Hospitals face dual threat if states don't expand Medicaid: Moody's

Hospitals located in states that elect not to expand their Medicaid programs could find their bottom lines squeezed in the coming years as they're hit with higher charity-care costs and fewer insured patients.

A report from Moody's Investors Service estimated that the Patient Protection and Affordable Care Act is expected to eliminate more than $17 billion in annual aid by 2019 when the government reduces its disproportionate-share hospital payments, which compensate facilities that treat large numbers of low-income patients.

Lisa Goldstein, associate managing director at Moody's, said in an interview that safety net hospitals are likely to face the biggest hit to their credit ratings as uncompensated care increases and DSH payments dry up. Those hospitals will either have to absorb the costs of charity care or look to the state to “backfill” the lost funding.

“It's kind of a two-hit punch,” she said.

Medicaid and Medicare DSH payments will be reduced gradually starting in October, with the cuts building through 2019, according to Moody's report. While the payments are scheduled to be reinstated in 2022, the federal government could also extend the funding cuts as a way to tackle the budget deficit, the report added.

Hospital associations in states where Medicaid expansion is uncertain have been taking their fight to both their local policymakers and the media.

In Tennessee, the de facto hub of the for-profit hospital industry, local business leaders and chambers of commerce have formed the Coalition for a Healthy Tennessee Economy, with the goal of “educating Tennessee residents on the economic benefits of Medicaid expansion.”

The Tennessee Hospital Association also released a poll showing that 59% of surveyed voters believe Medicaid should be expanded, compared to only 35% who oppose the idea.

Craig Becker, president of the THA, noted that hospitals in the state stand to lose $5.6 billion at a time when 58, mostly rural, facilities are already losing money every year.

“I can't wrap my head around those numbers,” he said. “This is a tax on hospitals. Why should we send those tax dollars to California, New York or Vermont, or even New Jersey?”

In Florida, where Gov. Rick Scott's attempt to expand Medicaid has been rejected by legislators, the Florida Hospital Association has been doing similar outreach. A poll released last month highlighted that 62% of Florida voters support Medicaid expansion—including key Hispanic and women voters by an even larger margin—while only 34% are opposed to it.

A news release also noted that Florida would receive $27 billion from the federal government if Medicaid were expanded, while only investing $1.7 billion over the next 10 years.

On the for-profit side, Darren Lehrich, an analyst at Deutsche Bank, calculated that Community Health Systems, Franklin, Tenn., and Tenet Healthcare Corp., Dallas, have the most exposure to states that are unlikely to expand Medicaid—with almost 47% of their beds concentrated there.

LifePoint Hospitals, Brentwood, Tenn., is the least exposed, with only about 31% of its beds in those states.