The U.S. Supreme Court's two-step—affirming the constitutionality of the Patient Protection and Affordable Care Act while striking down expanded Medicaid coverage—puts CFOs in a budget planning pickle.
They won't know who their payers are until online insurance exchanges are established, how many people will be on plans, or how their charity care and bad debt will be influenced. Some healthcare leaders say the Supreme Court decision will change little in their strategic plans, but it's hard to create a long-term strategic plan when you can't project revenue with any kind of accuracy even two years out.
Currently, 60 million people are enrolled in Medicaid, and the expansion would have added another 17 million to the rolls. Prior to the ruling last Thursday, the PPACA called for the uninsured to be covered by requiring states to expand Medicaid to those earning less than 133% of the federal poverty level. It was an increase the federal government planned to cover fully from 2014 to 2016 (though later coverage would fall to just 90% of the cost of expansion and states would need to make up the difference).
The law would have allowed the government to withhold all Medicaid money to states that didn't go along with its coverage expansion. In addition, the PPACA called for the creation of new subsidies to help people at slightly higher income levels afford private insurance on new insurance exchanges.
These two parts of the ACA, had they remained intact, would have positively influenced the bad debt and charity care at many hospitals and health systems.
But when the courts ruled that the federal government may not monetarily punish states that refuse to expand Medicaid eligibility, it took the teeth out of the legislation, says Michael Freed, executive vice president and CFO at Spectrum Health, a nine-hospital system in western Michigan with nearly 9,000 beds, and president and CEO of Priority Health, the system's health plan with over 600,000 covered lives.
"I imagine most providers came away from this [ruling] thinking they were going to do okay—the worst-case scenario from this is they will get the same amount of Medicaid as they planned for. But how this will play out actually gets very hard to predict," says Freed.
With the door open for states to opt out of Medicaid expansion, it's anyone's guess what will happen in each state, he says. If a state opts out, it would cause residents who fall in the 100%-133% poverty range to seek subsidies for private insurance, which is fully funded by the federal government. However, having to pay for their own insurance may lead many individuals to hold off on getting coverage until it's absolutely necessary.
"If there's no enforcement of the insurance mandate, I can envision people waiting until they are very sick to purchase insurance [through an exchange], and that will drive up the insurance costs and make that insurance pool price very high," he says.
Freed's concern is shared by Healthcare Financial Management Association President and CEO Joe Fifer, who says the ruling created "more uncertainty for CFOs than if it had been shot down altogether."
"Many of us are wondering what the implications of this will be on Medicaid—it's a big question mark," Fifer says. "We can't be sure how many uninsured people it will impact until each state decides what to do. The only thing we can presume is that there will be more activity toward establishing [insurance] exchanges in each state."
That poses another challenge for CFOs, as many states delayed establishing exchanges. To date 14 states and the District of Columbia have authorized creation of these exchanges, 33 states have taken initial steps or none at all, and three states have announced they won't participate in exchanges period. In the case of those states that refuse to participate or cannot find a way to do so, the law requires the federal government to run that state's exchange.
Some state officials argue that declining to participate in the Medicaid expansion will save money in the long term, even though it would likely carry repercussions from providers and advocates for the poor. Moreover, the Centers for Medicare & Medicaid Services has other ways besides legislative mandate to influence dissenting states to participate, such as the granting of special permissions.
Nevertheless, several Republican Senators, including those from Missouri, Nebraska, Mississippi, and Idaho, have already declared that their states would likely turn down new federal money to expand Medicaid. One reason cited is the difficulty of picking up their share of the program once the government's portion decreases to 90% of costs. The ruling will likely spark continued political clashes in at least 26 states—primarily those that sued to overturn the law.
"Today's ruling underscores the urgency of repealing this harmful law in its entirety," House Speaker John Boehner, R-Ohio, told the press. While Ohio hasn't announced a decision on adoption of the expanded Medicaid coverage, with a Republican governor in office and a November Presidential election on the horizon, it's quite possible.
A provider view on Ohio's situation comes from Mary Ann Freas, CFO at Southwest General Health Center, a private, not-for-profit, 354-bed facility located in Middleburg Heights, Ohio. "I don't know if we will or won't participate, but I do know that if they don't [opt in], it's going to put more burden onto the safety-net hospitals," she says.
If the state opts not to participate, "the safety-net hospitals that have a great deal of uninsured will lose their disproportionate share and that will hurt. I'm not sure that's something that [the state] can politically get away with."
Freas says uncompensated care at Southwest General is 4% of net revenue, but she's unclear how the Supreme Court's ruling will affect her organization's Medicaid payments and payer mix. For forecasting purposes, though, Freas is assuming that Ohio will participate in the expanded Medicaid program, which will cause her organization's uncompensated care levels to decline while Medicaid numbers will increase.
"If they don't participate, my downside isn't as bad as it may be at other hospitals because we don't get [Medicaid] DSH," she says. For now Freas says she'll watch to see how Ohio responds to establishing the insurance exchanges—a process which hasn't started yet.
"At the end of the day, we are focusing on finding ways to reduce the cost of delivering care regardless of whether there's PPACA or something else [in effect]," she says. "There's always been uncertainty [in healthcare], now there's just another layer of it. Dealing with [change] is just part of what CFOs do."
Freas, Freed, and Fifer all agree that moving ahead with the transition from volume reimbursements to value is essential, regardless of what happens to PPACA and Medicaid.
"[CFOs] can't wait around and engage in debate endlessly while the government tries to think up a solution," Freed says. "We think the solution will come out of us and the community."
Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
