iProtean—States Given Time to Decide on Medicaid

“There is no deadline for a state to tell our Department [CMS] its plans on Medicaid eligibility expansion,” said Marilyn Tavenner, acting administrator for CMS in a letter to the Republican Governors Association last week.


Tavenner’s letter to the Republican Governors Association was in response to questions stemming from the U.S. Supreme Court’s recent decision that states are free to opt out of the expansion without being penalized.  Some states have been considering whether to participate in the program, and requested clarity about the time frame for making their decision and the expenses involved in delaying a decision.


In the program today, the federal government pays 50% to 80% of a state’s Medicaid costs, depending on the state’s average income. Under the new law, in 2014 Medicaid expands to a national floor of 133% of the federal poverty level. As an incentive for states to participate, the law provides that the federal government will pay for 100% of the cost of the expansion in the first three years of the program. However, beginning in 2017, the federal share will gradually taper off until it reaches 90% in 2020, where it will remain. (Scott Lenz, Esq., CMS Says No Deadline for States to Decide Whether to Expand Medicaid, American Health Lawyers Association Practice Group Email Alert, July 16, 2012)


Tavenner’s letter also covered questions about funding for health exchanges and IT costs.  She noted that “a state can receive extra funding for Medicaid IT costs and Exchange implementation costs even if it has not yet decided to expand Medicaid eligibility or to run its own Exchange.  And, if a state ultimately decides not to do so, it will not have to pay those resources back.”  (Marilyn Tavenner, Acting Administrator, CMS, Letter to Republican Governors Association, July 13, 2012)


Timing and financing of states’ participation in the Medicaid expansion and health exchanges have been a source of speculation for states since the Supreme Court decision.  Ms. Tavenner’s announcement to the Republican Governors Association appears to have clarified some of the major concerns facing lawmakers and policy makers in states that are still undecided about whether to participate.


In the iProtean courses Introduction to Finance, Managing Risk, Bonds Part One, Hospital/Physician Alignment and Compliance, healthcare experts Lisa Goldstein, Daniel Grauman, Robin Nagele, Esq. and Monte Dube, Esq. discuss the importance of Medicaid coverage for hospitals and their patients.


Lisa Goldstein, Moody’s Investors Service

When we look at revenues, revenues can be very complex.  What’s most important for a board member is an understanding of the payers that reimburse the hospital for the services that they provide, for the patients that walk in the front door or through the emergency room . . .


The second payer, usually about 10% of any hospital’s revenue base is Medicaid.  Medicaid is primarily for people who do not make a certain amount of income—who cannot afford healthcare insurance or their employer provides no healthcare insurance.  So if they qualify, they can sign up for Medicaid.  Medicaid is funded both by the federal government and by every state and as we all know, currently states are under tremendous fiscal pressure, so we are expecting Medicaid reimbursement to be cut to hospitals as well and, there’s no negotiating with Medicaid.  You get what you get and you have to adjust your costs accordingly.  So Medicaid and Medicare combined represent say 50 to 60% of any hospital’s revenue base and there’s no negotiating . . .


Negotiations with the commercial payers are very important because it’s the negotiations with the commercial payers that allow the hospitals to subsidize the losses under Medicare or Medicaid; sometimes the industry refers to this as cost shifting.  You’re able to shift your cost to the commercial payers, which in general, anecdotally pay more than Medicare rates and certainly Medicaid rates.  In the hierarchy of profitability under payers, usually hospitals earn the most margin under the commercial payers where they can negotiate, then Medicare and then Medicaid.


The final bucket of reimbursement where there’s really no negotiating, there’s no one to negotiate with or receive rates from are the people that have no insurance and do not qualify for Medicaid, what we sometimes call self pay, which are people that usually pay their hospital bills out of pocket and that can be anywhere from say one to seven percent of the average hospitals payer mix, the balance of the payers.  So it’s important for board members not to get into the nitty gritty of the negotiations or to understand the detail of the rates and the negotiations.  It’s important for board members to understand how the rates are set, who they can negotiate with and understand that when it comes to the governmental payers, Medicare and Medicaid, there is no negotiating and the hospital really has to focus on cost in order to reduce the losses under these two big governmental payers, which we expect there to be more pressure coming when it comes to rates every year for the foreseeable future.


Robin Nagele, Esq., Post Schell

Hospitals are very highly regulated at the federal level, the state level, local level and through the accreditation process.  In the broadest terms each of these sets of agencies and organizations has a stake in ensuring that the care that’s provided within the hospital setting is safe, appropriate, efficient.


At the federal level, the genesis of the regulation of hospitals really comes through their participation in the Medicare program and the other federal healthcare reimbursement programs.  The federal government is the largest purchaser of healthcare in our country, and as such, they have a very significant stake in ensuring that what they’re purchasing with their healthcare dollars is safe, quality, appropriate care.


The federal government regulates hospitals through primarily through the Centers for Medicare and Medicaid services, CMS, which has Conditions of Participation that hospitals must agree to in order to participate in the Medicare program.  The Medicare Conditions of Participation for hospitals regulate all kinds of things: the governance structure, the relationships with the medical staff, what services are provided and how they’re provided.


The federal government then actually defers to a large extent to the state governments for regulating the nitty gritty of the way in which services are provided.  State governments have a variety of interests in regulating hospitals.  Every state has a department of health, which provides the regulatory standards by which hospitals operate.  Now this isn’t by virtue of participating in Medicaid or any other program.  It simply is through the licensure process.  If a hospital is going to operate as a hospital they have to get a license from the state and that gives the state then the authority to regulate the hows, whys and wherefores of how services are provided.  And most state regulations go on for in some cases hundreds of pages that dictate very, very minutely every aspect in which care is provided.


They also have independent obligations under state law by virtue of their participation in the Medicaid program, which is governed through state welfare departments, working in partnership with the federal government.  Medicaid dollars, as you probably know, initiate as federal healthcare dollars but they are administered through the state welfare agencies and there are conditions of participation and contracts and contractual requirements by which hospitals access those Medicaid dollars that provide another set of standards that they need to adhere to.


Hospitals are also subject to IRS regulations and requirements by virtue of being tax exempt.


In addition to all of that there are the comprehensive accreditation guidelines which the vast majority of hospitals who choose to be accredited by The Joint Commission, which is the major accrediting agency, are subject to by virtue of that accreditation and they are surveyed and monitored by The Joint Commission which is not a federal or state agency, but an independent entity, but holds hospitals that are accredited accountable through the accrediting process.


Daniel Grauman, DGA Partners

Over the years, physicians and hospitals are working closer and closer together.  More than ever the hospitals are employing physicians.  That’s a clear upward growing trend and at the same time hospitals and physicians are working closer together and more interesting contractual arrangements, co-management agreements, medical directorships, joint ventures where they actually both own something together and are becoming more closely aligned.  The economic pressures have resulted in that kind of activity as well as a call by various payers—Medicare, states through their Medicaid programs and commercial insurers—that hospitals and physicians figure out a way to do what they do in a better, more integrated way.


Monte Dube, Esq., Proskauer

Local, state and federal laws of so many types apply to the operation of your hospital, whether it’s the EPA overseeing your underground storage tanks, to the Federal Communications Commission on your helipad radio, all the way to the Stark and fraud and abuse laws, your board needs to be generally aware of this regulatory milieu.  But some regulations are more important than others.  While you have to comply with all, non-compliance with some pose great risks to your organization.


Anything that touches on Medicare and Medicaid are areas of high risk to your organization.  It is essential that you have in place compliance programs which are enforced by management to ensure number one that all bills that go out from your organization to the Medicare and Medicaid program are accurate, complete and correct, and that you have no financial relationships with any physicians or other referral sources which could in any way be attacked as inappropriate.


Lisa Goldstein, Moody’s Investors Service

There are many risks that not-for-profit hospitals face.  There could be investment risk, so how the hospital invests its resources or its cash position can be full of risk.  So for example, if the hospital has invested a portion of its cash in say a hedge fund, there can be risk in the returns of the hedge fund being very high or very low or negative returns as we’ve seen during the credit crisis.  And certainly the ability to get those monies back out of the hedge fund can be a risk.  So there are all types of risk when it comes to investment allocation.


There can be financial risk with any hospital . . . There’s risk with the governmental payers such as Medicare and Medicaid, that Medicare and Medicaid rates will be reduced.  Certainly historically they have been reduced and all indications point to future reductions in Medicare rates to hospitals and certainly Medicaid rates to hospitals from each of the states as states go through fiscal crisis . . .


We use financial performance as a way of measuring the ability of management teams to execute; hospital board members and senior management may look at other benchmarks to test how they did on short-term strategies and long-term strategies.  We also look for senior management and board members to have good government relations, usually with their state government at the state capital.  Medicaid is a program funded both by the federal government but also by the state government.  It’s important that senior management and hospital trustees have an influence, have a voice, either directly at their state capital or maybe, for example, through their state hospital association or even through national hospital associations to make sure that not-for-profit hospitals have a voice when it comes to future regulation and future policies regarding the industry.


For a complete list of iProtean courses, click here.


iProtean Symposium & Workshop

Mark the Date!! October 10 – 12, 2012 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Barry Bader, Monte Dube, Esq., Lisa Goldstein, Dan Grauman, Marian Jennings and Brian Wong, M.D. For more information, click here.


For more information about iProtean, click here.