Medicaid proposal could spell disaster for hospitals

The Republican-controlled House of Representatives recently approved a bill intended to change the way Medicare and Medicaid programs operare. Although its chances of becoming law are remote, there are clear reasons why hospital executives should be alarmed.

The bill's author, House Budget Committee Chairman Paul Ryan (R-Wis.), was initially hailed by his colleagues for thoughtful leadership. However, it didn't take long for the GOP to back off the Medicare portion of the proposal--quickly rediscovering that that entitlement is not called the third rail of politics because it powers change.

So, while it's unlikely seniors will wind up with vouchers to pay for their coverage, Medicaid remains on the table.
The plan would be to replace the program's current funding mechanisms with block grants for states. These grants would total about $11,000 per enrollee per year, with annual increases pegged to general inflation.

There are a number of reasons why the Medicaid proposal still has traction, but it boils down to the fact that Medicare enrollees--retirees and the permanently disabled--vote regularly and have effective lobbyists. They are therefore a powerful political bloc. As a result, their coverage almost never gets cut. The Part D component enacted nearly a decade ago represented Medicare's biggest expansion since the program began in the 1960s.

By contrast, Medicaid enrollees are the poorest of the poor, and if there is one thing a lobbyist avoids it is work without payment. Only a fraction of those enrolled in Medicaid have the desire to vote or understand why their vote is important. The socioeconomic situation of its enrollees regularly makes it a chopping block sweetheart for state legislatures.

Nevertheless, Medicaid is by far the biggest public health program in the country, with about 55 million enrollees--10 million more than Medicare. To meet the demands of a program this size, hospitals and hospital trade groups in many states have sponsored intricate pieces of legislation meant to leverage every penny out of the matching funds formula that currently dictate Medicaid payments. One of the most popular has been a self-imposed fee on hospitals, which has produced hundreds of millions of dollars of additional Medicaid revenue for California and other states.

That formula goes out the window with the Ryan proposal--and potentially a lot more with it. A recent study by the Kaiser Family Foundation concluded that the Ryan's proposal could cut Medicaid enrollment by as much 44 million. That is a remarkable decrease of as much as 90 percent, and would essentially double the number of uninsured Americans almost overnight.

Hospitals already struggle with providing care for the uninsured who flood their emergency rooms. The notion that there would be another 44 million uninsured--many with chronic health conditions--seeking care at their doorsteps would be disastrous. Hospital closures would swiftly accelerate. Those that survived would no doubt see their charity care liability balloon.

For the moment, the notion of such a scenario remains remote. The Senate and White House remain controlled by Democrats who would not approve such a proposal. But it's only a Supreme Court voiding of the Patient Protection and Affordable Care Act and a few big GOP victories in 2012 from becoming entirely plausible.

At that point, changing Medicaid as we know it could become a distinct possibility. And every hospital finance executive in the country will be left scrambling. - Ron