Moody's: HIX Uncertainties Will Hurt NP Hospitals' Credit

Not-for-profit hospitals could see a migration of commercially insured patients to exchanges, where reimbursement rates may be lower, says a report from Moody's Investors Service. Commercial rates have traditionally subsidized Medicare losses and driven profitability for most hospitals.

Unanswered questions about health insurance exchanges such as who will enroll and what exchange-based plans will pay providers will create a "modest credit negative" for not-for-profit hospitals in 2014, Moody's Investors Service says.

The Congressional Budget Office has estimated that about seven million people will sign up for health insurance coverage under the exchanges. However, Moody's Associate Managing Director Lisa Goldstein says in a new report that NFP hospitals could see a migration of commercially insured patients to exchanges, where reimbursement rates may be lower.

"The exchange-related risks center on two primary issues that will largely negate the benefits of a declining uninsured population in 2014," Goldstein said in remarks accompanying the report. "These issues are the level and composition of enrollment, and how insurance exchanges exacerbate revenue pressures on hospitals."

"Providers are reporting that negotiations with exchange plans range from Medicaid rates, usually the lowest rate-per-service a hospital receives and does not cover costs, to a discount off of commercial rates, typically the highest rate a hospital receives," Goldstein said. "Commercial rates subsidize losses incurred with Medicaid and Medicare and drive profitability for most hospitals."

A Rise in Bad Debt
Another pitfall for NFP hospitals is the "timing mismatch" between the savings that hospitals should expect sometime in the future for treating fewer uninsured patients, and real reimbursement cuts that went into effect on Oct. 1 for Medicare, Medicaid, and Medicaid disproportionate share payments [DSH] for safety net hospitals.

Goldstein said bad debt likely will rise because new enrollees previously insured by a commercial insurer are likely to sign on to plans with high co-pays and deductibles, which they may ultimately be unable to pay. Moody's also expects some delays in payments and processing claims among exchange-based insurers because they will tend to be smaller and less experienced, and will take time to come up to speed.

In addition, private health insurance exchanges that are not part of the Patient Protection and Affordable Care Act are expected to become more popular with private employers looking to reduce healthcare benefits. Goldstein says reimbursements from insurers on private exchanges are expected to be lower than those from commercial insurers.

The nation's largest hospital associations have supported the PPACA, but have also raised concerns about the unintended consequences and potential financial burdens that hospitals could face during the implementation.

Rates Unknown
Xiaoyi Huang, vice president for policy at America's Essential Hospitals, says safety net hospitals don't know yet what the exchanged-based plans are going pay.

"All of our member hospitals are essential community providers and there is some language in the ACA about rates that all of the health plans have to pay essential community providers but it is very broad language," she said.

"Beyond that, it is up to the individual providers to negotiate with the plans depending upon who has the better budgeting position to figure out how much of their costs are covered through the rates. But honestly we don't know what that rate is."

"We care about whether our hospitals are included in the networks of these plans just because if you are not in the networks, you are automatically off to a disadvantage. But even for those that are included, we at this point don't have a systematic sense of what types of rates are being offered. We hope it is not as low as Medicaid because then you are just trading one form of uncompensated care for another."

Ellen Pryga, director for policy at the American Hospital Association, says hospitals are trying to predict the effects of a broad set of factors.

Data Needed
"The reality is none of us really know how it is going to shake out until we begin to get some data out of the various exchanges in terms of who is enrolling and what level plans they are enrolling in, etc…," she says.

"There are some other things that we have been looking at that we think are going to play a role too. For example, we think that some of the really heavy initial push to enroll will be for people who have pre-existing conditions. The Pre-existing Condition Insurance Program capped out and stopped enrolling people almost a year ago. So people with pre-existing conditions are likely to be some of the first in line here and people with pre-existing conditions use a lot of services."

Pryga says hospitals are also trying to figure out how insurance market rules that go into effect on Jan. 1 could affect providers' bottom lines.

"For example, one thing that goes away is the annual limits on the amount of benefits that get covered during the year. Another thing that happens is the implementation of out-of-pocket limits under all of those plans, not just in the exchanges but outside of the exchanges as well," she says.

"All of those plans, whether they are individual, small group, large group or self-insured are going to have out-of-pocket limits on cost sharing. So, the combination of the removal of the annual limits and the limits on out-of-pocket expenditures, while they differ for those groups, is going to be an effect."

Delay Sought for DSH Cuts
Huang and Pryga say their associations have been pressing the Obama administration and the Department of Health and Human Services to postpone the DSH reimbursements because of the timing lag, and also because more than 10 states have rejected the Medicaid expansion, which negates the trade-off in states that reject Medicaid expansion.

"If your income is below 100% of the federal poverty line you are not eligible for any subsidies through the exchange and in many states the Medicaid eligibility level is like 30% – 40% of the federal poverty level," Pryga says. "You can have a pretty substantial gap between the Medicaid eligibility and the eligibility for subsidies through the exchange in the absence of Medicaid expansion."

Huang says DSH payments "prop up a lot of our hospitals."

"It doesn't cover 100% of the costs but it does a really good job of offsetting some of the uncompensated care that these hospitals take on. Given all of the uncertainty we think it makes sense for the DSH cuts to be delayed until the administration has data to see what that take up looks like. Even with the data limitations it is going to be a two- to three-year lag between fiscal 2014 and when the data will actually show fiscal 2014 performance."