Reimbursement News

Medicaid Reimbursement Woes Key Concern for Healthcare CEOs

Eighty-five percent of healthcare CEOs cited cuts to Medicaid reimbursement rates and funding as their top challenge in 2017, a survey showed.

Twenty health system CEOs cited potential Medicaid reimbursement cuts to rates and funding as a top concern in 2017

Source: Thinkstock

By Jacqueline LaPointe

- Approximately 85 percent of healthcare executives identified shrinking Medicaid reimbursement rates and funding as a top concern in 2017, according to a new Deloitte survey.

Deloitte surveyed 20 CEOs from health systems that collectively produced about $58 billion in operating revenue in 2014, with all but four systems reporting over $1 billion in annual operating revenue. The health system leaders revealed that potential Medicaid funding cuts under proposed Affordable Care Act repeal bills troubled their organizations.

“They worry that if the bill passes, states would not receive enough funding to cover program costs and would react by lowering Medicaid payment rates, covering fewer services, or dropping enrollment, which would both increase the number of uninsured and hurt hospitals’ bottom lines,” the report stated. “Additionally, the health of communities, the primary focus of these hospitals, would suffer if consumers are less likely to seek preventative or primary care.”

While policymakers have yet to agree on an Affordable Care Act repeal and/or replacement bill, health system CEOs still expressed concerns about how potential Medicaid funding cuts could increase uncompensated care costs.

Hospitals in 19 states that elected to implement a Medicaid expansion program in 2014 under the Affordable Care Act’s authority reported a 34 percent, or $6.2 million, decrease in uncompensated care costs post-expansion, the Robert Wood Johnson Foundation and Urban Institute recently reported.

However, hospitals still incurred significant uncompensated care costs despite increased health coverage access. Uncompensated care costs reached $35.7 billion nationally in 2015, according to a 2016 American Hospital Association report.

Surveyed health system CEOs said that possible Medicaid funding cuts could undercut uncompensated care reductions and boost hospital costs for treating Medicaid and uninsured individuals.

Medicaid support for hospitals facing greater uncompensated care costs is already expected to decline by $2 billion in 2018 under the Affordable Care Act. CMS recently detailed its plan for further reducing the supplemental payments under the Medicaid Disproportionate Share Hospital program by a total of $43 billion by 2025.

The executives also voiced their worries about Medicaid reimbursement rate reductions to hospitals under a potential Affordable Care Act repeal or future healthcare reform efforts.

Health systems already face Medicaid reimbursement rates under actual care costs. The AHA uncovered that Medicaid reimbursement fell below actual hospital costs by $16.2 billion in 2015.

Other studies have also found that Medicaid payment rates are about 45 percent lower than reimbursement rates under private payers.

To overcome Medicaid reimbursement challenges, the health system executives told Deloitte that they are engaging in the following activities:

• Boosting advocating and lobbying efforts at both the federal and state levels

• Following Medicaid budget processes

• Developing value-based contracts

• Implementing new strategies focused on high-quality care delivery

• Targeting areas that are not affected by healthcare policy, such as care quality, cost reduction, and consumer experience

• Engaging in healthcare cost reduction initiatives

• Pursuing additional revenue streams

From CEOs to other C-suite positions, healthcare executives seem to agree that health systems and hospitals should move forward with value-based purchasing contracts and strategies despite political uncertainty with healthcare reform.

A recent BDC advisors survey revealed that healthcare executives do not plan to significantly alter their short-term plans from the past seven years because healthcare policy debate should not impact the initiatives. The plans included value-based purchasing implementation, achieving economies of scale, and healthcare cost reductions.

Another survey from after the presidential election also showed that 55 percent of healthcare executives still expect value-based purchasing to hit its tipping point by 2020 even in the midst of political uncertainty.

Deloitte researchers advised healthcare CEOs who are nervous about potential Medicaid reimbursement cuts to focus on reducing inefficiency since healthcare policy and market drivers indicate that hospitals are going to operate on tighter margins while payers push them to increase care value.

The report stated, “Rather than trim around the edges, CEOs need to rethink how care is delivered: How can the hospital deliver care to patients more cost-effectively? How can data and technology drive clinical and back-office efficiency improvements?”

CEOs should identify and addresses top challenges at a macro and enterprise level as well as invest in “no regret” strategies.

The BDC Advisors survey defined “no regret” strategies as those that “address fundamental economic forces: the relentless pressure on costs, the rise of consumerism, the shift from inpatient to outpatient care, and the growth of population health management and other forms of value-based payment mechanisms.”

Healthcare executives can also address specific Medicaid reimbursement concerns, Deloitte researchers explained.

For health systems worrying about Medicaid funding structures and lower reimbursement rates, leaders should diversify or expand into new geographic locations.

Health systems concerned about uncompensated care costs and treating more uninsured individuals should develop methods to triage patients to the most appropriate care setting, such as urgent care versus emergency department.