Tennessee hospitals' funding of Medicaid expansion is about survival

Tennessee hospitals' decision to help fund Medicaid expansion under Republican Gov. Bill Haslam's new waiver proposal was driven by hospitals' financial survival as well as their desire to extend coverage to 200,000 low-income Tennesseans, hospital leaders there say.

The current financial picture for the state's hospitals is grim, made worse by the healthcare reform law's reduction in disproportionate-share payments, which were expected to be offset by Medicaid expansion. But Tennessee hospitals faced a double whammy when their state's Republican elected leaders did not accept expanding Medicaid to adults earning up to 138% of the federal poverty level. Hospitals in the state provided more than $2.4 billion in uncompensated care in 2012.

Three rural hospitals—Haywood Park Community Hospital, Brownsville; Gibson General Hospital, Trenton; and Humboldt (Tenn.) General Hospital—closed in 2014, and several other hospitals have cut staff and services. “Getting more people coverage is critical to the survival of Tennessee hospitals,” said Anthony Spezia, CEO of Knoxville, Tenn.-based Covenant Health. “You can't continue to have declining reimbursement and increasing costs.”

Before Haslam last week announced his alternative model for expanding Medicaid, called Insure Tennessee, he met with Tennessee Hospital Association leaders to discuss hospitals paying the state's portion of the cost for covering the Medicaid expansion population after 2016; states will have to pick up 10% of the cost by 2020. The state would receive an estimated $5.6 billion in new federal Medicaid funds over 10 years if it accepts the expansion.

Haslam's two-year waiver proposal would give employed beneficiaries the option to receive a voucher to help them buy into their employer's health plan, which would pay providers higher commercial rates. For the unemployed or those who decline the voucher, a Medicaid managed-care plan would be offered.

Beneficiaries with incomes above poverty would receive incentive payments placed in a health savings account to cover out-of-pocket costs if they demonstrated healthy behaviors. Advocacy groups, however, expressed concern about whether the plan would offer full Medicaid benefits and whether out-of-pocket costs would be affordable.

After surveying members, the THA board agreed to Haslam's proposal. The plan must still be approved by the Republican-controlled state Legislature and the CMS, though experts say the chances of CMS approval are good.

The implications of the expansion would be major for Tennessee hospitals. “We could see a return of $1 billion annually in additional reimbursement to the healthcare industry,” said Joe Landsman, CEO of the University of Tennessee Medical Center, Knoxville.

LifePoint Hospitals stands to benefit the most, as it has 14.1% of its beds in Tennessee, said JP Morgan Analyst Justin Lake. Other beneficiaries would include Community Health Systems, which has 9% of its beds in the state, and HCA, which has 5.9% of its beds there.

Officials at Franklin, Tenn.-based Capella Healthcare, which owns or operates hospitals in six states, tout the benefits of Medicaid expansion. Uncompensated-care costs decreased 59% at Capella's hospital in McMinnville, Ore., where Medicaid was expanded, while uncompensated-care costs rose 3% in 2015 at its facility in McMinnville, Tenn. “Having hospitals contribute a small portion of the cost when the federal funding drops below 100% simply makes sense for patients, providers and communities throughout our state,” said Mark Medley, president of hospital operations for Capella who also serves as board chair of the Tennessee Hospital Association.

For the past four years, hospitals in Tennessee have been paying an assessment fee to help fund the state's current Medicaid program, known as Tenn-Care. Under the arrangement, private hospitals give the state 4% of their revenue, and the feds match those funds. To date, hospitals have provided $452 million to fund TennCare through these assessments, helping the program avoid more than $1 billion in service cuts and reimbursement reductions. Thirty-eight states use hospital assessments to help maintain their Medicaid programs, according to the Kaiser Family Foundation.

Haslam plans to seek federal permission to use the existing assessment to finance Medicaid expansion, and the fee likely will increase. Federal law lets states impose a hospital assessment of up to 6% of patient revenue. He hasn't said how much he would raise the rate.

Arizona received CMS approval in January to impose a fee on hospitals to fund its Medicaid expansion, and the state collected $75 million between February and October.

Hospitals in the state have seen a benefit. Following the Medicaid expansion, uncompensated care dropped to $170 million for the first four months of 2014, compared with $246 million during the same period of 2013, according to the Arizona Hospital and Healthcare Association.

Bill Carpenter, CEO of LifePoint, which operates hospitals in both Arizona and Tennessee, said it's well worth it for hospitals to pay an assessment to make Medicaid expansion possible, and it's probably the best strategy to win over Republican lawmakers.

Follow Virgil Dickson on Twitter: @MHVDickson