On the menu today: It’s time to take a look at one of those looming national problems that is not sexy and unlikely to get a lot of attention in the presidential race but that is a problem nonetheless: We’re used to seeing hospitals claim they’re running out of money and need more government assistance. What we’re not used to seeing is hospitals actually going ahead and closing their doors, and not necessarily those in the most rural, far-out places. Somehow the U.S. government went on an unprecedented spending binge during the pandemic, with much of that spending focused on health care, and yet hospitals, particularly rural hospitals, contend they’re just scraping by. Meanwhile on Capitol Hill, lawmakers have noticed that Medicaid reimburses hospitals at a much higher rate than private practices for the same procedures and care, and they are taking a serious look at “site-neutral payments” — perhaps the only proposal to reduce Medicaid spending that is plausible and that won’t automatically get demagogued to death.
The High Costs of Health Care and the Falling Fortunes of Hospitals
How can it be that health care in the U.S. is so expensive — hey, remember when Obamacare and moving to electronic health records were supposed to fix all that? — while at the same time many hospitals claim they are in dire straits?
Some of these claims clearly were not exaggerated: Hospitals have closed or are in the process of closing. In San Antonio, Texas Vista Medical Center permanently closed this week. The hospital’s parent company, Steward Health Care Network, issued a statement to local news reporters blaming the closure on a combination of insufficient support from local government and an unsustainable rate of patients who could not afford to pay their bills:
Twenty-five percent of the patients treated at TVMC do not pay for their care. Without Steward’s commitment, TVMC would have closed years ago. As a physician-led company, Steward has been very reluctant to close TVMC and stayed the course throughout the pandemic. Steward sought partners and many avenues to avoid closing TVMC. However, in the absence of much needed and denied assistance from Bexar County, Steward can no longer keep it open. Very few companies can give away 25 percent of its product and remain viable.
(For anyone preparing their “this is because of tight-fisted Republicans who won’t pay for health care” arguments, note that Bexar County is a heavily blue county where the Democrats swept almost all of the local and county offices last year, Beto O’Rourke carried 57 percent of the vote in last year’s governor’s election, and in 2020, Biden carried 58 percent of the vote.)
In March, Madera Community Hospital and its three rural clinics in Madera, Calif., closed. Madera is not a terribly small town; its population is about 66,000, and it’s smack in the middle of the San Joaquin Valley, just up the road from Fresno. The county is home to 160,000 people.
Last year, Mississippi’s only burn center closed, and the Delta region’s only neonatal-intensive-care unit closed. Things don’t look better next door in Alabama, the sixth-poorest state in the country:
Over the last three years, hospitals in the state have lost $1.5 billion compared to pre-pandemic levels. The reason? Everything costs more—from contract labor which grew by 450 percent, to the cost of medical supplies which has risen by $82 million across the state. Drug expenses are also up 14 percent.
At the beginning of the year, the Center for Healthcare Quality and Payment Reform identified “631 rural hospitals — more than 29 percent nationwide — [that] are either at immediate or high risk of closure. Those at high risk either have low financial reserves or high dependence on nonpatient service revenues such as local taxes or state subsidies.”
And yet, it is unlikely that anybody who has been to a hospital lately will tell you that the experience was cheap. Yes, the pandemic imposed all kinds of new and unexpected costs on hospitals, and the burnout rate among staff was high. Runaway inflation after the pandemic clearly raised operating costs as well. But the U.S. government also spent utterly unprecedented sums on health care during the pandemic, in all kinds of ways — the Provider Relief Fund, American Rescue Plan rural funds, delayed reductions in Medicare payments, and a 20 percent increase in Medicare payments for inpatient Covid-19 admissions during the declared emergency — with much of that funding going to hospitals. Medicare paid $40 to administer each dose of a Covid-19 vaccine. The U.S. government was throwing money at hospitals across the country; how can so many hospitals be going broke?
In that article about Alabama above, a pediatrician argues that the hospitals would be in better shape if the state expanded Medicaid; Alabama is one of eleven states that hasn’t expanded eligibility for the program since the passage of the Affordable Care Act.
A quick refresher: Medicaid covers pregnant women, individuals with disabilities, children in low-income households, some of the poorest elderly, and parents meeting specific income thresholds, generally those at or below the federal poverty level — $14,580 per year for an individual, or $30,000 per year for a family of four. (Children above the threshold for Medicaid can qualify for a separate program, the Children’s Health Insurance Program; North Dakota’s CHIP program covers children up to 175 percent of the poverty level, and New York’s goes up to 405 percent of the poverty level.) States are allowed to impose a usually small copayment on Medicaid recipients for nonemergency care, also determined by income level. In Virginia, “most adults in Medicaid have small copayments for some services. The copayments are usually $1 to $3 for each service. There copayment for inpatient hospitalization is $100.”
Most hospitals insist they lose money — a lot of money — on Medicaid patients. Last year, the American Hospital Association pointed to data from the Medicare Payment Advisory Commission, finding that “hospitals experienced a –8.5 percent margin on Medicare services in 2020, and it projects that margin will fall to –9 percent in 2022. Combined underpayments from Medicare and Medicaid to hospitals were $100 billion in 2020.”
Some studies argue the opposite, and you can find Republicans who argue that the transparency, accountability, and oversight of Medicaid spending are so minimal that hospitals are making money and then telling the world that they’re covering Medicaid patients at a terrible financial loss.
Getting the remaining eleven states to expand Medicaid would mean they’d be switching from one program that loses money to a different program that loses money, hopefully at a slower rate. If expanding Medicaid were a magic wand to help hospitals, we wouldn’t see hospitals closing in places like California.
One of the ideas on the table to control costs moving forward is “site-neutral payments.” Under Medicaid, medical care administered at a hospital-owned outpatient department is reimbursed at a higher rate than care administered at sites that are independent or owned by clinicians. In the anecdote of one doctor, the reimbursement rates are wildly and unjustifiably different:
Hospitals convinced Medicare to pay hospital-owned physicians in outpatient settings at nearly twice the rate that they pay independent physicians. I know of two internists who practiced internal medicine in the same office. Both were trained at the same institution. Both were board certified. One was owned by a hospital, and one practiced independently. Medicare paid the hospital-owned physician nearly double the rate of the independent physician for both an office visit and complete physical exam. There is no valid reason for this. It’s a classic example of corporate welfare.
The Blue Cross Blue Shield Association argues that moving to site-neutral policies would save Medicaid $471 billion over ten years. Because so few members of Congress are willing to touch entitlements in any serious way, enacting site-neutral policies might be one of the very few realistic ways of reducing spending on Medicaid. Congress could credibly argue that it isn’t cutting aid for anyone, just insisting on the same lower payment rate for all care providers.
Unsurprisingly, hospitals hate this proposal. The American Hospital Association contends that hospitals get reimbursed at a higher rate under the law because they do so much more than private practices do:
Americans rely heavily on hospitals to provide 24/7 access to care for all types of patients, to serve as a safety net provider for vulnerable populations, and to have the resources needed to respond to disasters.
However, these roles are not explicitly funded; instead, they are built into the overall hospital cost structure and supported by revenues received from providing direct patient care. Hospitals are also subject to more comprehensive licensing, accreditation and regulatory requirements than other settings.
The Federation of American Hospitals argues, “Blunt site-neutral payment policies, such as the current reduction for clinic services performed in hospital provider-based departments, ignore fundamental functional and cost structure differences between hospitals and physician offices, among other settings, and the unique, mission-critical services communities rely on hospitals to provide.”
But there’s a surprisingly broad coalition endorsing site-neutral payments. On the left, there’s the Progressive Policy Institute; in the middle-ish, there are the Brookings Institution and Committee for a Responsible Federal Budget; and on the right, there are the American Legislative Exchange Council, Americans for Prosperity, and Americans for Tax Reform.
If Congress were to pass legislation requiring site-neutral payment polices and Biden signed it into law, it would represent one of the most unlikely of policy victories — an entitlement reform that saved money, had minimal if any impact on care, and got Republicans and Democrats to agree. The House Energy and Commerce Committee is taking a hard look at this idea. Will it get off the drawing board?
ADDENDUM: Over in that other Washington publication I write for, I take a long look at Joe Manchin, his plans for the future, and how the Biden administration is just ignoring the written text of the Inflation Reduction Act and enacting whatever policies it chooses.