Would Senate bill's extra payments to non-expansion states offset overall Medicaid cuts? Hospital groups say no way

The Senate Republican bill to repeal and replace the Affordable Care Act offers billions in additional funding to states that didn't expand Medicaid or that spend less on Medicaid, for the intended benefit of providers in those states.

Hospital leaders in those states say they would welcome the additional dollars. But they, along with Medicaid policy experts, say the Senate provisions would not come close to offsetting the large cuts providers and patients would suffer under the bill's other provisions.

On top of that, it's not clear the Better Care Reconciliation Act's complex provisions to add funding to low Medicaid spenders and pull away dollars from higher-spending and expansion states will actually work as intended.

"We wanted more equity but we're not seeing it in the Senate bill and we're disappointed," said Greg Bell, CEO of the Utah Hospital Association, whose senator, Orrin Hatch, pushed for the equalization measures.

The Senate bill proposes a per-capita growth cap on federal Medicaid payments to states based on historical costs, a move that some GOP senators felt would unfairly penalize their states for keeping their programs lean and not expanding Medicaid.

The Senate bill—which Majority Leader Mitch McConnell reportedly is revising this week to address concerns of conservative and moderate GOP senators—attempts to level the playing field between non-expansion and expansion states. It would offer the 19 non-expansion states $2 billion a year for funding safety-net services from 2018 to 2022. In 2022, the fifth year, states would have to come up with a 5% match to receive the money.

The bill also would completely eliminate the ACA's reductions in Medicaid disproportionate-share payments and boost DSH payments to non-expansion states if they stay below the national per-capita average. In addition, the bill would let the HHS secretary hike overall federal Medicaid payments to lower-spending states by up to 2% a year and cut payments by up to 2% to higher-spending states.

"Our bottom line is this is a huge cut in Medicaid and it's not going to be compensated for by these adjustments," Bell said.

Some observers see the funding equalization provisions as an effort by GOP leaders to drive a wedge between different state hospital groups, which have been united in their opposition to the repeal-and-replace legislation. But industry leaders say that won't happen.

"Pitting us against each other in this crazy way is not going to have any effect on our unity on this bill," said Sister Carol Keehan, CEO of the Catholic Health Association.

The Senate's Better Care Reconciliation Act, developed behind closed doors and unveiled last week, would phase out Medicaid expansion funding and cap federal per-capita payments below projected actual costs. On Monday, the Congressional Budget Office said it would reduce federal Medicaid spending over 10 years by $772 billion, or 26%, and that there would be 15 million fewer people on Medicaid by 2026.

Starting in 2025, the growth cap would drop even lower, to the rate of general inflation, which CBO analysts said could lead to continuing enrollment declines in later years. By 2036, federal spending on Medicaid would be 35% lower than under current law.

Per-capita Medicaid spending among the states varies widely. In 2011, the last year for which full cost data were available by state, spending in Alaska, Montana, New York and Pennsylvania totaled from $7,500 to more than $10,500. In contrast, spending in Florida, Illinois and Oklahoma was $4,000 to $5,300, according to the Kaiser Family Foundation.

Under the Senate bill, states would receive a piece of the $2 billion-a-year safety-net funding pot based on the relative proportion of their population below 138% of the federal poverty level as compared with other non-expansion states. The money could be used only for increasing payment rates to providers. Because of their high poverty rates, Texas and Florida would receive the largest share, totaling about $800 million a year, according to an analysis by Leavitt Partners.

But hospital industry officials in both Texas and Florida say this and other equalization provisions wouldn't be enough to make up for the Senate bill's overall Medicaid cuts.

"It's a drop in the bucket for states like Texas, when you see the overall losses under the (Medicaid) fixed funding cap," said John Hawkins, senior vice president for government relations at the Texas Hospital Association.

His group projects the bill would cost Texas $57.4 billion in Medicaid funding over 10 years, and that 1.9 million Texans would lose coverage.

"While we appreciate the Senate's effort to address the inequity in Medicaid disproportionate-share funding and parity for non-expansion states, we are deeply concerned the reductions in the number of insured Americans and dramatic cuts in Medicaid funding will hurt those who are most vulnerable," said Bruce Rueben, president of the Florida Hospital Association.

Medicaid experts said the Senate bill's provisions to equalize payments to the states would introduce tough new budgeting challenges for state officials.

"It's a complex puzzle of a variety of incentives and disincentives," said Robin Arnold-Williams, a principal at Leavitt Partners who formerly worked as a top state government official in Utah and Washington state. "Some states will see this as an opportunity, and some will say, 'Oh my gosh, what are we going to do?' "

The Senate bill's "restoring fairness in DSH allotments" provision would make non-expansion states eligible for increases in their Medicaid DSH payments from 2020 to 2024 if their average per-capita DSH payment falls below the national average. States eligible to receive these extra payments would have to match the federal money at their standard matching rate, which averages 57%.

The CBO projected that Medicaid DSH payments to hospitals in non-expansion states would increase by $19 billion over 10 years due to elimination of the ACA's DSH cuts in those states and the DSH bump.

But some experts say that because of the way the bill is currently worded, non-expansion states might see little new money under the DSH bump. Georgia, for instance, might get up to $12 million a year, while its hospitals provide $1.7 billion a year in uncompensated care.

Hawkins said Texas is not expecting to get any increase in DSH money.

"Understanding the financial impact of this entire systematic change is extremely difficult," the Utah Hospital Association's Bell said. "That's why we just wish they'd take their time and not cut Medicaid so severely."

The most complicated equalization measure would allow the HHS secretary to adjust a state's total Medicaid payment upward or downward by 0.5% to 2% based on its previous year's per-capita spending. Five rural states with high per-capita costs, including Alaska, Montana, North Dakota, South Dakota and Wyoming would be exempt from this provision.

Starting in 2020, the secretary could cut payments to states that spent more than 125% of the national per-capita average, and hike payments to those that spent less than 75% of the average. Such adjustments would have to be budget-neutral to the federal government, and would be up to the secretary's discretion.

Manatt Health projected that if states maintained their current per-capita spending patterns through 2019, 20 states could be penalized under this adjustment while 12 could get added payments. States that could get dinged include non-expansion states that are considered low-spending, including Alabama, Kansas, Maine, Missouri and Texas. One reason is those states may have chosen to cover a narrow set of beneficiaries with intensive, high-cost needs.

There are widespread concerns about whether the caps and the adjustments would give states enough financial flexibility to address emerging public health issues, new medical innovations, and demographic changes such as the projected increase in the population of elderly people with long-term-care needs.

"It's a very crude instrument for moving money from one state to another state," said Deborah Bachrach, a Manatt partner who formerly served as New York's Medicaid director.

She warned that, under the Senate bill's payment adjustment formula, state officials would have to keep close watch on Medicaid spending trends in other states, because they would be scored on a curve relative to those other states. And they would not know until the end of the fiscal year how they did. That might force states to cut benefits or provider payment rates in the middle of a budget year.

"It would cause states to manage to the cap rather than managing care," she said.