How Medicaid Expansion Underwrites Hospital Expansion

Roanoke Memorial Hospital: $300 million expansion thanks to Medicaid

by James A. Bacon

A year after Virginia enacted Medicaid expansion, it’s still too early to tell what impact the initiative will have on public health, medical economists tell Virginia Business magazine. But one thing seems clear enough. The program is injecting enough money into the healthcare sector that major health systems say they have the confidence to embark upon major expansion projects.

Roanoke-based Carilion Clinic is moving ahead with a $300 million expansion to Roanoke Memorial Hospital. Fairfax-based Inova Health System is spending a similar amount, $300 million, to upgrade its Loudoun County hospital. Bon Secours Virginia Health System has announced plans for $119 million in improvements to its Chesterfield County medical center. And community health centers are either opening or expanding in Southern and Southwest Virginia.

One big question I had about Medicaid expansion is the impact it would have on hospital profitability — and what the hospitals would do with the money. The Virginia Business article provides some clues.

To close the deal politically, the Virginia Hospital and Healthcare Association agreed to a tax on revenue for acute care hospitals. This year, hospitals will pay an estimated $281 million. By 2021, assessments will amount to $763 million. However, expansion will generate $2 in extra hospital revenue for every dollar they pay in assessments, according to Department of Medical Assistance Services (DMAS) Director Jennifer Lee. After paying the state assessments in 2021, hospitals will record a net increase of $1.6 billion in Medicaid reimbursements. By offsetting a large amount of uncompensated care, which measured $1.1 billion in 2017, a large chunk of that hospital revenue will flow straight to the bottom line.

We still don’t have a clear idea of what Virginia hospitals are doing with this massive infusion. But it’s pretty clear that taxpaying citizens who are not wards of the state — in other words, those who pay private insurance — are getting the short end of the stick.

Hosed once. No one is saying who ultimately pays for the hospital assessments. Are hospitals passing on the charge to patients or eating the cost themselves? My bet is that they’re passing on the cost. Does anyone seriously think that hospitals will eat the profits? If you do, I’ve got a used MRI scanner to sell you. You’d think the General Assembly, the Governor, the news media, or someone, might want definitive answers, but I have seen no evidence that legislators or reporters are even interested in the question.

Hosed twice. No one is talking about using turbo-charged hospital profits to reduce charges for privately insured patients. To be sure, some unprofitable or marginally profitable hospitals need the money to shore up their balance sheets. But what are other hospitals, including highly profitable “nonprofit” institutions, doing with the cascade of cash? Judging by the examples cited by Virginia Business — more than $700 million in expansion projects by just three hospital systems — the better-off hospitals will plow the money back into expanding their medical facilities.

Privately insured patients have been subsidizing Medicaid for years. Even though the Medicaid burden is being dialed way back, I have yet to see any evidence that hospitals is returning any of this manna to their privately insured patients in the form of lower charges.

Meanwhile, privately insured Virginians and their employers are paying on average $20,000 for family insurance coverage plus $8,000 a year in out-of-pocket costs. It’s a travesty — just one example among many of how Virginia elites rig the system under the guise of helping the poor to screw the middle class.

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10 responses to “How Medicaid Expansion Underwrites Hospital Expansion

  1. I would think that one of the biggest impacts would be to stabilize rural hospitals perhaps even allow some to re-open – hope springs eternal as they say.

    The name of the game for well run for-profit hospitals is to offer “up” services not covered by insurance unless it’s the gold-plated variety.

    Those services are not medically “necessary” but can add to some folks quality of life.

    Remember also that Medicare – not Medicaid – Medicare pays only 80% of the bill unless they have supplemental insurance. In those cases, as long as the customer ends up with no cost to them – they really don’t care if the hospital is making a “profit” or not.

    It’s also interesting that “hospitals” are not all created equal. Some are _very_ profitable and others go broke – why?

    Conventional wisdom is that they have a high percentage of low income/uninsured and Medicaid (which is said to not pay the actual cost so hospitals “lose” money).

    Hospitals might be a little like Higher Ed with some Higher Ed charging outrageous tuition but plowing their profits back into expanding programs, amenties, etc to get their share of enrollment. Other, smaller colleges are on the ropes – and withering on the vine. Maybe hospitals work a little like that also.

  2. Just something to add to the discussion …
    “375,000 people have gained coverage after Virginia expanded Medicaid in January 2019;”

    Source: https://www.healthinsurance.org/virginia-medicaid/
    Follow us: @hio_org on Twitter | healthinsurance.org on Facebook

  3. I think it’s a bit ironic that you blame Northam. The GOP had the ability to fix conformity AND the “refunds”. They had the votes, no?

  4. The only thing I find surprising is your surprise. Like most of Northam’s tax and spend money spraying this was meant to “fly below the radar”. Not for profit and minimally profitable hospitals would pay a tax that wouldn’t find its way into the cost base of healthcare that everybody pays. Really?? Kind of like public universities which overcharge some students so they can subsidize other students aren’t really levying a tax on the overcharged students. This has become the new normal in Virginia – hidden taxes used to pay for spreading socialism. And you can bet that there are crony capitalists and rent seekers silently sucking an ill gotten share of these secret and hidden taxes. After all, that’s The Virginia Way.

    • Everybody knows that “expansion” brought in more people but few understand that was just half of the game, and the smaller half. The 2018 changes also boosted the payments for services to docs, hospitals and other providers. Were they low? Sure, and they are probably still not generous. But they went up a bunch, for providing the same service. That is one untold story.

  5. I think if hospitals are going to shift costs from uncompensated care to those who do have insurance – a provider tax that then provides funding for insurance for the uninsured is a better approach.

    If we had a system where hospitals could turn away uninsured, then one could legitimately argue about the additional taxes – hidden or not but if the law requires hospitals to treat uninsured then it becomes an issue of what is the most cost effective way to do it – which I admit is an arguable point but the point that it’s a drop dead hidden tax that should not be – sorry Charlie – that’s just pure ideological bunk.

    “socialism” , “virtue signaling”, “radical”, “tax & spend”, “leftist”… on and on – these are NOT words to work toward compromises – these are words designed to push away and the naysayers will NEVER carry the day. We have problems. We create them because we are human and compete for things on a self-interest basis but just like some of us understand the tragedy of the commons – the answer to that is not “leftist” unless one just can’t handle realities and falls back to grumpy old man pablum and blather.

    We got issues to deal with – stop blaming others and get in the game – be constructive -contribute to solutions or stifle it. 😉

  6. called the “woodwork effect” – short version is that when MedicAid Expansion was approved, folks came in to see if they qualified and it turned out they already qualified for original MedicAid but did not know it.

    IN terms of reimbursements – from MedicAid – it’s the same essential process for ALL insurance, all private insurance and Medicare AND it’s true in other countries in terms of what people are “entitled” to in terms of medicare care and what the provider (the govt) thinks they are not at all or are but have a lower priority than people with more threatening disease or problems.

    When someone other than you is paying – it’s they who decide the terms of treatment and what they will and will not pay for and how much.

    It’s entirely true that some doctors say that Medicaid does not compensate them “enough” for services rendered. It’s also true that doctors expect some level of compensation based on what they would get from other insurance. It does not mean that Medicaid does not pay enough for the service and the provider has more costs that the reimbursement provides – but that is the basic claim – but HOW would one fairly and objectively decide how much something SHOULD cost and how much profit the provider is entitled to?

    Ahhh… we have seen THIS movie BEFORE aka the SCC and Dominion!

    Dominion will ALWAYS claim they are not getting as much as they “need” or are entitled to and they have a herd of accountants and lawyers to make their case.

    Not surprisingly, a similar thing goes on with doctors and MedicAid and the fact that some won’t take it only really means that other insurance pays higher reimbursements and if a doctor has enough of these higher paying folks – why should he take lower paying folks and reduce his own profits?

    The way that MedicAid is dealing with this problem – ironically not well recognized is the SAME way that Medicare Advantage is getting around this problem and that is to move away from al carte fee for service to a system where a network of providers communicate and cooperate with each other in delivering medical care to individuals. In doing that – more control over what care is delivered and by what providers – primary care and specialists is imposed – not unlike how care in other developed countries is done!

    To the bigger picture – our health care system is EVOLVING to a different model from fee for(each) service and at the center of it is how doctors/providers communicate with each over the care of each patient. Non managed-care, fee-for-service providers typically do not share information with a common electronic record. Each one maintains their own (often different and incompatible) system and communication is often via paper – the fax. Doctors/providers in managed care (like Medicare Advantage and Medicaid) SHARE the same electronic record – they all use the same system.

    This is where all medical care is headed.

    see: ” Why Google’s Move into Patient Information Is a Big Deal”

    This is how costs are reduced but to get there – you need up-front investment to build that system.

    Those looking for one-year results with the attitude that if that doesn’t happen it means failure – have a mindset that prevents solutions that may take longer than short term to produce.

    We did not get here overnight – and we’re not going to fix it overnight and yes some new approaches may not work – the job is to find which ones that do.

    The mindset of “no changes til you prove they work” is basically an argument for no changes … i.e. the status quo is bad and we’re not going to make it worse!

  7. My first reaction to the post was that it was a criticism of Medicaid expansion, but, upon further reflection, it is aimed at hospitals, and there is a lot of merit in the criticism. Hospitals have been complaining for years that Medicaid and Medicare payments were below the “actual” cost. They used to cite the high costs of emergency room care and lament that patients came to the ER, rather than go to their doctors. Yes, some rural hospitals have closed. But, the hospitals in the Richmond area have been expanding for years. Not only expanding, but building new hospitals such as St. Francis in Chesterfield and Memorial in Hanover. As for that expensive ER, every hospital now has a big neon sign advertising how short the wait is. And, as for actual costs, no one knows what they actually are. Even private insurance companies pay a negotiated rate. So, it is fair to ask what they are getting in the Medicaid expansion. Since it looks as if they additional Medicaid revenue is out-pacing their previously uncompensated charity care, shouldn’t they be asked to use some of that federal tax money to offset the charges for privately insured patients?

    Steve makes a good point about the increased compensation rates. My question: Was the assessment on hospitals meant to cover those additional costs or was the assessment only tied to the expansion in the Medicaid eligibility?

  8. re: ” payments were below the “actual” cost”

    I’m not sure this is true though. Cost comparison studies between us and other Countries like Canada, Europe, Japan show that our prices for medical services – things like x-rays are actually higher – much higher – in some cases 2-3 times higher.

    While Jim likes to focus on the “profitable” Hospitals and why and how they are so “profitable”, he basically ignores what happens to rural hospitals that are not “profitable” , actually end up closing.

    What is the difference? Is it truly because with hospitals that primarily serve low-income demographics cannot recover their costs BECAUSE Medicare and MedicAid reimburse at rates below costs?

    But even if some Hospitals are “profitable” – what is the righteous Libertarian argument against that! If govt contributes money – all Libertarian arguments are no longer true? 😉

  9. I’m seeing an interesting parallel to the federal student loan program leading to the way-out-of-proportion growth of the academic industrial complex.
    Is there really a hospital bed shortage in the big metro areas? Why not force the big health systems to commit a proportional amount to keep the rural community hospitals in business?

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