While Medicare and Medicaid reform discussions distracted hospital executives, welfare reform snuck in under their radar. Now that the bill has passed and President Clinton has agreed to sign it, little bombshells are exploding in hospitals across the country.
The changes don't affect every hospital or the industry as a whole, but the bill contains dramatic ramifications for certain public and private hospitals in areas with a significant immigrant population, and the effects are nearly impossible to predict accurately.
Legal immigrants who arrive after the bill takes effect won't be covered by Medicaid for five years. For those already here, the federal mandate for coverage has been lifted. However, if a state chooses to continue covering those immigrants, the federal government will still provide its share of funds. Emergency care will still be covered for immigrants.
Some hospitals will see a jump in their charitable writeoffs and no-pay patient load, which will impact their bottom line. For other hospitals already on rocky financial ground the bill's effects will be so destabilizing they could be tipped into insolvency.
Most at risk are hospitals in urban areas in states that attract the bulk of immigration. Those states-California, Florida, Illinois, New York and Texas-are suddenly stuck with a major public liability they didn't foresee.
In Los Angeles, which will possibly feel the sharpest hurt, public and private hospitals could lose up to $500 million. The impact on public-sector funding could be so great that it could force the county to renegotiate the terms of the recently granted $364 million Medicaid waiver it won to help it restructure to a more outpatient-focused system.
Los Angeles County shares one problem with everyone else: It really can't tell what the impact of the bill will be because nobody really knows how many legal-immigrant patients they serve. "You may know what your total Medicaid population is, and how many are (covered under Supplemental Security Income or Aid to Families with Dependent Children), but you won't be able to tell by looking at a Medicaid number whether that person is a legal resident or a citizen," said Irene Riley, chief of governmental relations at the Los Angeles County Department of Health Services. "Anything we could come up with is an estimate."
There are an estimated 6.1 million legal immigrants in California, of whom 830,000 are dependent on Medicaid for healthcare, said Jim Lott, senior vice president at the Healthcare Association of Southern California. About 60% of those immigrants live in Los Angeles County.
Those patients until now had access to the full range of Medicaid benefits at any hospital that accepted Medicaid. Depending on how the state implements the bill, those patients could lose that coverage and would be treated as uninsured.
Barbara Masters, vice president of the California Association of Public Hospitals and Health Systems, said the loss of Medicaid coverage for legal immigrants "will mean those individuals will likely become county patients. Not only are we going to lose patients previously covered by Medicaid-an important revenue source for public hospitals-but those people will become uninsured and will go to county hospitals."
In California the counties are legally the provider of last resort. Many counties operate public hospitals, but even more don't.
Los Angeles County runs the largest public healthcare system in California. "We're in a precarious situation," Riley said. "Welfare reform could have the type of impact that makes you sit down and rethink what you thought had stabilized our financial situation." The healthcare system makes up such a large portion of the county's budget that it will have implications for the county's financial health, she said.
The effects of the welfare bill could mean a loss of as much as $500 million a year for the private and public healthcare sectors in Los Angeles County alone, Lott said. "About $200 million would be absorbed by the public sector, with $300 million absorbed by the private sector. It's a big hit."
Private hospitals that still treat Medicaid ineligibles may not get reimbursed; those that decline to treat those patients would lose the Medicaid revenues they previously earned.
"We could see the current uninsured population in California of 6.6 million go to 7.4 million in one year," Lott added. About 20% of the state's under-65 population is now uninsured. In Los Angeles County, 31% of the under-65 population is uninsured. Lott's association expects to see that increase to 35% to 37% within one year.
"We've got 60% of our hospitals in L.A. operating with negative margins," Lott said. "I would think that some of our private-sector hospitals located in areas where legal immigration is concentrated, in downtown L.A. and southern L.A., will be disproportionately, severely impacted. We could see one or another hospital go under."
King Hillier, government relations director of the Harris County Hospital District in Texas, worries about the same thing. The county runs three public hospitals in the Houston area and has approximately 22% of all Medicaid beneficiaries in Texas. He estimates welfare reform could cost his system $19 million out of a budget of $450 million.
"If we were to maintain our budget as is, it would require a 2-cent tax increase (per $100 valuation) on Harris County property," Hillier said. The voters, however, are not in a tax-raising mood. Therefore, services would likely have to be cut, he said.
As bad as it is for the county district, it could be worse for community hospitals with thin margins. In south Texas, such towns as Brownsville, Harlingen and McAllen don't have public hospitals. Thousands of legal immigrants there work in the fields and rely on Medi-caid for insurance.
One private hospital in a big city that's worked out the numbers is Norwegian-American Hospital on Chicago's northwest side. Despite the name, 85% of its patients are Hispanic.
Thomas J. McFarland, chief financial officer at Norwegian-American, said: "The hard part of the problem is the fact that we haven't been collecting data on the number of legal aliens that are on Medicaid."
According to the hospital's "very initial assessment," a withdrawal of Medicaid coverage from immigrants could increase its bad debt as much as 42%. "Right now it's 3.5% of gross patient income. We think it could take it up to 4% or 5%, including both legal and illegal. That could be another million dollars a year in writeoffs and adjustments for charity and bad-debt expense." That would translate to $300,000 to $400,000 less per year on net income from operations.
In California, as elsewhere, the focus now shifts to the state capital. States have to decide whom they want to cover under Medicaid and how. Linda Quick, president of the South Florida Hospital Association, said: "The Florida Legislature doesn't have a lot of Medicaid money, but it has historically been supportive of (these needs). The South Florida delegation in particular is largely made up of first and second generation Spanish-Americans who went to Dade County (Hospital). They'll see to it that Florida continues to cover people that the feds let them cover."
David Rich, vice president of government affairs at the Greater New York Hospital Association, said if the state continues to cover legal immigrants, the impact should not be too severe. "Our first priority is to make sure the state takes that option," Rich said. New York City has 1.2 million legal immigrants, but the state doesn't know how many are insured under Medicaid.
"If for some reason legal immigration drastically slows down over the next few years, you might not see the dire impact," Rich said. "But unless you really believe that the only reason people come is to get these benefits, then I don't see legal immigration slowing down."
Harris County is considering approaching the Texas attorney general to ask whether it is required to treat all who present themselves or may turn some away.
"We don't want to do that," Hillier said. "It's not our mission. But it gets to a point where...you've got a finite resource pie."