Hospitals facing big divide in pro- and anti-ACA states

Bradford Regional Medical Center and Olean General Hospital sit just 20 miles apart on opposite sides of the Pennsylvania/New York border. They serve a similar patient population in the rural, forested region. They are both owned by the not-for-profit Upper Allegheny Health System.

But there is one striking difference between the two facilities. Olean General is in Democratic-led New York, which chose to expand Medicaid coverage to adults with incomes up to 138% of the federal poverty level and has a functioning, state-run health insurance exchange that is signing up a significant number of previously uninsured people. Bradford Regional, on the other hand, is in Republican-led Pennsylvania, which has not expanded Medicaid and, because it refused to set up its own exchange, has been served by the troubled federal exchange that has signed up few uninsured people so far.

Experts say those different healthcare reform choices could make a big financial and patient-care difference for the two hospitals. The same is true for hospitals throughout the country that are in pro-ACA and anti-ACA states. It could lead to a big divide in hospital financial health and healthcare access, producing two different U.S. healthcare systems.

Well-functioning state exchanges such as New York's, which has enrolled 41,000 people in private plans and 35,000 in Medicaid, are signing up a better mix of healthier and sicker people and larger numbers of new Medicaid beneficiaries, whom hospitals previously served on an uncompensated-care basis. Pennsylvania and 35 other states relying on the federal HealthCare.gov website—which Obama administration officials promise will be working better this week—have seen much smaller numbers of new, privately insured residents. They've also seen few new Medicaid enrollees because many have kept their old, restrictive income eligibility criteria, which exclude most childless low-income adults.

Hospitals in non-Medicaid expansion states are projecting billions of dollars in lost revenue as they face higher bad debt and charity care and reductions to disproportionate-share hospital payments required by the ACA. The law's authors envisioned that the coverage expansions would offset the DSH cuts, but they did not foresee that the U.S. Supreme Court would let states choose not to expand Medicaid, which about half the states have done. Pennsylvania will lose an estimated $38 billion in federal funding over 10 years if it doesn't expand Medicaid.

Upper Allegheny Health System is not expecting an immediate difference in financial performance between its two hospitals on opposite sides of the state border, said spokesman Dennis McCarthy. But, he said, “it's the long-range impact that no one has the answers for.”

While hospitals already have negotiated reimbursement rates with insurers for 2014, the experience healthcare providers and insurers have next year will nevertheless set the tone for the 2015 negotiations. “They're negotiating risk based on the expectation that they'll have higher volume and fewer uninsured,” said Daniel Steingart, an analyst at Moody's Investors Service. “If the exchange doesn't work or too many sick people sign up, insurers will need to raise rates and decrease payments to hospitals.”

In neighboring Tennessee and Kentucky, the two-nation divide is similarly apparent.

The Tennessee Hospital Association and the state's chambers of commerce have lobbied vigorously, but so far unsuccessfully, for Medicaid expansion in the Republican-led state. Not expanding Medicaid will reduce hospital revenue by $5.6 billion over 10 years. Tennessee also has defaulted to the troubled federal exchange, greatly slowing private plan enrollment among the uninsured.

In Nashville, 909-bed Vanderbilt Hospital and Clinics has cut $100 million, or 3% of its operating expenses, from its fiscal 2014 budget through staff reductions and other measures and plans to cut another $250 million, or 8%, in fiscal 2015 to make up for revenue shortfalls.

Across the border in Kentucky, where Democratic Gov. Steve Beshear has spearheaded both a successful state-run exchange and Medicaid expansion, there is cautious optimism among hospitals. The state's health insurance exchange, kynect, is enrolling about 1,000 people a day, and as of Nov. 22 had signed up 56,000 Kentuckians—about 41% of whom are under 35, according to the governor's office.

Of Kentucky's 640,000 uninsured residents, 308,000 will be eligible for coverage under the Medicaid expansion and 332,000 will be able to buy a private plan, a majority with premium subsidies, said a state spokeswoman. The Medicaid expansion will have a positive net impact of $802 million through 2021, the state estimated.

Carl Herde of Baptist Health, Kentucky's largest health system with nearly 1,900 beds, said the expanded insurance coverage could help boost revenue at its seven hospitals. Still, it's taking a wait-and-see approach. “We're not forecasting that aggressively just because of the uncertainty,” he said. “But right now everything else we're seeing is on target.”

Safety net hospitals will be hit the hardest by state decisions not to expand Medicaid. But “there are many, many hospitals that people don't think of as safety net hospitals that serve a large uninsured population,” said Barbara Ladon, managing director at Newpoint Healthcare Advisors. “It's going to be a huge difference between states that choose to expand Medicaid and those that don't.”

In Georgia, which has seen three hospitals close this year, Central Georgia Health System is not anticipating significant enrollment through the federal exchange and has budgeted with that in mind. Georgia is served by the federal exchange.

The 659-bed Medical Center of Central Georgia is projecting it will lose about $14 million in reimbursement in 2014 because of the combined lack of Medicaid expansion, DSH cuts and Medicare pay cuts from budget sequestration, according to Bryan Forlines, assistant vice president of government relations and reimbursement. It's estimated Georgia will lose $31 billion over 10 years by not expanding Medicaid.

And since it did not expand, many Georgians with incomes below the federal poverty level will qualify for neither Medicaid nor subsidized private coverage. “Many of the people (who reach out for help) don't have sufficient income to qualify for the exchange, and we are not sure how many of those who do qualify will be able to make the premium payments,” Forlines said.

BJC HealthCare has two of its 13 hospitals in Democratic-led Illinois, which has expanded its Medicaid program and is partnering with the feds in running its insurance exchange. The rest of its hospitals are in Missouri, which has done neither because of opposition from the Republican-controlled Legislature.

Steven Lipstein, CEO of St. Louis-based BJC HealthCare, said the impact of the two states' opposite stances on healthcare reform is still unclear. It will depend on each hospital's payer mix, with smaller, rural hospitals more likely to struggle than those with a larger commercial insurance base. Still, he said, “you have that dichotomy on the riverbend.”

Follow Beth Kutscher on Twitter: @MHbkutscher