Clinton’s first ObamaCare showdown with Congress

If, as the latest polls suggest, Hillary Clinton captures the White House the self-described health policy wonk will have a formidable task next year persuading Republicans in Congress how to “fix” the rough edges of her predecessor’s signature domestic achievement, the Affordable Care Act (ACA). Almost immediately she’ll face a looming deadline required by the law that could result in the loss of billions of Medicaid dollars to the nation’s safety-net hospitals.

The issue involves an obscure but vital funding mechanism designed for hospitals that handle a large base of patients who are poor and have no insurance. The question the new president and Congress must answer is whether these facilities —many of them government-owned and having difficulty competing for privately insured patients – will be able to survive a planned, eight-year, $43 billion cut in Medicaid at a time when there are still about 30 million people in the country uncovered by the law?

{mosads}When it passed in 2010, the working theory was that as millions of Americans finally gained access to insurance through the ACA, the planned spending cuts called for under the law would not have a major impact on hospital operations. That they loom now as a genuine threat to hospitals that carry a heavy burden of caring for the poor and uninsured reflects yet another unintended consequence of the latest effort to reform the nation’s $3 trillion health care system.

They are indicative as well of the Byzantine world of hospital reimbursement that has characterized Medicaid from its inception in 1965. The ACA is only the most recent example of how the flawed system for financing Medicaid continues to have real world impact, especially in states that have never fully funded the nation’s most critical health care program for the poor.

For instance, Georgia’s largest public hospital, Grady Memorial in Atlanta, stands to lose $280 million it would have received from Medicaid over the eight years the cuts are in effect. This could be a disaster because Medicaid is Grady’s single largest source of patient revenue. And all this is happening, mind you, in a state where about 15 percent of its population is without health insurance and Medicaid is essentially off limits to able-bodied adults regardless of how poor they are.

The threat is equally acute in large publicly chartered hospitals like Parkland Memorial in Dallas and Jackson Memorial in Miami that by contract must treat all comers regardless of ability to pay. In some public hospitals nearly half of all patients admitted for care either have no insurance or Medicaid covers them, which means the these hospitals often operate on the financial edge and are in need of as much help as they can get.

Blame for this latest predicament falls on both Washington and state capital budget makers, but the problem lies mostly in 50-year-old Medicaid law itself. Intended to be the government health insurance program for the poor – the way Medicare was created for the elderly – it has never really accomplished that goal even though it now covers 65 million Americans, many more than Medicare covers.

Medicare’s reimbursement for patient care at hospitals is entirely financed with a federal payroll tax with the payment rates set in Washington. Not so with Medicaid, because the states have to pay a portion of the cost of the program. And a lot of states, especially those in the South, decided to treat Medicaid as a welfare program, making their own rules up as to who qualifies and how much it will pay to care for them.  

Because of this, many states restrict their spending by not covering adults living below the poverty level. And for those low-income pregnant women and babies they are required to cover because of the law, the hospitals that take them get shortchanged with reimbursement rates that are below their actual costs.

There have been several attempts to fix this checkerboard of state policies over the years, the most important coming in 1993 when Congress created a special pool of Medicaid dollars to go to hospitals that carry the heaviest financial burden of unreimbursed care. In 2015, the federal government made nearly $12 billion of “Disproportionate Share Hospital” funds, or DSH money available to the states. This is the very program where funding will be slashed starting in the fiscal year that begins in October 2017.

DSH is a labyrinth of policy making and financing. Trying to make sense of how DSH is funded, how the states get to dole it out and whether it is even accomplishing its purpose is nearly impossible. (Interestingly, under the Obamacare law, the DSH program doesn’t go away completely. It is suppose to revert to much lower funding levels that existed earlier in the program.)

Some of the funding mechanisms are decades old and woefully out of date. The program relies on vague and often-changing definitions of what constitutes “unreimbursed” or “charity” care, so much so that in many states more than half of all hospitals get DSH money.  In more than a few cases, wealthy, non-profit hospital systems that clearly can afford to cover a larger share of poor and uninsured patients get special funding under the program.

Changing which hospitals get the money shouldn’t be that difficult, but again states largely get to set the rules for how they use DSH money. And at the state level, legislators are loath to single out a handful of hospitals as needing the most support for fear of angering their local facility. So in 11 states, according to a report earlier this year by the Congressional Research Service, more than 80 percent of the hospitals get DSH money. At one point New Jersey provided DSH money to every hospital in the state,

Another reason this Lake Wobegon effect happens is that some states have successfully gamed the system so that no direct state income or sales tax dollars are used to help get DSH money from the Feds. Instead the states levy a special “bed tax” on patient revenue at all hospitals. The amount raised is usually equal to the amount the state needs to put up for its share of DSH money. In return for gaining more federal dollars, the state effectively returns the money back to the hospitals with a small net gain for those supposedly serving a large number of poor and uninsured patients.

Such a system makes it almost impossible to tell whether those hospitals that treat a truly disproportionate share of poor people are getting their proportional share of DSH because the financing and reimbursement schemes are so convoluted.

All this was supposed to be fixed by the ACA, the most recent attempt to make Medicaid more equitable and fair nationwide. The 2010 law included a provision that would have required the states to cover all residents and families earning less than 138 percent of the federal poverty level — or $16,400 a year for an individual and $33,534 for a family of four in 2016 dollars.

Indeed, getting millions of more Americans covered by Medicaid would have substantially reduced the burden of charity care for the uninsured and allowed federal budget makers to start weaning states and hospitals off of DSH funding. But then the U.S. Supreme Court ruled in 2012 that the Medicaid expansion part of the ACA must be optional for the states. And 19 states at last count have refused to expand it, resulting in millions of Americans still without insurance.

Political leaders in many of those states are now howling about the potential loss of DSH money for their hospitals. It’s worth noting that many of them have been rejecting 100 percent federal financing for Medicaid expansion over the last three years. These billions coming from Washington could have been used to help secure the finances of urban and rural safety net hospitals alike.

Even in states that have expanded Medicaid, like California, public hospitals will have to find other means to offset the loss of much of the $2.4 billion in DSH revenue that the state received in 2015. That means public hospitals must turn to state legislators and local taxpayers for more help — not an enticing prospect.

What happens next year is hard to predict, given the fractious debate in Washington over everything associated with the ACA, even now, six years after it was passed and three years after it was implemented.

Congress could stay the cuts as it has before with another continuing budget resolution next year, but that would mean further enlarging federal budget deficits. The impending loss of the funds could also lead to negotiations with the new occupant in the White House over what direction the nation will take with Obamacare after Barrack Obama is no longer in office. DSH financing may serve as Hillary Clinton’s first real test for how cooperative Congress will be in fixing Obamacare’s longer-term consumer issues about costs and availability of insurance plans on the government exchanges.

Again, the $42 billion in reductions slated to take place over the next eight years were premised on the notion that they would be less painful to hospitals because more Americans than ever will have gained access to health insurance, either through the exchanges or through expanding Medicaid to those at or just above the poverty level. That may still happen.

But given the checkerboard pattern of coverage and reimbursement rates that still exists, it seems pretty clear that some areas of the country will continue to fare better than others. That will also be the case for the hundreds of public hospitals that serve these patients.

More appropriately, the threatened loss of DSH funds should force a much-needed examination of whether the current rules for how Medicaid is financed allow it to function as a viable program for poor patients and the hospitals that care for them.

Because in those places where working poor patients are purposely left behind and hospitals have to fight for every speck of public financing they can get, the new era of health reform still seems a lot like the old one.

Mike King is an Atlanta-based health policy journalist and the author of the recently released “A Spirit of Charity: Restoring the Bond between America and Its Public Hospitals.”

The views expressed by contributors are their own and not the views of The Hill.