This column, originally published by the Chesterfield Observer back in June, is a bit dated. I neglected to re-post it on Bacon’s Rebellion at the time. But, what the heck, with the new debate about how to dish out Virginia’s windfall from federal tax reform, it never hurts to remind middle-class taxpayers how they continue to get the shaft.
After years of debate Virginia has enacted Medicaid expansion. Backers of the new entitlement proclaim the legislation a humanitarian triumph, providing health insurance to as many as 400,000 Virginians above the poverty line and injecting some 2 billion federal dollars into Virginia’s health care system. Miraculously, the state will deliver this new benefit at seemingly no expense to Virginia taxpayers. The federal government will pay 90 percent of the cost, while the balance will be recouped through reduced expenditures on prisons, mental health and other state programs, plus a tax on hospital revenue.
As the old political saying goes, if something sounds too good to be true, it probably is. It always pays to dig deeper to uncover what the politicians aren’t telling you. And in the case of Medicaid-expansion funding, there’s a lot they are glossing over.
First, Virginia’s 69 private, acute-care hospitals will pay a $281 million provider “assessment” in the first two-year budget. Second, legislators need to find a comparably large sum to bolster Medicaid payments to physicians. By the time it all shakes out, taxpayers and paying patients could end up paying, by my estimate, on the order of $250 million a year in higher taxes and/or insurance fees – although, to be honest, no one really knows.
What, you didn’t read that in the newspaper? Gov. Ralph Northam and GOP lawmakers didn’t tout these costs among their list of legislative accomplishments? Welcome to Virginia government in the 21st century. The political class has perfected the art of picking your pockets so quietly you don’t even notice.
According to the Virginia Hospital and Healthcare Association, Virginia’s health care program for the poor at present reimburses providers only 71 percent of the cost of treating Medicaid patients – well below the 78 percent rate that state code declares to be an acceptable level. Virginia hospitals also provide hundreds of millions of dollars’ worth of charity care – free or discounted health care provided to low-income patients – and write off hundreds of millions more on bad debts. On top of that, the Medicare program for retirees is squeezing hospital payments, too, although not to the same degree. The VHHA claims that the Medicare shortfall reached $909 million in 2016.
Under those circumstances, hospitals have been reluctant to absorb the cost of a provider “assessment” to pay for Medicaid expansion. But in negotiations with legislators this year, hospital lobbyists folded. They backed the provider assessment knowing they’d gain roughly $2 billion in extra federal dollars.
Where will hospitals find $241 million for the assessment? That’s not at all clear. Collectively, Chesterfield hospitals generated almost $1 billion in revenue in fiscal 2016, according to Virginia Health Information data. They paid about $100 million in charity care, wrote off roughly $75 million in bad debt, and ran profits of about $80 million. In the first year the assessment will be 1.1 percent of net patient revenues, or about $10.8 million based on 2016 revenues; the second year the tax will be 2.3 percent, or about $23.6 million.
In theory, the influx of Medicaid dollars will reimburse hospitals for most of the cost of treating near-poor patients who account for the bulk of that charity care and bad debt, offsetting the tax assessment. No one has projected how it will impact finances on a hospital-by-hospital basis across the state. And no one has provided any guarantee that hospitals won’t pass on the cost to their privately insured patients. We don’t know what will happen. The hospitals probably don’t know yet either.
A related problem is that Medicaid’s reimbursements are so chintzy that many physicians don’t accept Medicaid patients. When there’s a physician shortage to begin with, the result is that many Medicaid recipients won’t be able to find a doctor. They’ll continue seeking treatment episodically in hospital emergency rooms, as they always have, undercutting a key rationale of expanding Medicaid in the first place.
Legislators have discussed raising the reimbursement rate for physicians from 71 percent of cost to 88 percent of cost, enough to induce most doctors to take on Medicaid patients. But that will require tens of millions of dollars more each year. A report by the Richmond Times-Dispatch mentioned a figure of $47 million, but that would average out to about $27 per Medicaid patient per year, which seems absurdly low. To boost physician reimbursements to a meaningful level, lawmakers likely will have to ask for a much larger sum in a future session.
Hospitals and doctors are following these developments closely and protecting their interests. Most Virginians aren’t. My prognostication: They’ll come out OK – and you’ll get stuck with a big Medicaid bill.