by James A. Bacon
The debate over Medicaid expansion took a major left turn yesterday when the McDonnell administration revealed that the VCU Medical Center and the University of Virginia Medical Center will lose about $500 million in federal funds to offset uncompensated care between 2017 and 2022.
The Affordable Care Act (Obamacare) will phase out the financial aid on the theory that hospitals won’t need it anymore because, thanks to an expanded Medicaid program and a new state health exchange, most Virginians will have health coverage and uncompensated care will no longer be a problem. But the authors of Obamacare didn’t bargain on the fact that the U.S. Supreme Court would allow states to opt out of Medicaid expansion. Worried about significant fiscal liabilities for the state down the road, Virginia, Republicans are largely opposed to expansion; Democrats, including Gov.-elect Terry McAuliffe, favor it.
The disclosure by William A. Hazel, secretary of health and human resources, that VCU and UVa could lose a half billion dollars changes the debate. Either the state will have to pony up the difference, about $100 million a year, hospitals will have to eat the cuts, or the pain will be spread between the two. Not surprisingly, hospitals are crying bloody murder. The cuts would be “disastrous,” VCU CEO Sheldon Retchin told the T-D. “It’s going to look like Calcutta. It’s going to be bad.”
However the pain is allocated, $100 million in lost federal funds roughly equals the $1.1 billion over 10 years (beginning 2019) that Virginia could be expected to save from opting out of the expansion.
Now, Obamacare supporters can point to the billions of federal dollars that will flow into the state as a reason to support expansion, while foes (of whom I have been one) are deprived of our argument that the state cannot afford it. Whether Virginia expands Medicaid or not, the state gets fiscally hosed either way, so why not at least reap the benefits of it?
This leaves only one substantive argument against expansion: the fear of what would happen if the federal government were no longer able to live up to its obligations and, at some time in the future, shifted financial obligations back to the states. Virginia would face intense pressure to take up the slack rather than abandon a program upon which hundreds of thousands of citizens were then dependent. Democrats and progressives, of course, mock the possibility of the federal government ever reneging on its political obligations. By contrast, some of us regard such a default as nearly inevitable.
Bacon’s bottom line: I’m of two minds. On the one hand, the American hospital industry threw its political support behind the Obamacare legislation in exchange for provisions that would limit competition from physician-owned facilities. You helped foist this abomination upon the American people, you rent-seeking scum, now you own it. If things didn’t turn out like you expected, that’s your tough luck. You made your bed, now sleep in it.
On the other, the loss of half a billion dollars over five years would indeed hit the VCU and UVa medical centers hard. VCU’s FY 2012 net operating revenue was $1.3 billion in FY 2012 and its net income was $122 million in 2012, according to Virginia Health Information data. The impact on UVa would be even greater. Its revenues were $1.2 billion and profits only $88 billion in FY 2013.
Would that “look like Calcutta”? I’m dubious. Clearly, profitability would suffer. Yet both hospital systems would remain profitable. The real impact, I would conjecture, would knee-capping the ability of both hospitals to expand. That’s a legitimate issue to discuss, but let’s make sure we discuss that issue rather than some apocalyptic scenario. Regardless, there’s no denying that the nature of the debate is very different today than it was a week ago.