Tag Archives: Medicaid

Does Virginia Do Income-Verification for Medicaid Recipients?

Just to be clear, cracking down on Medicaid fraud is not a “dog whistle” for targeting African-American welfare queens. Many if not most perpetrators of illegal schemes to collect public benefits are white, as illustrated by this cast of characters indicted last year in Lakewood, N.J. for illegally collecting Medicaid and other welfare benefits.

Last month a Louisiana state audit of 100 randomly selected Medicaid beneficiaries found that 82 did not qualify for the benefits they received. Most under-reported their income, some shamefully. Two recipients were getting Medicaid despite having incomes above $300,000.

Now, Louisiana is Louisiana, not exactly known for squeaky clean governance. But there is accumulating evidence that other states have similar problems. According to the Washington Times, a federal inspector general’s report this year found 38 out of a sample of 150 Medicaid beneficiaries in California were potentially ineligible. Continue reading

Medicaid Expansion’s Achilles Heel: the Doctor Shortage

Source: “Virginia Physician Workforce Shortage” presentation to the Joint Commission on Health Care, Sept. 2013.

The Northam administration sold Medicaid expansion to the public in part by claiming that the net cost to Virginia taxpayers would be minimal. Uncle Sam would pay for 90% of the cost of extending medical coverage to up to 400,000 Virginians, and the state’s 10% share would be offset by savings in prisons, mental health, and other areas. What no one talked about, except in the fine print, was the necessity of increasing reimbursements to physicians.

The Richmond Times-Dispatch editorial page explains today why higher reimbursements for physicians are an integral and unavoidable part of Medicaid expansion:

Medicaid underpays its physicians, reimbursing them at only 71 percent of the rate they get paid by Medicare, and an even smaller percentage of what private insurers pay. As a consequence, only 63 percent of physicians accept Medicaid patients, and only 71 percent of those are taking new patients. So, when Medicaid expands eligibility to as many as 400,000 near-poor Virginians this year, many will find it difficult to find a primary care physician, and they’ll wind up seeking care in the emergency room, just like they always have.

The Department of Medical Assistance Services (DMAS), which administers Virginia’s Medicaid program, now is asking for $19.1 million in the second year of the next biennial budget for Virginia’s share of the cost to lure more docs into the program. The hope is that hiking reimbursements from 71% of the Medicare benchmark to 80% of the benchmark will induce a meaningful number of physicians to take more Medicaid patients.

How likely is that?

Virginia has about 25,000 full-time-equivalent physicians, according to “Virginia Physician Workforce: 2016” published last year by the Healthcare Workforce Data Center (HWDC).

Source:  “Virginia Physician Workforce: 2016”

HWDC found that 57% of physician were accepting new patients at their primary office. Of those who are taking in more patients in their primary offices, 35% can accept no more than 50, while 23% can accept between 50 and 99 new patients. If I understand its presentation correctly (see the chart to the left) HWDC estimated a “new patient capacity” of about 14,000 at both primary and secondary locations. That’s a drop in the bucket compared to the expected influx of 400,000 new Medicaid patients.

The shortage is not likely to improve. Nearly 4,000 doctors, about 17% of the physician workforce, are over 65 years or older. Although many docs plan to work into their 70s, 8% of Virginia’s physicians plan to retire within two years, and 30% expect to do so within 10, estimates the HWDC.

If 8% of physicians retire in the next two years — about 1,000 per year — there are two ways, broadly speaking, to replace them. (1) working physicians can take in more patients, and (2) hospitals can recruit more doctors.

Female physicians work fewer hours on average than males at all ages. Source:  “Virginia Physician Workforce: 2016

While older physicians are predominantly male, the younger generation of physicians is half female. That’s great for gender equality, but it stretches the profession even thinner because female physicians tend to work fewer hours than males (presumably because, as mothers, many are juggling professional and domestic responsibilities). As male physicians age out and are replaced by females, doctors on average will tend to work fewer hours, meaning they will see fewer patients. For this and other reasons, 2,531 doctors told HWDC they were planning to decrease patient hours compared to 2,183 who said they were planning to increase their hours within the next two years — a net of 348 doctors intending to cut back.

Another way to accommodate 400,000 more Medicaid patients is to train and recruit new doctors. According to HWDC data, Virginia medical schools granted 1,322 residencies over the past five years. That’s a pipeline of barely 600 per year. Assuming every Virginia resident stayed in Virginia (which they don’t), the number fall significantly short of the 1,000 or so doctors expected to retire. That means the gap must be filled by recruiting doctors from outside the state. How likely is that to occur? Who knows. That’s a big uncertainty.

Some regions of Virginia will be able to absorb the influx of Medicaid patients better than others. The major metropolitan areas have higher doctor-population ratios than the non-metros. Indeed, as shown in the map at atop of this post, a 2013 presentation to the Joint Commission on Health Care designated much of the state as “primary care shortage areas.” That presentation cited a shortage of 126 primary care physicians in those areas. Continue reading

Medicaid, the Blob that Ate the Budget

Medicaid, the blob that ate the budget

The Medicaid blob swallows all in its path.

Details on that runaway Medicaid budget…

Spending per Medicaid enrollee has been relatively flat the past five years, having increased less than 0.4% annually (adjusted for inflation) between FY 2011 and FY 2015. The cost driver has been enrollment, which increased 16.5% over the same period, according to a Joint Legislative Audit and Review Commission (JLARC) report, “Managing Spending in Virginia’s Medicaid Program.”

JLARC summarizes the consequences for Virginia’s General Fund budget:

Medicaid general fund spending has grown by an average of 8.9 percent annually over the past 10 years, while total general fund spending increased by just 1.3 percent. Medicaid spending comprised 22 percent of the general fund budget in FY16, increasing from 14 percent in FY07.

Chart source: JLARC

Chart source: JLARC

No wonder the Commonwealth can’t afford to give employees a pay raise and shore up their pension benefits (see previous post).

But there is potentially good news. The state still has room to squeeze costs by as much as $40 million per year.

In FY16, Virginia could have saved $17–36 million by not paying [Managed Care Organizations] for the inefficient provision of services. [Medicaid] also does not adjust administrative spending for enrollment increases, and these adjustments would have reduced spending by as much as $8 million in FY16.

Medicaid Expansion an Inefficient Way to Prop up Rural Hospitals

medicaid_expansionby James A. Bacon

One commonly cited argument in support of expanding Virginia’s Medicaid program in concert with the Affordable Care Act is that enrolling more poor Virginians would help prop up financially shaky rural hospitals. Rural hospitals tend to serve disproportionately poor populations, which means they tend to provide disproportionate amounts of uncompensated care. Expanding Medicaid coverage to poor and near-poor populations, the logic goes, would provide these hospitals with much-needed cash infusions. If Virginia doesn’t expand Medicaid, many struggling rural hospitals may close, making health care even more inaccessible for the poor.

Marc D. Joffe and Jason J. Fichtner have taken a look at that argument in a new paper, “Hospitals and the Proposed Virginia Medicaid Expansion,” and found it wanting. The study was published by the Thomas Jefferson Institute.

Overall, Virginia’s hospital industry is in sound financial condition, generating net income of more than $1.5 billion in 2013, the authors note. Profits were not distributed evenly, however. The large, multi-hospital health systems such as Sentara, Carilion, Inova and Bon Secours were highly profitable, while many rural hospitals lost money.

Expanding the Medicaid program would pump millions of dollars into Virginia’s health care system without consideration to a hospital’s fiscal profitability, Joffee and Fichtner argue. Most of Virginia’s hospitals remain solidly profitable despite the burden of providing uncompensated care. They don’t need extra Medicaid revenue to remain profitable. Moreover, not-for-profit hospitals already receive important benefits — the ability to receive tax-deductible contributions, exemption from property taxes and corporate income taxes, and access to tax-exempt bond funding.

If  legislators want to prop up Virginia’s struggling rural hospitals, the authors write, they should target failing hospitals directly rather than subsidizing rich and poor institutions alike.

Rural hospitals have bigger problems than uncompensated care; between 1990 and 2000, 208 rural hospitals shut closed nationally, mostly the result of consolidations or low utilization. That trend continues. Lee Regional Medical Center in Lee County, for instance, had  a 34% staffed-bed occupancy rate in 2012 before it closed — way lower than the median occupancy of 63%.

“In free, competitive markets, suppliers that attract fewer customers are more likely to fail,” the authors write. “Small low-utilization hospitals struggle and are sometimes obliged to shut down.”

Bacon’s bottom line: Joffe and Fichtner make sense: If Virginia legislators want to keep struggling rural hospitals open, they should target aid to struggling rural hospitals, not to hospitals generally. But I would go a step further. I would argue that the idea of supporting general hospitals, which provide a broad range of medical services, may be an outdated idea. Perhaps rural health care systems should restructure around providing good primary care, supported by free-standing out-patient centers that inexpensively provide non-acute services, while referring patients with more acute conditions to larger, regional hospitals. Large-volume tertiary care centers can provide those services more cost-efficiently and with better outcomes than low-volume rural hospitals can. In exchange for the inconvenience of traveling further, rural patients likely would wind up with better care.

A Timely Reminder: Virginia Hospitals, Even the Non-Profits, Are Very Profitable

Norfolk General Hospital, the crown jewel of the Sentara Health System, which reported annual profit of $229 million in 2013.

Norfolk General Hospital, the crown jewel of the Sentara Health System, which reported annual profit of $229 million in 2013.

One of the justifications given for expanding Virginia’s Medicaid program as part of the implementation of Obamacare is to shore up the financial condition of Virginia’s hospitals. On the assumption that Medicaid expansion would reduce the number of indigent (non-paying patients), Obamacare will cut back funds to hospitals under the established Disproportionate Share Hospital (DSH) program to help offset the cost of uncompensated care. If Virginia fails to expand Medicaid, as now seems likely, and the federal government cuts DSH funding as planned, Virginia hospitals will take a hit to the bottom line.

The debate may be academic now that Governor Terry McAuliffe has essentially punted on Medicaid expansion in the face of strong Republican opposition in the General Assembly and has proposed a scaled-down Healthy Virginia plan. But the issue still is worth revisiting. Virginia hospitals stand to lose about $386 million in payments from the DSH program between 2017 and 2022 — an average of $77 million per year. How badly will hospitals be hurt? Will cuts impair the quality of care? Do we need to worry?

Mike Thompson, president of the Thomas Jefferson Institute, a conservative think tank, has compiled the profit figures for Virginia hospitals from the Virginia Health Information Foundation. In the aggregate, in November 2013 Virginia’s hospitals had combined profits of $1.6 billion and net worth of $15 billion. The annualized DSH payments are equivalent to about 5% of 2013 profits.

One would think that hospitals should be able to absorb that hit to revenues — equivalent to a year or so of profit growth. Does the picture change when we drill into the numbers? The burden of indigent care is not apportioned equally between hospitals. Some facilities serve largely poor populations and provide extensive uncompensated care and rely more than others on the DSH funds. Also, hospital profitability varied widely from institution to institution. Several hospitals are losing money. In theory, a loss of funds could be devastating.

Thompson’s data reveals that several money-losing hospitals are part of larger health care systems; while they lose money, they feed profitable business to the tertiary care hospitals at the center of those systems, hence, they are not in danger of being shut down. Other facilities represent expansions into new markets — start-up enterprises, in effect. Their parent companies are fully prepared to bear the losses while the facilities ramp up to profitability. Then, too, there are some hospitals that appear to have serious problems. However, it’s not clear from one year’s data whether those losses are ongoing or simply the result of a one-year write-down.

It would be helpful to get a hospital-by-hospital breakdown of DSH funding and see how it compares to hospital profitability. The not-for-profit VCU Health System is reputedly the largest provider of uncompensated care in the state. But, then, it reported a profit of $130 million — a 12.8% return on equity (net worth). Would the loss of, say, $30 million a year in DSH funding be crippling? Maybe VCU could spin a tale of woe that would persuade me otherwise, but it sure doesn’t look like it.

Don’t get me wrong. Hospital profits are a good thing. Try getting your healthcare from money-losing hospitals — you won’t like it. Even not-for-profits need earnings to help fund expansions and new initiatives. But when hospitals are funded with public funds and receive special tax exemptions, the public has a right to ask tough questions.

Update: The Virginia Hospital and Healthcare Association response to Thompson’s study can be seen here. The main thrust: The data is two years old, and the financial pressure on Virginia hospitals has intensified since then.


Virginians Skeptical of Medicaid Expansion

A big swing in the pendulum. Image: Science Museum of Virginia.

A big swing in the pendulum. Image: Science Museum of Virginia.

by James A. Bacon

The biggest story in Virginia right now (even bigger than the U.S. 460 fiasco) is Medicaid expansion, and the latest wrinkle is that Republican skeptics are winning the debate. Frankly, I am amazed. I thought that the siren call of recouping billions of dollars in federal money that Virginians were  paying already in Obamacare taxes, along with the prospect of providing some measure of health care for thousands of the uninsured, would win the day.

The Republican argument, which I embrace — that the state should extract reforms to the way Medicaid is administered before agreeing to expand the program — always struck me as a bit esoteric. That core message, I thought, was lost amidst a welter of reasons for resisting expansion, and the media never framed the debate in the way that Republicans wanted. How many articles have we seen, for instance, illuminating what kind of Medicaid reforms Republicans propose?

Yet, as Quentin Kidd, director of the Wason Center for Public Policy, said in a statement accompanying the poll results: “Democrats are losing the debate on expanding Medicaid in Virginia. This is mostly because they are not convincing Independents that it will work. Voters seem to be moved by Republican skepticism.”

What explains the marked shift in public opinion since a February poll? Norm Leahy and Paul Goldman, Virginia’s bipartisan blogging duo, each have hit upon part of the explanation. Goldman argues that Virginia’s middle class is feeling increasingly squeezed, which I agree with. What he didn’t mention is that many are feeling squeezed by Obamacare. While the Affordable Care Act has expanded access to health care for lower-income Virginians, it has done so at the expense of many in the middle class who are losing their old insurance plans, losing their doctors, and finding that the Obamacare health-exchange alternatives are costing them a lot of money.

The other part of the story, as Leahy has argued, is that Governor Terry McAuliffe has failed to personalize the Medicaid story. There is no denying that tens of thousands of Virginians are living on the razor’s edge of financial solvency, and the lack of insurance makes their lives even more perilous. Where are the heart-rending stories about families who sold their cars, lost their homes or otherwise been forced into destitution by the lack of insurance? We haven’t seen them.

The battle is far from over. McAuliffe has threatened to continue operating the state without budget authorization (not shut to down state government, as I erroneously stated earlier), an extraordinary assertion of executive authority that may have to be resolved by the Virginia Supreme Court.

Kidd’s poll found that most Virginians hope the governor and the legislature resolve the budget stand-off by means of compromise. If the Rs play their cards right, that sentiment should play to their benefit. They need to make the case that their proposal — we’ll accept Medicaid expansion if McAuliffe and the Obama administration reform the program to make it more financially sustainable over the long run — is the compromise proposal. If they can pull that off, they can win the debate, thousands of uninsured Virginians can get Medicaid coverage, and the state can safeguard its fiscal integrity going forward.

But perhaps McAuliffe is banking on the state Supreme Court, dominated by Democratic appointees, will back him up. This will be the big show of the next two months.

Update: The Commonwealth Institute critiques the Wason Center’s survey methodology here.

Who Is Being Intransigent Now?

Medicaid reform? We don't need no stinking Medicaid reform.

Medicaid reform? We don’t need no stinking Medicaid reform.

by James A. Bacon

Let me get this straight. Virginia Democrats in the General Assembly are saying that they will not pass a state budget until they get Medicaid expansion?

“We won’t vote for a budget — and I can’t be emphatic enough — we will not vote for a budget, nor will the governor sign a budget that doesn’t have some form of expansion,” Senate Democratic Leader Richard L. Saslaw, D-Fairfax, said during a brief conference call. So reports the Times-Dispatch.

The only possible conclusion to draw from that statement is that the Dems are willing to shut down state government (and much of local government) in order to get their way. Hmmm… Who does that sound like? Oh, I don’t know… maybe Congressional Republicans in the debt-ceiling debate with President Obama? The same Republicans whom the Dems denounced as maniacally irresponsible and willing to destroy the country in order to save it?

I’ve heard a lot of reasons why state Dems support Medicaid expansion: The money would come from Uncle Sam, it would expand health coverage for thousands of Virginians and it would pump up the state’s economy. These are not unreasonable arguments.

Here’s what I have not heard: why Democrats refuse to join with Republicans in pushing for Medicaid reforms. If Governor Terry McAuliffe and other Dems joined Republicans in petitioning the Obama administration, there is every reason to think the state could get the waivers and exemptions they’re asking for. President Obama has waived just about every other provision of Obamacare, why not this?

I truly don’t understand why the Dems can’t join the GOP in presenting a united front to extract Medicaid reforms from the Obama administration. They’ll get what they want, an expanded Medicaid program. It’ll just be a little leaner and more fiscally sustainable than what they’re asking for now. Are they really willing to shut down government over that? Who are the intransigents now?

Medicaid Expansion and the Trust Issue

Ye olde bait and switch.

Ye olde bait and switch

by James A. Bacon

Do you trust the federal government to make good on its promises to uphold entitlement spending? Or do you fear that, as the federal funding crisis intensifies, the feds will renege? That is the question at the heart of the debate over Medicaid expansion in Virginia.

Bart Hinkle, a columnist for the Times-Dispatch, invites readers to consider the fate of the American Indians who put their faith in federal promises. Years ago the Bureau of Indian Affairs and the Indian Health Service contracted to provide medical services to reservations across the country, only to break their commitment. Health care services have been disrupted as a result. The tribes sued for breach of contract, the U.S. Supreme Court backed them up a year ago and, yet, the Obama administration has yet to redress the breach. It appears there is not enough money to go around. Hinkle extrapolates to the Medicaid debate:

Current estimates say the federal government’s share of the tab for Medicaid expansion from 2014 through 2022 will come to $931 billion. If the cost is lowballed to even a small degree, then the feds will see more than $1 trillion in new expenses over the next decade.

By contrast, the federal government owes Indian tribes a comparatively paltry $2 billion or so. And that obligation is not merely statutory, but contractual. Yet even after Supreme Court intervention, Washington refuses to cough up the dough. …

If the federal government can ignore its contractual obligations, its own statutes and its own Supreme Court, then it certainly can ignore its own funding formulas, too. This doesn’t necessarily clinch the case against Medicaid expansion; it’s just one point among many. But it does suggest those hawking the promise of free federal money epitomize Samuel Johnson’s definition of second marriages: “the triumph of hope over experience.”

One day, historians will look back upon this time and be amazed and appalled that Americans decided to expand Medicaid entitlements while ignoring the eroding foundations of Medicare and Social Security.

The Disability Insurance (DI) trust fund within the Social Security program will run out of money in 2016 — two years from now! — meaning either that benefits for millions of disabled Americans will be cut by 20% or that money will have to be taken from some other source, most likely from the Old Age Survivors Insurance (OASI) fund.

OASI is scheduled to run out in 2035. If Congress resorts to the craven and cowardly expedient of kicking the can down the road by tapping OASI to prop up disability payments, then both programs will run out of money by 2033.

Meanwhile, Medicare’s Hospital Insurance (HI) reserve is scheduled to run dry by 2026. That represents an improvement from last year when the Social Security and Medicare trustees projected that it would run out in 2024 based on the conviction that cost-control measures embedded in the Affordable Care Act would stretch the Medicare trust fund a bit further. You can choose to believe that logic if you wish, even though Medicare’s own chief actuary took the extraordinary step of publicly disagreeing. But even under the more optimistic premise, a Medicare financing crisis is only twelve years away.

So, imagine it’s a decade from now: 2024. The Medicare trust fund is either evaporating or two years from doing so, portending a massive financing crisis for America’s second-largest entitlement program. Panic! The impending Social Security funding crisis is now only nine years away, too close to ignore. Blind panic! Another $6.3 trillion in budget deficits (CBO forecast) has brought the national debt to more than $23 trillion. Interest payments on the debt now amount to $900 billion a year, meaning that a huge chunk of the federal government’s cost structure is not subject to budget cutting. Outright hysteria!

Against that backdrop, federal Medicaid expenditures will have soared from $298 billion in FY 2014 to about $580 billion in FY 2024. Can anyone assert with a straight face that a future Congress might not try to spread the pain by insisting that the states pay a greater share for the expanded Medicaid program? It would take a blind faith in the goodness of the federal government to deny such a possibility. I have no such faith. Expanding Virginia’s Medicaid program will make the Commonwealth vulnerable to a bait-and-switch a decade from now. Restructuring Virginia’s health care system around a bigger Medicaid program invites the same fate as the Indian reservations. No thanks.

No Medicaid Expansion without Reform


Virginia’s Medicaid program, though one of the most frugal in the country, still has waste and inefficiency.

John M. O’Bannon III, R-Henrico, is a neurologist, and his medical practice provides care to indigent patients with little hope of paying their bills, but he is also a Republican delegate to the General Assembly. When he contemplates an expansion of Medicaid, a top priority of incoming Governor Terry McAuliffe, he is very concerned about the fiscal impact on Virginia.

“Medicaid is the fastest growing part of the state budget,” O’Bannon told Bacon’s Rebellion. The program, which is roughly half funded by the federal government and half by the state, gobbles up 40% of all new dollars in the General Fund budget submitted by outgoing Governor Bob McDonnell. “It’s crowding out education and public safety. We have a trajectory that’s unsustainable.”

O’Bannon is not dogmatically opposed to expanding Medicaid, as allowed for under the Affordable Care Act (Obamacare). But he belongs to the camp that says Medicaid must be reformed to bring down its cost structure before the state takes on the commitment in four years of covering 10% of the expense of extending the program to another 250,000 to 400,000 poor and near-poor Virginians.

If there’s a major point that has been lost in the debate over Virginia Medicaid expansion, it’s the linkage of Medicaid expansion to reform. The question is not, “Do we expand Medicaid, yes or no?” The question is, “Does Virginia use this once-in-a-generation opportunity to extract major concessions from the federal government in how Medicaid is administered before agreeing to expand the program?”

The Centers for Medicare & Medicaid Services (CMS) are negotiating with the states over how to implement the expansion, in some cases granting waivers for major reforms, says O’Bannon. Oregon is moving to a public health model, installing a totally new primary care system to take patients out of expensive emergency-room settings. Michigan is adopting a system that encourages Medicaid patients to take on more personal responsibility by making co-payments and getting more screenings. Arkansas is restructuring Medicaid to put more chronically ill patients on the program while subsidizing a shift of healthy poor patients to the health care exchanges. It’s classic laboratory-of-Democracy stuff, said O’Bannon, and Virginia can learn from the successes and failures in other states.

Meanwhile, Virginia has its own reforms that it wants to implement. One would be to change incentives to enroll so-called dual patients (who qualify for both Medicare and Medicaid) in managed care programs. Another would incentivize the use of nurse practitioners to head off infections that send nursing-home patients to the hospital. Others have criticized the Medicaid reimbursement of patient transportation costs on the grounds that the money could be spent more effectively in other ways.

There may be a lot of sound and fury in the General Assembly session as McAuliffe and like-minded legislators push for expansion, but O’Bannon doesn’t expect anything to come of it. Virginia is locked into a path that will be very difficult to dislodge it from. The decision whether or not to expand Medicaid currently rests with the Medicaid Innovation and Reform Commission (MIRC). Only if three out of five House and three out of five Senate members agree that Virginia’s demands for reform have been met can MIRC authorize the reforms and expansion. As currently constituted, three of the five Senate members and four of the five House members (including O’Bannon) are Republican.

Discussions with various interested parties are ongoing, and he’s open to talking to the other side, O’Bannon said. But he added: “Unless you can show us that this really will be a more efficient system and there won’t be a large outlying [fiscal] risk, you aren’t likely to see anything any time soon.”

In theory, the General Assembly can enact legislation to overturn the provisions of MIRC, but O’Bannon doesn’t see the Republican-dominated legislature doing that. There also has been discussion of winning over Republicans by packaging Medicaid expansion with elimination of the business-license tax, but he believes that any “grand bargain” would have too many moving parts to work out.

Medicaid expansion is the one opportunity that Virginia foes of Obamacare get to weigh in. “It’s a proxy for how people feel about Obamacare,” O’Bannon says, and he doesn’t see many Republicans capitulating. But he’s a pragmatist. Medicaid expansion would pump a lot of federal money into Virginia’s health care system and provide coverage for people who don’t now have it. If the state and the feds can come to terms over serious reform, he’ll vote for expansion. Absent reform, he’s opposed. “I’m not interested in just grabbing the money and running.”

New Concerns about Medicaid Expansion

You thought emergency rooms were crowded? Just wait.

You thought emergency rooms were crowded? Just wait.

The debate over Medicaid expansion in Virginia just got more complicated… again. A new study found that 10,000 new low-income Medicaid recipients in Oregon visited emergency rooms 40% more often than those without insurance, reports the Wall Street Journal. The finding undercuts claims that expanding the program would save money as low-income patients utilized primary care doctors instead of expensive ER services.

The new Medicaid recipients used ERs more often for all kinds of health issues, including problems that could have been treated in doctors’ offices during business hours, the WSJ writes. Using $435 as the average cost of an ER visit, researchers calculated that Medicaid increased annual ER spending by $120 per covered person.

Oregon extended the Medicaid program to 10,000 residents selected by lottery in 2008, providing, in effect, a controlled experiment showing the effects of Medicaid coverage. A separate study found that while new Medicaid patients spent less money out-of-pocket for care and reported improved health, they showed no improvement in such measures as blood pressure, blood sugar or cholesterol levels.

“It may be that some people did substitute the physician’s office for the ER, but there wasn’t enough of that to offset the increase in ER use,” said Katherine Baicker, an economist at the Harvard School of Public Health, a … principal investigator of the project. She said the data from all their research to date suggest that extending Medicaid to the uninsured increases health-care costs between 25% and 35% per person.

One still can argue that expanding Medicaid in Virginia  is fiscally prudent, even if total health care spending goes up, because the federal government will pay 100% of the added expense for four years and 90% after that. But it will be impossible to maintain, as some did, that overall costs will go down.

It was unclear from the WSJ reporting of the study what impact a statewide expansion of Medicaid in Virginia might have on the state’s health care system. However, based on the Oregon experience, it seems reasonable to conclude that adding an estimated 200,000 patients to Medicaid in Virginia would create a surge in demand for hospital ER services. On the positive side, hospitals would get reimbursed for those services; typically, they write off much of the cost of care for the near-poor targeted by Medicaid expansion. On the downside, ERs could become overloaded and the quality of service could deteriorate for all ER patients.


Expand Free Clinics, Not Medicaid

Meadowview Health Clinic

Meadowview Health Clinic

by James A. Bacon

So, what’s the alternative to expanding Virginia’s Medicaid program? Let an estimated 400,000 Virginians continue without health insurance? That option was workable in the past because the federal government gave financial aid to hospitals to help offset some of the cost of providing health care to indigent patients. But the Affordable Care Act (Obamacare) is cutting that aid on the grounds that, between Medicaid expansion and the new health exchanges, most people will have health insurance now. Thus, a decision by the General Assembly to reject Medicaid expansion would force Virginia hospitals either to stop treating uninsured patients or to eat tens of millions of dollars in unpaid bills (some $100 million just for the University of Virginia and Virginia Commonwealth University health centers) every year. 

Del. Bob Marshall, R-Manassas, has proposed strengthening the non-governmental safety net instead. His idea is far from a complete solution — it can’t possibly make up the loss of hundreds of millions of dollars in federal Medicaid payments. But the proposal would put into place an important piece of a broader, market-based health system.

Marshall’s alternative to expanding Medicaid is to expand the network of free health clinics across Virginia by encouraging physicians and nurses to donate more of their time. His House Bill 39, co-patroned by Del. Patrick Hope, D-Arlington, would exempt voluntary health providers from civil damages for any injury or death resulting from volunteer treatment (excepting in cases of gross negligence or willful misconduct), and would have the Attorney General’s office represent volunteers if such immunity were challenged.

Marshall envisions churches, neighborhood groups and hospitals setting up neighborhood primary care centers staffed with volunteer labor. As it stands, Virginia already self-insures 3,400 physicians for care they provide in free clinics. No lawsuits are pending against free clinic care.

One could argue that free clinics staffed by volunteer labor cannot possibly provide the scope of coverage of an expanded Medicaid program. But, as Marshall observed in a recent Times-Dispatch op-ed, Medicaid has significant problems of its own. Medicaid pays less than Medicare or private insurance, and there are concerns that many Medicaid patients will have difficulty finding a doctor. Indeed, the reimbursement for Medicaid services is so low and the paperwork cost of complying with the program is so high that some doctors may conclude that it’s preferable to treat the indigent in free clinics.

Marshall’s idea would strengthen the primary care network for the indigent but it is not a comprehensive solution. There is no guarantee that doctors and nurses will volunteer in sufficient numbers to provide care to 400,000 patients — even assuming the free clinics had the capacity to handle such a number. And his bill would not cover the cost of providing tests, medication and procedures best performed in a surgical facility, much less a procedure requiring intensive care.

HB 39 is best seen as a small part of a larger package of state- and federal-level, market-based reforms that decouple health insurance from employment, create price and quality transparency, spur innovative treatment models and promote hospital competition and productivity.

Game Changer for Medicaid Debate

William A. Hazel: bearer of bad tidings

William A. Hazel: bearer of bad tidings

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.

Medicaid Madness

State bean counters have revised their estimates for what it would cost to expand the state Medicaid program under the Patient Protection and Affordable Care Act. The good news is that Virginia actually would save money, thanks to federal reimbursements and other provisions in Obamacare, through 2019. And when it does start costing the state, Virginia will lose only $1.1 billion over 10 years — half an earlier estimate and a modest sum for a budget that could exceed $500 billion over that period.

Moreover, Uncle Sam would cough up an extra $23 billion over that period, injecting billions of dollars into Virginia’s health care sector and extending health coverage to 250,000 who didn’t have it before, reports the Times-Dispatch.

Bacon’s bottom line: The positive economic stimulus is a powerful argument in favor of expanding Medicaid — an argument, I predict, that will be hard to overcome. But there is good reason to question the deal proffered by Obamacare. How confident is Virginia that the federal government will be able to make good on its promises into the indefinite future? If Washington fails to deliver, what expectation will there be for state taxpayers to make up the difference and maintain the entitlement? Once granted, an entitlement is extremely difficult to take away.

My perspective stems from my appraisal of the budget negotiations in Washington. I regard them as a catastrophic farce. Without getting into the partisan blame game, a useless exercise as far as predicting what will happen, it is increasingly clear that Republicans and Democrats are negotiating on the margins. The future likely holds some combination of slightly higher taxes on the rich, modest defense cuts, incremental changes to entitlements and a cap on discretionary domestic spending, which won’t come close to closing the $1 trillion-year budget gap.

In the slow-growth economy that the United States is likely to encounter for the foreseeable future, deficits will continue to run close to $1 trillion a year indefinitely. The national debt will exceed $20 trillion in four years. America’s fiscal path is unsustainable. The only question is how long we can prolong the inevitable reckoning. Against the backdrop of Boomergeddon, the idea of expanding entitlements is certifiable, throw-them-into-the-loonie-bin madness.

If you accept this analysis, then you have to ask this question: Will Virginia be willing and able to take up the slack for a faltering federal government? Or will it pull out the rug from consumers and health care providers after the industry has restructured itself to accommodate an expanded Medicaid program? It’s a huge risk to take. Governor Bob McDonnell is certainly correct in driving a hard bargain with the federalistas — he is seeking waivers that would give the state more flexibility in the benefits it provides — before signing on to an expansion.