WI Hospitals Fight for Their Right to the Privately Insured

The trend of hospital systems seeking privately insured patients over those on Medicaid is pretty obvious to most observers.

In the last year, for instance, Milwaukee has seen one of its city hospitals close -- St. Michael's -- while the big systems in the area have fought over control of outlying areas in Waukesha, Ozaukee, and Washington counties.

And, to be sure, the decision to move outward is a sound business strategy. The fact is privately insured patients pay more than Medicaid patients and significantly more than uninsured patients. Typically, you're going to find privately insured patients in the 'burbs and Medicaid patients in the city, so the move outward is clearly the way to go from a business standpoint.

Enter the governor's proposal to leverage an assessment on hospital revenues in an attempt to generate more federal matching dollars for Medicaid. The ultimate purpose of the plan is to increase the Medicaid reimbursement rate for hospitals from a paltry 63 percent to a more reasonable 83 percent.

Hospitals have questioned the likelihood that they'll be the sole benefactors of the matching federal dollars, while others -- myself included -- have questioned how wise it is to bank on the federal government for money, at least for the long term, considering even the slightest administrative change on its end can result in costly problems on the other end of the equation.

But all this is masking the broader shifting that's taking place in our existing fragmented health care system toward a focus on care for the privately insured on the provider side and coverage of the healthy on the payer side.

In spite of its questionable long term viability, one good thing that the governor's hospital assessment would do is close some of the cracks that create incentives for our health care system to cater to some segments of the population over others.

Indeed, those health systems that see a lot of Medicaid patients would do quite well under the hospital assessment. Children's Hospital, for instance, would be looking at a $50 million increase in revenue over the biennium. The Waukesha-based ProHealth Care, on the other hand, would lose $1.1 million over the biennium because it cares for a much smaller percentage of Medicaid patients.

Some may view this as unfair that some hospital systems would lose out over others, but it's not exactly a zero-sum game. For starters, there would be more winners than losers under the hospital assessment (again, at least in the short term); overall, the net increase for all systems and individual hospitals in the state, put together, would be $284 million.

Secondly, due to the existence of the "hidden health care tax" -- which is the amount privately insured patients pay to cover the loses hospitals take on by caring for Medicaid and uninsured patients -- what the hospital assessment is really doing is helping to level the playing field for those privately insured people who go to hospitals that also have a large Medicaid population.

In fact, according to the Journal Sentinel this morning, Children's Hospital has pledged to reduce prices for privately insured patients should the hospital assessment go through. The same should be true, ostensibly, for every health system that's coming out ahead under the assessment.

Nevertheless, Children's Hospital is remaining neutral on the hospital assessment. Why? If it can lower health care costs for its customers, why wouldn't it support the proposal?

The simple answer is that it's closing ranks. The Wisconsin Hospital Association is against the plan, so it would be a really bold move to go against the grain.

But, again, there's more to it than that. After all, the biggest health system of all, Aurora, is scheduled to make $47.7 million off the hospital assessment over the biennium. And not only is Aurora not supporting the plan, it's actually opposing it.

Why? For them the answer is likely a little different than the answer for Children's. While Aurora may be pulling in $47.7 million in 2007-2009, that number is probably going to be a lot less in the future when it gets its hospitals built in Waukesha and, eventually, Ozaukee counties.

And compared to how much it'll make from all those privately insured patients in the 'burbs, $47.7 million over two years is next to nothing.

Wisconsin Medicaid Ranked 5th Best in Nation

This ranking is according to a new study by the advocacy group Public Citizen, which looked at four factors in its analysis: eligibility, scope of services, quality of care, and provider reimbursement.

Breaking down the scores, Wisconsin ranked 9th on eligibility, 14th on scope of services, 16th on quality of care, and 9th on reimbursements. The overall ranking of 5th came because, as the report put it, "Wisconsin's Medicaid program is unusually consistent across the board."

To put the rankings in perspective, the study found that even the top ranking states aren't doing all that well with their Medicaid programs. The top possible score was 1000, and the top ranking state, Massachusetts, came in with a score of about 646. Wisconsin scored 607. At the bottom was Mississippi at 318, Idaho at 325, and Texas at 336.

It seems the key to the rankings are reimbursements. The top state for reimbursements is Alaska, but, not coincidentally, Alaska also ranks toward the bottom on eligibility and scope of services because it limits participation and the services it reimburses. The same is true for almost all of the top 15 states for reimbursements; of those fifteen, only Wisconsin and Nebraska also rank in the top 15 for both eligibility and scope of services.

Even the top overall state, Massachusetts, ranks high on the first three measures but comparatively low on reimbursements at 23rd. Wisconsin and Nebraska stand out for being able to put together a remarkably consistent Medicaid program. Nebraska is in the top 15 in all categories, and Wisconsin only misses on the quality of care measure where it ranks 16th.

These high rankings for Wisconsin are directly correlated with the fact that our state places a high priority on funding for health care. Along with K-12 education, health care is consistently at the top of state expenditures each year.

Nevertheless, even in states like Wisconsin and Nebraska, as long as Medicaid patients remain separate from other payers in the system, they will be treated differently.

For instance, while Wisconsin reimbursements are high compared to other states, they're still low compared to those in private insurance plans. This not only increases costs for those in private plans -- insomuch that Medicaid reimbursements come in under the actual cost of the care -- but it also makes care, particularly non-immediate care, more restrictive for Medicaid patients because providers are more reluctant to accept patients that bring lower payments.

As an example, a 2005 study found that Medicaid patients were able to easily and quickly secure emergency care follow-up appointments 34 percent of the time, while those in private plans were able to do so 64 percent of the time.

It's time to start considering universal coverage plans that work to phase out Medicaid by lumping those patients in with the rest of the payer population. The state will still need to subsidize those who can't afford coverage on their own, but at least that coverage will come on a level playing field with other patients while simultaneously offering more payment consistency for providers.

Two Not-So-Good Ideas for Medicaid Reform

Not much time this morning, so this will be a bit brief (at least for how complicated the topic is)...

Governor Doyle's hospital tax proposal doesn't appear to be a good one. The logic is that by increasing revenue for state Medicaid spending -- which goes to hospitals and other providers for Medicaid patients -- the state will be able to leverage more funds from the feds, who give the state 57 cents for every 43 cents it spends in state Medicaid dollars.

If the plan could work like this in reality and over the long haul, hospitals -- at least those that care for a decent number of Medicaid patients -- would get a benefit because the money coming from the feds could more than make up for the amount they were taxed in the first place, hence, helping to close what's been called "the hidden health care tax" driven by low Medicaid reimbursement rates.

But, unfortunately, playing with federal dollars is like playing with fire. Wisconsin should know what that's like from its funding choices for the Wisconsin Shares program in the late 1990s.

The fact is federal dollars aren't stable. Levels can change (or, in the case of Wisconsin Shares, never change), as can requirements regarding how the money can be spent. This year alone, in fact, Bush is proposing a $25 billion cut in Medicaid funding, which comes along with regulatory changes that would cost hospitals in some states tens of millions.

This is not a game Wisconsin wants to play, especially when considering the long term prospects.

But, turning the other direction, the plans on the right aren't any better. The state Senate Republicans released a legislative agenda yesterday that promises to take the burden of low reimbursement rates for Medicaid off hospitals. Sounds fair enough until you read a little further and see they want to shift this burden onto Medicaid patients.

The main mechanism for this shift are what's called Health Opportunity Accounts (HOAs). I covered HOAs more in-depth in a post last fall, so I'll avoid going into the details now.

Essentially, HOAs are HSAs for Medicaid recipients. The federal government is running a HOA pilot program that was passed by the GOP-controlled Congress in December 2005. Ten states will be allowed to participate in the pilot, and it appears Republicans in the state Senate want Wisconsin to be one of them (as Mark Green proposed in his gubernatorial candidacy).

The trouble with HOAs is two-fold. Again, you can see my previous post on the topic for the details, but, briefly, here are those two problems:

1. Deductibles are allowed to surpass the funding of the HOA by 10 percent, leaving Medicaid recipients to foot that portion of the bill on their own, and research shows that out-of-pocket costs are the difference between getting health care and going without it for lower income families. And going without it can quickly make relatively inexpensive preventative care turn into expensive emergency care.
   
2. But since HOAs are voluntary, the GOP argues that the lowest income and least healthy Medicaid recipients don't need to opt for them. This leads to the second problem, which is that, as written in federal law, once recipients become ineligible for Medicaid, rather than forfeit the entire amount left in their publicly-funded HOA, federal law allows them to keep 75 percent of it for a variety of purposes specified by the state. As a result, the nonpartisan Congressional Budget Office has estimated the HOA pilot project will add $261 million over the next decade to the total federal Medicaid bill (see here, page 36), and costs will continue to increase if more states decide to provide HOAs after the pilot period. Considering Bush wants to cut federal Medicaid funding in the upcoming budget, this is an especially troubling prospect.

In the end, the best route for providing universal health care and fixing the low Medicaid reimbursement rates is fundamental health care reform, such as the Wisconsin Health Plan and the Wisconsin Health Care Partnership Plan.

Perhaps neither of these proposals, in their current form, are exactly what the state should adopt, but they are excellent starting points. And if we're tinkering with anything, it should be those fundamental health care reform proposals, not our fundamentally flawed health care system.