On March 7, Arkansas Governor Mike Beebe signed into law a renewal of the “Private Option” that pays private payers to insure the Medicaid population through June of 2015. In a woefully underinsured state—Arkansas tied for the sixth-highest uninsured rate in America 2011 to 2012—the law has the potential to halve the state’s uninsured population and provide a legitimate alternative to traditional Medicaid expansion in the nation at large.
The question is, at what cost to healthcare providers? Although the state hospital association supported the bill, there are looming concerns surrounding reimbursement rates in a state where the dominant provider, Blue Cross Blue Shield, controls 80% of the market. If the Private Option model becomes a national trend—and it’s looking increasingly likely that might, with Utah, Iowa, Ohio, Pennsylvania and New Hampshire all considering versions of the plan—the impact on Arkansas hospitals and community clinics will be an important case study for healthcare providers nationally.
What does the Private Option look like?
In April 2013, U.S. Health & Human Services announced that it would allow some states to use federal funds provided under the Affordable Care Act to privatize their Medicaid expansion programs. The provision is limited to those states that submitted a waiver and were approved; privatization is also required to be “budget-neutral.” It can’t cost the federal government any more than traditional Medicaid.
Arkansas signed the Private Option into law in April 2013 and coverage began in January of this year. As of early March, over 130,000 people at or below 138% of the poverty level have gained health care coverage through the Private Option. That number is expected to reach 250,000 by summer of next year.
Those 250,000 enrollees represent about 50% of Arkansas’ uninsured population, the crux of the pro-Private Option argument from the hospital perspective. According to Arkansas Hospital Association President and CEO Bo Ryall, the reduction in uncompensated care that will come from that 250,000 will make a dramatic difference to hospitals’ bottom lines.
“We project that the Private Option will be a plus of $200 million [for hospitals],” Ryall said.
Of course, Ryall notes, that doesn’t necessarily take hospitals out of the red. Ryall estimated that even with the Private Option, uncompensated care will tally up to $400 million in 2014. He also pointed to across-the-board Medicare payment reductions for hospitals under the ACA (in Arkansas, those cuts total $2 billion over the next 10 years, $263 million in 2014).
“You add those two together, you’re looking at losses of $663 million. We’re still going to be minus $463 million, but it would have been a lot worse if we hadn’t passed the Private Option,” Ryall said.
It may not be as simple as pure subtraction, however. The Private Option came before the House legislature five times before passing, with pundits (and some legislators) condemning the model as “Obamacare” (although its raison d’etre is to make Medicaid expansion more politically palatable in red states). But political concerns aside, the battle reflected legitimate doubts about the viability of the program. If critics are right and reimbursement rates are insufficient to keep hospitals and clinics afloat, Arkansas may be less a pilot program than a cautionary tale to other states.
How big is the impact on hospitals and clinics?
Blue Cross Blue Shield has already implemented a series of rate cuts that could sink some providers.
Mid-Delta Health Systems is a community health center in Clarendon that took center stage in a Politco Pro/Kaiser Health News feature last month. According to the story, since the Medicaid expansion began in January, Mid-Delta has taken a hit of $78 per office visit. The clinic gets $138 for a routine office visit from traditional Medicaid; for Private Option enrollees who are covered by Blue Cross and Blue Shield of Arkansas, they get $60. Although the speed of enrollment will certainly impact the clinic’s bottom line—about half of Mid-Delta’s patients are uninsured and reducing that number is a positive—the clinic will still continue to be responsible for sicker and poorer patients, and unlike private physicians, cannot limit the number of Medicaid or uninsured patients they treat.
It is no surprise that clinics have presented perhaps the biggest pushback against the program. Private insurers historically pay community centers significantly less than traditional Medicaid and public clinics (which are an important source of access for the uninsured) expressed concerns that private insurance rates would not cover their costs.
“Medicaid is our single largest payer and if that payment rate is destabilized, then we will start to see health centers close due to financial viability and solvency issues,” said Daniel Hawkins, senior vice president of the National Association of Community Health Centers.
Director of Arkansas Medicaid Andy Allison was, if not exactly dismissive of those concerns, emphatic that they are resolvable.
“I pushed back pretty strongly and asked whether the fact that [clinics] would be receiving payment for the uninsured would offset costs,” Allison said. “That started a process that we are still working through to calculate and project that impact on a clinic-by-clinic basis.”
Hospitals, who are much less reliant on Medicaid payouts, are less at risk than clinics of sinking under truncated private rates. As Ryall indicated, the windfall from the augmented market size is a cash flow they would otherwise not have. Ron Peterson, Baxter Regional Medical Center’s CEO, estimates that his hospital could see revenue of up to $3 million a year from the Private Option when utilization of the Arkansas Health Insurance Marketplace is maximized in the Twin Lakes Area.
Are the numbers changing?
While the impact of those payouts may be different on hospitals and clinics, unfortunately for both, they are playing a game in which the rules are likely to change at any time.
When the original waiver was submitted, legislators tried include a guarantee that reimbursement rates would hold at Medicare levels, the benchmark hospitals use to budget. The federal government declined to approve that requirement, for reasons probably political. With former seven-term congressman Vic Snider on the payroll as Corporate Medical Director for External Affairs, BCBS’ lobbying power is not to be underestimated.
What that means for providers is that, despite operating with funds derived directly from taxpayers, BCBS is at liberty set prices as exactly what they are: a for-profit company.
When the first so-called Blue Cross Blue Shield “Metallic” health plans came onto the market in January—plans available under the Private Option—BCBS established a reimbursement schedule that pays primary care and specialists two different percentages of the commercial fee schedule. BCBS pays primary care 100% of the commercial fee schedule for Evaluation and Management Coding (a billing process used in Medicaid and Medicare reimbursements), while specialists are paid 85%. For procedure codes, BCBS pays primary care 90% and specialists 75.
The fee schedule faced stiff opposition from the medical community and legislators alike. The disconnect, according to executive vice president of the Arkansas Medical Society, is illustrated by the “baby example.” Medicaid pays for about two-thirds of all the births in Arkansas, but even though not all primary care physicians deliver babies, an OB-GYN would receive 15% less for delivering the same baby, Wroten told Arkansas Business in December.
In reaction to the uproar, BCBS has changed its policy. For services rendered on or after July 1, 2014, primary care and specialists will be paid at the same rates. For E&M codes, BCBS will pay 90% across the board; for procedures, 80%. However, BCBS is under no obligation to maintain those rates. In fact, BCBS’ contracts with with providers only require that they give 90 days of notification of any rate adjustments. And given that they are responsible for 80% of the market share, market pressure is unlikely to push reimbursement rates up, either.
“There is no experience on this population, so in terms of what their healthcare needs are, what the costs are, what the utilization is, you have to understand that many of these individuals started receiving services, or having services available to them, starting January 1,” said Max Greenwood, spokesperson for BCBS, quietly indicating the company’s primary goal is to turn a profit, not prop up struggling clinics. (Although, as Greenwood noted, it is in their best interest for the Private Option to stay afloat.)
This kind of uncertainty has left Representative Joe Farrer mystified as to why hospitals would support the Private Option. Farrer voted no on March 4 and has been a vocal detractor of the program.
“We’re two months in, and they have already cut 10%,” Farrer said. “If [hospitals and clinics] have no guarantee that rates won’t dip below Medicare [rates], why support it?”
Farrer predicts that eventually commercial rates for Private Option enrollees will fall below Medicare rates. Hospitals and clinics, he stated, will start to lose money on the Private Option population. Combine that with Arkansas’ recent “episodic care” policy that at year-end pays savings shares for services performed at or below a state-determined “threshold” cost and assigns risk responsibility for services that cost above that point, Farrer and other legislators fear that private physicians will start “cherry-picking” patients and increase the burden on hospitals and clinics to care for the sickest patients—both Private Option enrollees and the uninsured.
Yet the Arkansas Hospital Association supported the Private Option. Bo Ryall called it a “tremendous positive” for Arkansas hospitals, writing off commercial insurance rate concerns as almost secondary.
“On the one hand, we’re definitely concerned about commercial insurance rates, but on the other hand, most of the people that are signing up for the Private Option were previously uninsured and we were getting close to zero on reimbursed care," Ryall said. "Now we’re getting Medicare rates and sometimes above, so overall, we consider it a positive.”
The Bigger Picture
If the Private Option meets its 250,000 mark, Arkansas will cut its uninsured population in half. The scope of other state proposals is similar: If the New Hampshire House does as expected and passes their proposal, 38,000 additional individuals would receive coverage through the state’s managed care program this summer—about a quarter of their 2011-2012 uninsured population. Iowa has already passed legislation that makes approximately 100,000 individuals newly-eligible, about a third of their 2011-2012 uninsured population.
So will that reduction in uninsured translate into a dip in uncompensated care for hospitals and clinics, and will that drop “make up” for the likely-to-be-reduced reimbursement rates? Maybe for hospitals, but for the far-more vulnerable clinics, that seems unlikely. Other states exploring the Private Option are also asking the federal government to allow them to install a safety net for hospitals and clinics by guaranteeing that rates will stay at or above Medicare levels (Pennsylvania’s Governor Tom Corbett recently submitted the state’s final application, which included a guarantee that centers keep their current rates and that health plans include them in their networks). Decisions are still pending, but if Arkansas is any example, it seems unlikely that these guarantees will be approved.
What seems more likely is that hospitals are taking a short-sighted approach that will provide them with a cash boon in the short run, without insisting on legislation that benefits providers in the long run. Even at full utilization, the Private Option can’t produce the same impact on hospitals’ bottom line as real cash from real customers—but of course, if those were available, there would be no need for Medicaid in the first place.
In the short term, at least, the impact is likely to vary from provider to provider, with clinics bearing the brunt of the cost. It’s likely to be six months or a year before any systemic data is available that other states can use to craft their own policies.
“Administrators know that one of the principal challenges of changing the way you pay inevitably redistributes pay amongst providers,” Allison said. “It’s part of a distributive system—it’s not going to have the same effect on everyone.”