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HealthLeaders

By Rene Letourneau, for HealthLeaders

The Patient Protection and Affordable Care Act is designed, in part, to provide more patients with health insurance through expanded Medicaid eligibility and the introduction of government-run health insurance exchanges that will allow low-income individuals to purchase medical coverage at a subsidized rate.

The goals include improving access to care for this segment of the population and reducing the amount of uncompensated care provided by the nation's hospitals. While this sounds good on paper, many hospital finance administrators are not convinced that the PPACA will benefit providers and are instead bracing to take a hit to the revenue cycle.

Tim Nguyen, corporate controller at Palomar Health, a San Diego–based system with 690 licensed acute care hospital beds and $2.5 billion in gross annual revenue, says there is a catch-22 built into the healthcare legislation that will ultimately hurt providers.

"With the Affordable Care Act coming out, more people are going to qualify to go to the exchanges. In the past, most of that would have been bad debt, and we would have to write it off and that hurts [us]. So, yes, this could potentially reduce our bad debt. But here's the catch: The exchanges will have different tiers with different deductibles and copays," he says.

California's health exchanges will have four tiers when the program goes live in January 2014, Nguyen explains: platinum (where the patient pays 10% of total healthcare expenses); gold (20%); silver (30%); and bronze (40%).

"These patients will still be responsible to pay, and they probably don't make that much money and are likely to choose the silver or bronze tier to keep the premiums low. … That will increase our bad debt even though they have insurance."

Additionally, the federal government will subsidize insurance purchased through the exchanges with consumer tax credits—something Nguyen says will be bad for providers. "They are going to reduce reimbursements to pay for the program. What they did on the front end, they will take back on the back end. When you put all these things together, you come out negative," he says.

Perhaps the biggest challenge, Nguyen says, is the uncertainty surrounding the health insurance exchanges and how they will operate once they are up and running. "You can do analytics all day long, but the state and federal governments are still learning how to run it. Nobody knows. Right now it is all speculation. But you can't just sit there and wait; you have to try to anticipate what is going to happen because there are concerns like cash flow and budgets. … The scary part is we don't really know. There are a lot of challenges here," he says.

One strategy Palomar is employing to meet these challenges is to increase its level of automation. Nguyen says his budget for the next fiscal year includes funds to buy software that will allow the health system to automate the processes of determining whether patients are eligible for insurance through the exchanges, getting authorizations before procedures are performed to make sure the health plan will consider it medically necessary, and estimating patient deductibles and copays.

"Our team has to be really tight on determining eligibility and authorizations for these people who were previously uninsured but who are now able to buy insurance through the exchange. … Even with the software, it will still be a hybrid model. Staff will still play a role, but it will make their job a lot less complex and less confusing. The software can be loaded with all the health exchange tier details. Without that, the process would be more inefficient and time intensive."

Marlene Zurack, senior vice president of finance and chief financial officer for New York City Health and Hospitals Corporation, a municipal integrated healthcare delivery system with $7.1 billion in total operating revenue when combined with HHC's MetroPlus health plan, is also doubtful that the insurance exchanges will result in a net benefit to her organization.

HHC currently serves 1.4 million people per year, 475,000 of whom are uninsured. "We are not sure whether our uninsured patients are going to be able to participate in the exchanges," Zurack says. "There are a lot of requirements that they might not be able to meet, and, also, there is the cost sharing."

Regardless of how many more patients obtain insurance coverage, HHC is likely to lose revenue in the end, Zurack says, due to cuts being made to Medicaid's Disproportionate Share Hospital program, which distributes payments to qualifying hospitals that serve a large number of uninsured individuals.

According to the Centers for Medicare & Medicaid Services, the PPACA aims to reduce funding to the Medicaid DSH program by $17.1 billion between 2014 and 2020. The planned reductions are based on the assumption that the PPACA will result in more insurance coverage for low-income patients and, therefore, less uncompensated care. In reality, Zurack says, the cuts will be extremely damaging to hospitals that serve this population.

HHC is preparing for hundreds of millions of dollars in cuts to the revenue it presently receives through the DSH program. "Those were the cuts that were enacted as part of the Affordable Care Act to pay for the expansion. We are concerned that the new revenue potential for the exchanges will be lower than the disproportionate care cuts," Zurack says.

In the current fiscal year, HHC will receive $818 million in disproportionate share funding. That number is slated to be reduced by $150 million by FY 2017, and more cuts are on the way in subsequent years. "The federal dollar loss will be as much as $300 million by FY 2019," Zurack says. "It's the cuts to disproportionate share funding that are really, really hurting us. Because of that, there is no net benefit to us."

HHC is trying to offset the hit it will take to its DSH funding by attempting to enroll more patients into its MetroPlus health plan. "The health plan is going to participate in the exchanges. They are trying to make lemonade out of lemons and trying to get as many people as possible insured through our health plan. "Our MetroPlus health plan is applying for every product available on the New York state exchange. We are hoping to have a competitive product that our patients will join," Zurack says.

Zurack notes that HHC is also working with other payers to position itself well for the changes it anticipates with the PPACA. "We are trying to be strategic in our contracts with insurance companies … to get favorable rates so we can afford to care for all of the newly insured. … We are actively engaged with all of our payers with lots of conversations. This all mostly takes effect in 2014, which is not that far away, but we are trying to prepare."

Stephen Forney, vice president and chief financial officer at Lovelace Health System, a 606-licensed-bed integrated delivery network with a 210,000-member health plan based in Albuquerque, N.M., says one major concern he has about the PPACA is that patients who become insured through the exchanges may not have a full understanding of their liability because most will be moving off of state-run insurance initiatives that generally have no or low premiums and copays.

"These initiatives are going to be subsumed by the exchanges, and the new products are going to have significant patient liability and premiums. That is going to be a bit of a sticker shock for those individuals who have not been used to that in the past," Forney says.

This patient population, which has traditionally sought care through the emergency department, "is going to access care in nonacute settings in a fuller fashion," Forney says. "When the doctor refers them to the hospital for a CAT scan or a procedure, they probably won't have the ability to pay for that out of pocket. It will diminish some uncompensated care in the ER and shift it to other sites. … In a sense, what you are going to do is encourage utilization in nonacute sites by patients who can't pay the patient liability portion."

To minimize the impact to the revenue cycle, Forney says Lovelace is preparing to work with these patients to teach them about exchange products and help them know what to expect. "We are trying to anticipate what it will mean to the revenue cycle and how we can best integrate those individuals. … We'll be doing a lot of education with this newly insured population so that they understand how their products work and what it means to them before they get to our door so people can adjust and adapt."

Lovelace plans to educate patients about healthcare exchange products through an outreach campaign that will include printed materials, website postings, advertisements, and educational seminars.

When the Supreme Court ruled on the constitutionality of the PPACA in June 2012, it gave states the right to decide against expanding their Medicaid programs. To encourage states to cover more individuals through Medicaid, the federal government is covering 100% of the cost for newly eligible beneficiaries for the first three years, then gradually decreasing to 90% in 2020 and thereafter. Even with this inducement, some states have opted out.

In Texas, Republican Gov. Rick Perry has been a steadfast opponent of the PPACA—which he has referred to as an "Obamacare power grab"—and to the expansion of Medicaid in his state.
H. Jeffrey Brownawell, chief revenue officer at Memorial Hermann Health System, a Houston-based provider with 3,508 beds, isn't surprised by the governor's stance. "I think there is some good conversation going on, and people understand how much money we are talking about. But I think there is a fundamental political issue as far as the expansion of Medicaid and what it would do to the state," he says.

Brownawell says he is not convinced that the health insurance exchanges—the federal government will operate exchanges in states that choose not to implement them—will increase the number of insured people in Memorial Hermann's service area because the fine for not purchasing insurance may not be expensive enough to motivate people to spend the money for coverage.

Although anyone who does not receive health insurance through an employer or government program is required under the individual mandate provision of the PPACA to purchase it, the penalties for not doing so are widely considered to be too small and toothless to force compliance.
"Hopefully, there will be more people who decide to be insured versus taking the penalty, but the penalty may just not be enough to cause people to jump in and add health insurance because of their out-of-pocket expense," Brownawell says.

Memorial Hermann's leadership team is currently working to establish its strategy with regard to the exchanges but does not anticipate much improvement to its level of bad debt, Brownawell says. "We are having a lot of discussions right now about where and how we want to position ourselves with the health exchanges. … We are not looking at a big reduction in our bad debt and self-pay patients because Texas is not expanding Medicaid."

While Brownawell is not expecting to see a decrease in bad debt once the exchanges roll out, he is also not anticipating an increase. "Houston is a very uninsured city. Our uninsured rate is about 30% to 33%. We are not expecting to see more bad debt," he says.

Like Nguyen at Palomar Health, Brownawell believes one of the biggest challenges with healthcare reform is the uncertainty that surrounds it. "It will be very interesting over the next five years to see how it all plays out with the ACA and that transformation—to see [what happens] with health exchanges and whether states decide to expand Medicaid with the federal government. There are still a lot of things to be determined and issue to be resolved."

Stephen Forney, Lovelace Health System VP and CFO

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