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.