemental Medicaid payments accounted for 44 percent of total Medicaid reimbursements to hospitals.

However, the Affordable Care Act calls for some reductions in additional Medicaid payments, especially to the Disproportionate Share Hospital program, which has caused concerns for many healthcare stakeholders who rely on Medicaid revenue for viability.

Under the legislation, the government will decrease the Disproportionate Share Hospital program’s funding by $2 billion in 2018 and increase the budget cut to $8 billion by 2025. In total, the government plans to save $43 billion between 2018 and 2025 through cuts to the program.

Some advocates for the program’s reduced budget reported that increases in patient revenue due to more insured individuals will balance the loss of supplemental Medicaid payments. But, some hospitals rely on additional Medicaid funds more than others, explained the study.

“Safety net hospitals are particularly vulnerable because of their high dependence on Medicaid DSH [Disproportionate Share Hospital] funds, high numbers of uninsured, few privately insured or Medicare patients, and generally weaker financial condition,” wrote the authors of the report.

The study also stated that hospitals may face stagnant or reduced base Medicare rates, which could offset healthcare savings from less uncompensated care.

“In general, increases in base rates have lagged behind increases in costs during economic downturns as states often restrict (freeze or reduce) provider rates,” reported the study. “Even as the economy has recovered, in fiscal years 2015 and 2016, there were more states restricting (freezing or cutting) rates for Medicaid hospital inpatient care than there were states increasing rates.”

Hospital revenue cycle management is a continuous balancing act for most healthcare providers. While some have saved money by reducing uncompensated care rates through Medicaid expansion, others are facing less Medicaid revenue.

As Medicaid coverage programs mature and the government implements amended supplemental payment policies, healthcare organizations may need to re-center their hospital revenue cycle’s balance in order to continue serving Medicaid beneficiaries and uninsured individuals.

Dig Deeper:

Does Medicaid Expansion Improve Revenue of Hospitals?

Adapting the Healthcare Revenue Cycle to Changing Regulation

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