Analysis: Stimulus Law Spends on Healthcare Today to Save for Tomorrow

The good news for healthcare providers is that the $787 billion stimulus bill that President Barack Obama signed into law yesterday includes an additional $87 billion for state Medicaid programs. Given Medicaid's dismal reimbursements, however, that's also the bad news.

"It's mostly short-term good news for the hospitals, health systems, and physicians because it does hold the promise of broadening coverage, at least temporarily, in a broad environment," says Steve Jenkins, a vice president at Chicago-based healthcare consultants Sg2. "We do need some caution about the primary method of expansion being Medicaid. That has some risks. Payment levels are the poorest of any payer and don't cover costs. And because Medicaid is so tied to state budgets, it's very susceptible to the swings of state budget fortunes. It expands when state budgets are flush, and it contracts when state budgets are in crises, as many are today."

In fact, the Medicaid supplemental funding does have one very large string attached. States can only use the supplemental money if they do not cut their Medicaid programs. The National Conference of State Legislatures reports that 43 states face budget shortfalls this year, and AARP reports that several states have considered cutting their Medicaid expenditures this year to account for budget shortfalls.

Expanding healthcare coverage is clearly the largest priority of the stimulus plan's approximately $150 billion in dedicated healthcare expenditures. The Medicaid supplemental funding and $19 billion earmarked to pay up to 65% of COBRA premiums for laid-off workers are the top two biggest expenditures and comprise more than two-thirds of targeted healthcare spending. "Today, 15% or fewer of people who have the COBRA option elect it because it's not affordable to a lot of people who've lost their jobs," Jenkins says. "Now they are going to have a better opportunity to sustain their coverage. And it's a good thing for healthcare providers because it's going to maintain them at a group-based policy that is more likely to have reasonable reimbursement rates."

The third-largest healthcare-related expenditure in the stimulus is the $19 billion dedicated to provider healthcare information technology upgrades, of which $17 billion will be awarded through Medicare/Medicaid and $2 billion through grants and loans. Stephen Page, an attorney and analyst with Nashville-based Waller Lansden, says that amounts to a base of about $2 million for each hospital that qualifies as a "meaningful EHR user," under a rather dry and detailed federal definition.

Physicians have long lagged behind hospitals in the adoption of information technology; Page says that less than 5% of doctors use EHR. However, doctors could receive as much as $18,000 in incentives for the first year that they become a "meaningful EHR user," under a timetable that encourages quick adoption of the technology and financial penalties for those who lag behind. The incentive payments do not apply to hospital-based physicians who have access to the technology through their health system.