Hospitals say cut to Medicaid rate increase is bad omen for single-payer

State hospital officials say the Shumlin administration’s decision to rescind a slight increase in the Medicaid reimbursement rate doesn’t bode well for the governor’s signature single payer health care initiative.

Last week a legislative panel approved the retraction of a 1.6 percent increase in Medicaid rates for the first half of fiscal year 2015. The Shumlin administration needed to reduce spending for FY 2015 by $31 million, and the retraction combined with savings from the previous fiscal year’s Medicaid budget and other smaller sources enabled the governor to identify a total of $11.3 million in General Fund spending.

Level funding Medicaid slices $3.1 million out of the General Fund budget, but also means the state will relinquish $4 million in federal match money, for a total of $7.1 million reduction in provider payments.

The total $11.3 million in savings also includes vacancy and operational savings, a renegotiated radiology contract and the use of alternate federal funds, according to Jim Reardon, commissioner of the Department of Finance and Management.

Medicaid pays hospitals and doctors significantly less than Medicare and commercial insurance companies — between 50 percent and 63 percent of a provider costs. Estimates of Medicare payments range from 80 percent of cost to more than 100, but the median estimate is 92 percent, according to figures in a Green Mountain Care Board report.

The board calculated that the amount of costs shifted from Medicaid to commercial insurance has more than doubled in the six years from 2006 to 2012.

Gov. Peter Shumlin has attempted to shore up state funding for Medicaid, in an effort reduce the gap between public and private health care programs. In FY 2013, his administration increased reimbursements by 3 percent, and in FY 2014 it increased them by 2 percent.

Beatrice Grause

Beatrice Grause. File photo by Josh Larkin/VTDigger

Beatrice Grause, CEO of the Vermont Association of Hospitals and Health Systems, says providers banked on the additional money, and the retraction is symbolic. Hospital administrators worry that under a single payer system, health care expenditures would be subject to the political state budgeting process.

The cut for fiscal year 2015, Grause says, underscores the “potential risk to patients of investing more health care financing authority in state government.”

The state’s two largest hospitals, Fletcher Allen Health Care and Rutland Regional Medical Center, were counting on the 1.6 percent increase in Medicaid reimbursement rates, despite informal guidance from regulators that they should not budget based on the higher rate.

Tom Heubner, CEO of Rutland Regional Medical Center, said the reduction creates a $320,000 hole in the hospital’s $244 million budget that was submitted to the Green Mountain Care Board in July.

“There was some communication about that, but we did include it, because at that point it was in the (state’s) budget and we were counting on it,” Huebner said.

The cost will get shifted eventually to commercial carriers, he added.

Medicaid and Medicare have not been keeping pace with the inflationary increases in medical and pharmaceutical costs. As a result, patients with private insurance pick up the difference. Medicare rates are set federally, and are expected to increase by 1 percent this year.

The state’s 14 hospitals submitted historically low budget increases when they made their requests to the board last month. Together, the overall increase in hospital spending is 2.7 percent, or $57 million. The Green Mountain Care Board will vote to approve or change those budgets in September.

Al Gobeille, chairman of the Green Mountain Care Board. Photo by Morgan True/VTDigger

Al Gobeille, chairman of the Green Mountain Care Board. Photo by Morgan True/VTDigger

Al Gobeille, chair of the Green Mountain Care Board, says leaders in Montpelier tend to see the Medicaid rate in the context of the $31 million General Fund revenue gap and don’t seem to grasp the broader impact of low Medicaid reimbursement rates on the health care system.

The board and other stakeholders must do a better job explaining to elected leaders how the cut affects commercial rates as well as many of the social service nonprofits the state relies on to flesh out its system of care, he said.

“It’s not thought of as funding health care for all, it’s thought of as an incremental increase for a program,” Gobeille said.

The cuts have an even deeper impact on nonprofit organizations that rely heavily on grants through Vermont’s global commitment Medicaid waiver. The waiver gives Vermont discretion in how Medicaid money is spent.

When nonprofit mental health programs lose money and drop services, patients don’t get the preventive care they need. The larger health care system also suffers because more patients seek costly emergency room care.

The Green Mountain Care Board is trying to reduce large inflationary increases in medical expenditures by tying hospital compensation to health outcomes and greater efficiency, but in order to stay competitive, Vermont’s health care system must have a reliable cash flow, hospital officials say.

John Brumsted, CEO of Fletcher Allen Partners, wonders how a single payer system will fare in the context of other public priorities such as higher education and transportation.

“It is, in my view, difficult to see a publicly financed system where there isn’t so much pressure on the flow of money into the system that it becomes increasingly more difficult to provide care,” Brumsted told VTDigger recently.

Secretary Lawrence Miller testifies in front of the House Appropriations Committee Tuesday. Photo by Alicia Freese/VTDigger

Secretary Lawrence Miller testifies in front of the House Appropriations Committee. File photo by Alicia Freese/VTDigger

Lawrence Miller, chief of Health Care Reform for the Shumlin administration, said he believes the Legislature has the discipline to fund health care responsibly as the single – or largest – payer.

It will help that the program will have a dedicated revenue source, Miller said. When the administration unveils its financing plan, the taxes that will be levied to come up with that money – pegged at roughly $2 billion in the first year – will likely go into a dedicated fund, similar to the Education Fund.

Other state officials have pointed out that the program also requires three-year budgets, which they say will help with fiscal discipline.

Miller said designing a thoughtful governance structure for a single-payer program is critical, but the focus must remain on cutting costs via payment and delivery reforms.

CORRECTION: An earlier version of this story misstated the amount and source of state savings related to a reduction in the Medicaid rate increase and related savings associated with the state’s Medicaid waivers.

Morgan TrueMorgan True

Comments

  1. Wendy wilton :

    If the Shumlin administration and the legislature can’t adequately fund Medicaid they will not adequately fund a single payer plan. I have continually asked the financial question: please show me that Green Mountain Care can work fiscally.

    One of the hospital CEO’s asked me a very good question when I first introduced my financial projection of single payer. He asked: “Where does the (Medicaid) cost shift go?”. It is a question that should haunt every legislator and the concerned voter should be asking that question of every candidate. If they can’t answer it, they are not qualified to represent you.

    A single payer plan, as conceived under Act 48, will be a Medicaid-like plan, funded by high taxes, for everyone except those covered by federal insurance (including our two US senators and our congressman). How crazy is this concept–our leading federal politicians who are supporting Shumlin’s plan won’t have to use it or pay for it! And…they will be able to seek health care out of state!

    Maybe we should all run for congress…it’s a great gig!

    • John McClaughry :

      Wendy puts her finger right on the problem. Medicaid is supported by what is in effect a tax on private insurance premiums. Get rid of the insurance companies via single payer, from what or whom will the GMC Board extract the needed money to pay for GMC?

      • Jamie Carter :

        Well one place it would come from is the write off from residents that do not have insurance. FAHC claims $8 million in write offs.

        And more importantly,

        Why exactly does their have to be a medicaid shift? So doctors can continue to bring in $400,00 / year? So they can make $51M land purchases? So they can hand out $750,000 golden parachutes to convicted felons? FAHC may be a non-profit, but that only means they need to spend every dime they get and in no way reflects how much they actually NEED to provide the services they do.

        Medicaid shift is a red herring for hospital admins to haul in more and more cash under the guise they aren’t getting paid enough.

  2. Keith Stern :

    A glimpse of what is to come if Shumlin and his minions get their way and enact single payer. The theory is great but the reality is a completely different story.

    • Walter Carpenter :

      “A glimpse of what is to come if Shumlin and his minions get their way and enact single payer.”

      And what would be coming if we had just stayed with our broken health system in the days before Act 48? This would be nickel-and-dime stuff compared to the problems we would have seen if we had just not done anything.

      • Glenn Thompson :

        Walter Carpenter,

        “And what would be coming if we had just stayed with our broken health system in the days before Act 48?”

        Our healthcare system wasn’t at all broken until the government stuck it’s nose into it and broke it! It will only get worst, if Vermont continues forward with this Single Payer fiasco! Bottom line Walter, Vermont does not have the “economic horsepower’ to make it work!

      • Keith Stern :

        Walter I’ve described Mark Donka’s plan many times now and I know if a Democrat proposed it you would be all for it. It does beg the question; why don’t the Democrats support it? It is simple, more cost effective, and just plain effective. So why don’t they support it? It doesn’t accomplish the goal of a government takeover of healthcare.
        Simply put, eliminate the exchanges and subsidized policies. Instead the government pays medical bills beyond a certain amount which is determined by income. That creates inexpensive policies that eliminates the high deductibles.

      • David Dempsey :

        Walter,
        Please refer to my reply to your comment on the August 18th article about Correns kickoff.

  3. paul lutz :

    What do we know about the all powerful Green Mountain Care board? A group of non-elected officials that will decide the fate of all our healthcare if the far loony left has there way.

    Better get real healthy folks.

    • More than we know about health insurance boards…What do we know about them? How many of us know who they are? How many health insurance boards have open, public meetings like the Green Mountain Care Board?

      • John McClaughry :

        How many insurance company boards have the power to coerce and confiscate from the people of the state?

      • Carl Werth :

        That is very true, Jerry, we do not know much about health insurance boards either – however, as someone who favors single payer in Vermont – do you have no problem going from one mystery board to another? Along with mystery financing as well? Are you comepletely convinced that we don’t need a back up plan if single payer would break us all financially? Or, are you “go for it” no matter what?

        • Carl Werth :

          Sorry for all the typos in my last comment.

      • paul lutz :

        Jerry, as John pointed out; one system gives you a choice, single payer gives you no choice.

        What does freedom really mean?

        If I live off the grid on my own land and never see a doctor, how can the goverment force me to buy insurnace?

        • John Greenberg :

          Paul Lutz,
          What happens when you DO “see a doctor,” have no insurance, and can’t pay for it?

    • Walter Carpenter :

      “A group of non-elected officials that will decide the fate of all our healthcare if the far loony left has there way.”

      Since the GMCB has come into being, how much has healthcare spending come down (excluding the ACA) and exactly how much have they actually regulated your personal health care?

      • Keith Stern :

        As long as you brought it up what are the numbers?

  4. Kathy Callaghan :

    “potential risk to patients of investing more health care financing authority in state government.”

    Thank you, Bea, for articulating what so many others are thinking and worried about.

  5. Ellen Oxfeld :

    My understanding is that single payer reimbursement rates will be based on 105% OF Medicare. This will mean the whole issue of cost-shifting to private insurers because of low Medicaid reimbursement will be moot.

    However disappointing this reversal in a planned Medicaid rate increase is to the hospitals, they actually will not have to engage in this elaborate cost-shifting once we move to an all-payer rate system.

    I realize that private insurers now pay more than Medicare, but one rate for all (at 105% of Medicare) will also bring the rates way up for many patients now on Medicaid. And, it will create administrative simplicity.

    • Keith Stern :

      That is the way government does projections. The reality I’m sure will be a different story. We just saw that an increase in Medicaid reimbursements was wiped out. What makes you think that won’t be the case consistantly? Where is the money coming from?

    • Wendy wilton :

      Ellen, with all due respect, your ignorance on this issue as a legislator is downright shocking.

      Single payer will not make the cost shift disappear. Please re-read my comment above and think about knowing that 30% of Vermonters are covered by Medicaid and we are rapidly approaching similar numbers for Medicare. Read the UMass report in it’s entirety.

      If after you do these things you still cannot explain to your constituents where the ‘cost shift will go’ then you are not prepared nor able to make a sound decision on these important financial issues facing the state.

  6. Paul Dame :

    I’m glad to see VTDigger has finally brought to light one of the reasons we’ve seen private health insurance rates increase – because of Medicare & Medicaid underpaying. When costs go up 3%, but Medicare & Medicaid only increase reimbursements at 1% that means private insurance goes up the 3% of inflation, but then it also has to account for the 2% that the government programs didn’t pick up. If the number of patients is the same size, then private insurance has to go up 5%. But if fewer people are in the private pool the higher that rate goes up.

    People always complain about subsidizing the ER patients that have no insurance. The bigger problem are the people who are fully insured by a government program that underpays – leaving private insurance holding the bill.

    • paul lutz :

      I wonder how those thousands of illegal immigrants and their families fit into this?

  7. Michael Bayer :

    It is unfortunate that we have to get to the end of the story before the real issue is raised. Single Payer will have a dedicated source of funds, it will not be subject to the whims of the Legislature when it comes to balancing the general budget.
    Of course Single Payer will also rely on the legislature making up any deficits provided by the specific source, because you cannot continue to decide to play around with whether or not the healthcare of Vermonters is taken care of.
    Until then, we are stuck with a Governor and Legislator who will not raise taxes anf end loop holes of the wealthy and corporations and only manage budgets by cutting services to those most vulnerable.

  8. Ron Pulcer :

    Regarding: “Level funding Medicaid slices $3 million out of the General Fund budget, but also means the state will relinquish $4.1 million in federal match money, for a total of $7.1 million reduction in provider payments.”

    A Legislative panel made this decision, but it would seem that it needs support or signature from the Governor.

    On that note, much of the VT Health Connect (healthcare exchange) relied on Federal money. In addition, the Single Payer path is supposed to rely on Federal funds, plus a federal waiver for PP-ACA law (now postponed until 2017, since no early waivers were allowed).

    Given the federal dollars overspent on healthcare exchange, it is ironic that the State of Vermont would now leave federal dollars “on the table”. While it makes the VT State budget balance, it is affecting the hospitals’ budgets! The very same hospitals that will be running under a Single Payer model. Full disclosure: a family member works at Rutland Regional Medical Center, one of the affected hospitals.

    Strike 1: Not presenting healthcare finance plan according to Act 48.

    Strike 2: Overspending on healthcare exchange, that is still not fully functional.

    Strike 3: Reneging on promised State Medicaid reimbursements to hospitals.

    Will Governor Shumlin donate the remainder of his campaign war chest (after November) to Rutland Regional and other VT hospitals, to make up for this Medicaid reimbursement shortfall?

    http://vtdigger.org/2014/08/19/scott-shumlin-reel-business-bucks/

    Note: While I support the concept of universal healthcare access for all Vermonters (i.e. Single Payer), I am thoroughly disappointed with the Governor’s performance so far in his steps towards his stated goal.

  9. Tips for ensuring quality encounter data submission in Medicaid managed care. http://www.healthcaretownhall.com/#sthash.ZUw2P9Qg.dpbs

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