Tag Archives: Medicaid

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.