GOP Charging Hospitals With Medicaid Expansion's Future

In the 22 states that haven't expanded Medicaid -- most of which are controlled by Republicans -- many lawmakers will only agree to it if hospitals pay the price.
by | March 17, 2015

Hospitals have been among the fiercest advocates for expanding Medicaid since the start, and now they’re increasingly being asked to help shoulder any potential costs of doing so.

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Most of the remaining 22 states that haven’t increased the number of low-income adults eligible for Medicaid are under total Republican control, meaning even though many analyses show expansion actually saves money, advocates are under greater pressure to ensure it won’t cost those states' taxpayers. As a result, many governors and legislators are looking to hospitals and other medical providers to pay Medicaid expansion's leftover tab.

The federal government will pay 100 percent of the cost of newly eligible patients through 2016, but support phases down to 90 percent after that.

“It’s hard for Republican lawmakers especially to accept that [expansion saves money], given they are looking at an eventual 10-percent cost,” said Adam Searing, a senior research fellow with Georgetown University’s Center for Children and Families. Lawmakers are accustomed to hearing about savings that never materialize in return for a state investment, so they're understandably leery, Searing added.

Most Republicans' expansion plans don't depend entirely on hospitals or other medical providers; many are also seeking to raise tobacco taxes, for instance, to finance any costs. Deals like this align the interests of cautious Republicans who support expansion with hospitals that benefit, Searing said. In expansion states, hospitals are experiencing a roughly 30-percent reduction in uninsured patients. But they also face billions of dollars in cuts next year because the Affordable Care Act assumed all states would expand Medicaid, reducing the need for pools of money dedicated to compensating hospitals for caring for the poor and uninsured. Whether the benefits of expansion for hospitals will outweigh those cuts isn't yet clear.

For the most part, states that already expanded Medicaid haven't set aside revenue for any potential costs, in part because most forecasted it would save money, but also because most of the states passed expansion years before they'll face 10 percent of the costs.

But Arizona, which is controlled by Republicans, was among the first to tap hospitals in a 2013 deal to expand Medicaid. Since then, GOP-led Indiana has tapped the Indiana Hospital Association to partially fund its expansion along with cigarette tax revenue. Tennessee, which debated the issue shortly after Indiana announced its expansion in late January, went further. Hospitals there agreed to cover all of the potential costs the state would face. But the Tennessee state Senate rejected the plan, and the state House then decided against even giving the plan a vote in committee. Tennessee illustrates the political hurdles that remain despite promises of budget neutrality -- a dynamic playing out in Utah and Kansas too.

Some of the reasons given by Tennessee Republicans mirror those in Utah and Kansas, which are also both under total GOP control: Lawmakers sense that the federal government won’t bend far enough on conservative demands such as work requirements and fear that enrollment will greatly outpace projections, putting the government on the hook if hospitals or other groups say they can’t afford the costs.

“The hospitals were promising to cover the costs if there were 280,000 people,” said Tennessee state Rep. Glen Casada, House Republican Caucus chairman. “What if that’s 35 percent higher?"

In the case of Utah, disagreements between the House and Senate about the scope of the program and fear of long-term costs -- despite hospitals' willingness to shoulder about a third of them -- scuttled recent attempts to pass Medicaid expansion. Other proposed sources of revenue were e-cigarette taxes and physician licensing fees.

The Utah Hospital Association (UHA) thought it was only fair to contribute, but the group also argues that doctors, drug makers and others who stand to benefit from expanding Medicaid should commit something as well.

“We didn’t specify what they needed to do, but for equity’s sake and political buy-in, the major providers ought to be involved in the process and have a little skin in the game,” said UHA President Greg Bell.

But that could prove difficult in Utah and other states.

The Pharmaceutical Research and Manufacturers of America argues it already offers substantial rebates to Medicaid, and that prescription medications represent a small portion of overall spending. Enforcing a fee on manufacturers with no physical presence in a state could get complicated or prove impossible, legislators say.

Doctors are also opposed to paying fees for Medicaid expansion. In Utah, which is contemplating using physician licensure fees to provide some revenue for Medicaid expansion, both the Utah Medical Association and the Utah Academy of Family Physicians oppose the fees. The Academy of Family Physicians, though, expressed willingness to agree to other changes, such as payment reforms that place greater risk on doctors because, according to Jennifer Dailey, the group’s director, individual doctors and smaller practices don’t see the financial benefits of Medicaid expansion that hospitals do.

“The best we could hope is that extraordinary amounts of charity care [that] family physicians already provide will go down,” she said. “But we’ve never thought of it as a financial boon for physicians.”

A Republican lawmaker in Kansas, state Rep. Tom Sloan, is pursuing a similarly broad approach but also faces daunting political opposition. His bill calls for fees on hospitals and other groups that would benefit from expanding Medicaid, such as emergency medical personnel. Hospitals would face the highest tier, with two lower brackets in addition -- all of them capped at a certain level.

Kansas state Republican representatives Tom Sloan, left, and Larry Campbell listening to testimony on expanding Medicaid. (AP/John Hanna)

Sloan said he’s heard support from a number of trade groups, though the state's nursing-home lobby struck a similar tone as the Utah doctors. The state's hospital association is avoiding firm commitments to cover any shortfalls because a study it commissioned says Medicaid expansion will ultimately save money. While the group says it’s not opposed to a negotiation over revenue with the state, there are other ways to go about it, such as fees on private Medicaid contractors and cigarette taxes.

Sloan's bill would also study how to capture revenue from places that are able to increase employment through Medicaid.

“It takes what other states have done and says, ‘You’re not the only beneficiaries, so others should be contributing to expanding,’ and secondly, it sees what else might be out there,” he said.

Sloan’s biggest hurdle, though, is his fellow Republicans.

“If you go out and see what’s happening in other states, there are costs that other states are bearing,” said Rep. Daniel Hawkins, chairman of the health committee in the Kansas House. He’s referring to a potential flood of new enrollees under traditional Medicaid who didn’t realize they were eligible. “Nobody wants to seem to talk about that, but we’re in a situation right now where we’ve got budget constraints. That money has to come from somewhere.”