Too Early to Predict Impact of Medicaid Expansion on Carilion

Carilion Roanoke Memorial Hospital, flagship of the Carilion fleet.

Information continues to dribble out about the impact of Medicaid expansion on Virginia hospitals, although there still seems to be no consensus on whether or not the costs of a hospital “assessment” will be passed on to privately insured patients. The uncertainty reinforces the impression that Governor Ralph Northam and GOP lawmakers bought a proverbial “pig in the poke” when they agreed to enlarge Virginia’s largest entitlement program.

The latest evidence on the hidden cost of Medicaid expansion comes from Don Halliwell, chief financial officer of Carilion Clinic, the health system serving much of western Virginia. Halliwell tells the Roanoke Times that the health system will pay about $27.5 million a year once expansion is fully underway, but he cannot tell how much the system will reap in return.

“It is a victory for our communities and a victory for our patients, but boy, it’s complicated,” Halliwill said. “We know the direction and what has been stated as the intentions. But how it will play out we just don’t know.”

Left unaddressed in the article is the question of how much Virginia will need to spend to raise Medicaid reimbursements to physicians — an issue that was deferred by this year’s legislation. Reimbursement rates of about 71% of cost are so low that many primary care doctors refuse to accept money-losing Medicaid patients. There is a growing awareness that expanding Medicaid coverage to Virginia’s near-poor population is meaningless if patients can’t find doctors to treat them.

Luanne Rife does not address that issue, but her article in the Times otherwise does the best job I’ve seen yet of exploring the financial implications of Medicaid expansion at the provider level.

If everyone who will soon qualify for Medicaid signs up, Carilion will gain at least 17,000 paying patients in its core service area and a share of another 17,000 people living in outlying areas.

Most of these patients are now what Carilion calls “self pay.” Last year, this group represented about 6 percent, or $255 million, of Carilion’s charges for inpatient and outpatient services. Much of it is written off.

In the first year of Medicaid expansion, the hospital assessment on all acute care hospitals (with the exceptions of the University of Virginia, Virginia Commonwealth University and the Childrens Hospital of the King’s Daughters) will pay an assessment of 1.1% on net patient revenue, or an estimated $190 million statewide. In the second fiscal year the tax will increase to 2.3%. In exchange, states the Times article, the state will boost reimbursements for Medicaid services from 70% of hospital costs to 88%.

With higher reimbursements and thousands more paying patients, budget makers figured that after assessments, hospitals across the state would net $263 million the first year and $617 million in the second full year of expansion.

Hospitals with few Medicaid patients might pay more than they gain, and there is speculation they will pass along their losses to commercial insurance payers.

What does that mean for Carilion? Halliwell isn’t sure. “I can only speak for myself, but I don’t see a way where we would be in a position where our assessment would be greater than the benefit,” he said. “If your assessment was greater than the benefit then you would have excess costs. A system would have to figure out a way to pay for it. I wouldn’t speak for them, but it could be passed on.”

Bacon’s bottom line: The politicians don’t know what the impact will be. The hospitals don’t know. Nobody knows. All anyone can say is that in the aggregate, more Medicaid money will flow into hospitals as will flow out. While hospital lobbyists engineered what looks like a political deal for their industry, the hospitals themselves have not figured out how the money flows will work internally. One thing you can bet on, more money will mean bigger hospital profits — including those of the so-called nonprofit hospitals.

Here are some benchmark figures for the Carilion Medical Center, the flagship operations in Roanoke, to monitor in the years ahead as Medicaid expansion unfolds (2016 figures):

Charity care — $142 million
Bad debt — $71 million
Net patient revenue — $1,174 million
Operating income –$66 million
“Surplus” (profit) including non-operating gains — $100 million

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15 responses to “Too Early to Predict Impact of Medicaid Expansion on Carilion”

  1. djrippert Avatar

    Too early to predict the impact of free crack pipe and first month of cut rate crack sales to addict.

    The real issue will be when the Feds stop paying and the General Assembly has to decide whether the state will pick up the slack or end the program.

    1. LarrytheG Avatar

      The Medicaid Expansion is funded from earmarked taxes – not general fund. And yes.. money IS fungible but in order to take the funding away – the taxes that generate the funding would have to be removed – like you would de-fund Social Security of Medicare Part A.

      I’ll admit that given the current politics – that could happen – and if I recall correctly, the GA actually DID make provisions but I suspect once the public
      got wind of such a plan – there would be political peril for those who would vote to de-fund , just as we have seen in Virginia – the impact of voters concerned about health care.

      No one knows the exact impact of the expansion in Virginia, that’s true but we do have a pretty good idea of how it has worked in other states despite the boogeyman-stoked “fears” like .. “will doctors treat Medicaid folks for less money”… they will , they have.. and in doing so , they find more cost-efficient ways to treat that population – like managed care.

      Now if folks actually want something real to really worry about – word is that the Trump Administration will do away with the rule that requires insurers to cover those with pre-existing conditions with Obamacare. That’s the same rule, by the way, that requires private employer-provided insurers to also do. Be interesting to see if they only deny those on Obamacare from that benefit or apply it across the board to all insurers .. regardless of whether it’s Obamacare or Employer-provided.

    2. “When the feds stop paying” is a “real issue” all right. Indeed it could happen, given current revenue-cutting priorities in Congress. Hopefully, long before then we will see some attention to bringing our extraordinarily-high health care costs per capita more in line with other developed countries. Medicare and Medicaid are NOT an appropriate end-state!

      What’s appalling is that 50 years after these programs were enacted, the only significant change (brought about by a Republican) has been to expand those benefits to cover prescription drugs. What about all the opacity in our health care system, the cross subsidies, the incentive to boost numbers of procedures, the lack of incentive to improve quality of results? Denying health coverage entirely to the neediest portion of Virginians is hardly the way to protect Virginia against possiblefederal fiscal irresponsibility.

      1. djrippert Avatar

        I agree with that. Providing a broad base of health insurance is a good step but maybe 20% of the problem. The other 80% is containing the rapidly escalating costs of healthcare.

      2. LarrytheG Avatar

        re: ” Medicare and Medicaid are NOT an appropriate end-state!”

        I cannot agree. I would be fine with something BETTER than Medicare – replacing it… but the truth is that if there was no Medicare – and no Govt rule that elders had to be accepted by insurance companies AND for an affordable price – most elders would be in dire financial straights trying to find affordable insurance that did cover their health care needs.

        The simple truth is that every other industrialized country on the planet – not only has “Medicare for all” but they also cover prescription drugs – and all those other country pay 1/2 what we do for health care – and they all live longer.

        If we can do better than that – we should – but I’ve yet to see anyone with a better plan. Most of the GOP believe that if you don’t have employer-provided health care – then you’re on your own. Just die quick so you don’t cost too much money!

        When it comes to health care in this country – we’re all talk and no do… we’ve got “lots” of “ideas” on how to fix it but almost all those ideas are just financial or moral lunacy.

        When we ALL start paying taxes for health care – then our system will start to perform more like the other countries that tax everyone … pay 1/2 what we do.. and live longer.

        We’ve just taken a gigantic stupid pill.. and refuse to admit it.

        1. Larry, we are in violent agreement. It’s that thing you call “BETTER than Medicare” that I’m holding out for. In this country we have been focused solely on who gets covered (thanks to the GOP’s damnable infatuation with repealing Obamacare without a replacement), to the exclusion of how all that health care money gets spent. All I’m saying is, if we can just move on beyond the politics of “Medicaid expansion” and actually look at improving the way payments are made under Medicare and Medicaid, how doctors and hospitals are incentivized, there is huge room for improvement. To paraphrase, our health care system should “perform more like [it does in] the other [developed] countries that tax everyone … pay 1/2 what we do.. and live longer.” DJR says cost containment is 80% of the problem and I believe it.

          That said, insurance coverage is still under attack. We have to resist the indirect attacks being made on Obamacare to try to wreck it. The phase-out of penalties for not participating in the State coverage pools is totally counterproductive in my view. The attack currently underway on the “pre-existing condition” clause would be equally so, if enacted. Insurance is based on the pooling of risks to achieve equal coverage at an equal rate for all in the pool despite their unequal health experiences. An insurance pool cann0t be optional because nobody who is healthier than the pool average will choose to stay in it. And if the government’s program substitutes a form of lottery (did this condition “pre-exist” or not?) for full coverage of health care, then we throw everyone back into the “supplemental insurance” game which only those with private resources can afford to play.

  2. Steve Haner Avatar
    Steve Haner

    I just did a little math for a presentation that I am preparing (and probably a future post.) If you compare the budget bill just passed and signed with its counterpart in 2016 the overall state budget grew 12.5 percent, and the non-general fund portion (the growing federal Medicaid funds plus I think those new special hospital taxes) is up more than 17 percent. Not bad for one biennial budget! The higher state college tuition rates also flow through the NGF, but the largest jump has to be Medicaid.

  3. TooManyTaxes Avatar

    Did anyone read Senator Bernie Sanders’ fairly recent remarks about the nature and level of financial pain that will occur if and when the United States were to transition to Single-Payer. Here’s one link.

    While I don’t agree with the Senator on many issues, I do admire him for being candid in saying a whole lot of people employed in heath care wouldn’t be if we scrapped our current system for his preferred “Medicare for All.” And, of course, Medicaid for all means lower reimbursements than the health care industry gets today. Personally, I think it would be hard to prevent a transformation to a national health service, where the employees make federal wages. Perhaps, with some non-covered private care that would be heavily taxed to prevent private care from growing.

    We cannot move to lower levels of health care spending without major reductions in health care spending, health care wages and jobs and health care choices. Is that what people want?

  4. Steve Haner Avatar
    Steve Haner

    We spend all our time talking about health care and spend so little time discussing health promotion, wellness, prevention. What did I see a story about recently, Botox shots in the armpits to reduce perspiration, and young people getting Botox as a protection against future wrinkles? Then there is the unmentionable (warning: third rail) problem of end-of-life spending, the massive sums spent to briefly delay the inevitable (and extend the suffering.) We have met the enemy and it is us. Compare what we spend on health care to what we spend (as a country) on the poisons we inhale, inject, ingest. Even Alzheimer’s is now recognized as Type 3 diabetes. All the incentives are screwed up.

  5. LarrytheG Avatar

    re: ” We cannot move to lower levels of health care spending without major reductions in health care spending, health care wages and jobs and health care choices. Is that what people want?”

    Well.. those other countries are living proof that you can. Our problem is that we refuse to deal with those realities and continue to pretend that we can go back to a 1940’s style health care system that was “good” … in no small part, because when you got older – you were going to die pretty quick from something because you could not afford to pay for that treatment.

    We have had the same situation with others – young people and those who do not have employer-provided – they end up with gallon jars in 7-11 begging for folks to help pay for their medical costs – even as those with employer-provided actually do get their expenses paid for – because the law denies the insurance companies from not covering you – as long as you are employer-provided.

    we have a screwed up, totally discriminatory system where those with employer-provided get their expenses paid – because the law requires it but those without employer-provided cannot get insurance because the insurance companies who sell to them – are not required by law to cover them.

    Instead – those folks get “covered” when they go to the hospitals and the hospitals provide the care – and charge those who do have insurance to pay for it.

    We know this but we refuse to recognize it as the reality. Instead, we putz around pretending that there is some other answer and we’ve not yet found it but we are duty-bound to keep looking…

    it’s asinine…

    “single payer” is a total misnomer… it essentially means the “govt” is paying…but that’s NOT what other countries really do… Basically what it means is that insurance companies MUST accept you – for the same price as others… BUT – YOU PAY… the premiums… That’s the way it works in Switzerland, Singapore, Sweden.. and several dozen other countries. Great Britain is about the only truly govt-run single payer country.

    1. I wonder if Switzerland, Singapore and Sweden have populations with comparable levels of obesity, diabetes, heart disease, gunshot wounds, AIDS, other sexually transmitted diseases, hepatitis, premature births, and mental illness. I’m taking a wild chance here and guessing they don’t. I wonder how affordable their health systems would be if they did.

    2. TooManyTaxes Avatar

      Larry – you are ignoring the differences between the United States and the other nations you mention that have a national health system. It’s much easier to build a system from scratch. Earlier last century, we had pretty much a pay-as-you-go health care system around the world. You paid your doctor bill. Government ran some hospitals for the indigent. There was a doctor and a nurse or two. And many people never saw a doctor until they were on their death bed.

      In this type of system, taking either approach – the U.S. system of insurance, much of which was employer-paid (at least in part) with indigent care and many people not going to doctors or the national health system would be pretty easy to set up. No one really lost anything. And as I note many times, during WWII, the feds, wishing to give American workers something financially during a time of wage controls, said employer-provided health insurance would not be taxable. In the 75 years since, a helluva lot of people have vested interests in the status quo.

      Sanders’ point and mine is that to go to a situation where everyone is basically treated the same will screw a lot of people who are vested in the current system, including many people who work in health care. To do what you want to do means a lot of people will lose — be it better coverage from employers or well-paid jobs. You simply don’t seem to care. All must suffer for equality. Sounds like Animal Farm to me.

      1. djrippert Avatar

        Can’t see your point TMT. Creative disruption is a fact of life. Blacksmiths lost their livelihoods when horses gave way to motor vehicles. Travel agents lost their livelihoods when the internet became the travel broker of choice. A lot of USPS workers lost their jobs to e-mail, FedEx, etc.

        Yes, reforming the US healthcare system will be painful for those who work in healthcare. But bankrupting the country with forever escalating deficits will be even more painful.

        1. TooManyTaxes Avatar

          My point is to rebut what I believe Larry’s view is – covering everyone with the same basic plan and saving money (reducing US medical expenditures to levels comparable to other countries around the world) will be a good thing that all but the selfish should support.

          The type of changes advocated by Larry will also cause significant job losses as well as loss of higher-coverage benefits by many people. Those people negatively affected will oppose the type of changes supported by Larry. I don’t believe that there is both broad and deep support for the type of changes Larry wants to see. I don’t think the many people who will lose under Larry’s plans would simply go along. I don’t think that, when push comes to shove, there is sufficient support to make the type of cuts needed to treat every the same vis a vis health care coverage.

          Another issue mentioned by Steve is health care services are often elective in the United States. A good argument can be made that we should compare our medical costs to those of other nations by first subtracting the portion that is elective. It’s really no different than figuring out the cost of housing without considering the backyard swimming pools.

  6. […] Nobody knows how Virginia’s new Medicaid expansion and provider tax will work out; some hospitals will be net losers. Politicians bought a pig in a poke. […]

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