Would Medicaid expansion have saved hospital jobs?

An alert reader asked a good question earlier this month about the painful expense cuts local hospitals are undergoing right now.

Would these cuts be so deep, or even necessary at all, if the state of Indiana had already committed to expand the Medicaid program to insure more Hoosiers? Indiana Gov. Mike Pence has refused to expand Medicaid to Hoosiers with incomes up to 138 percent of the federal poverty limit, as called for by Obamacare, unless the Obama administration agrees to let Indiana use health-savings account to do it.

But when I posed this question to a variety of hospital sources, none of them said the lack of Medicaid expansion has played any significant role in their decisions to cut expenses. Instead, hospital executives have been more focused on cutting expenses to the point that they can make money on Medicare payments, which are usually higher and never less than Medicaid payments.

One reason for that is that the Medicaid expansion, even if it had been approved by Pence, would not yet have taken effect. It was scheduled to kick in in 2014, and slowly ramp up to cover an additional 232,000 Hoosiers.

Still, I think the question is a good one. Since uninsured patients, on average, pay roughly 12 cents on the dollar of what hospitals say it costs them to provide care, having more of those patients pay via Medicaid could certainly shrink those losses.

Medicaid is a money-losing program for hospitals, too. According to the American Hospital Association, Medicaid pays 95 cents for every dollar it costs to treat Medicaid patient. That figure, however, includes disproportionate share dollars–special payments to hospitals, such as Indianapolis-based Wishard Health Services, that treat a large percentage of the poor and uninsured.

So hospitals that do not receive such payments lose even more money on Medicaid. And under Obamacare, the Disproportionate Share payments are effectively going away.

A strong assurance by Pence that Indiana would expand Medicaid would have given these hospitals some confidence that the loss of Disproportionate Share money would be offset by newly insured patients on Medicaid. But for hospitals that never have been receiving Disproportionate Share payments, they typically lost about 40 cents for every dollar they spend to treat Medicaid patients, according to local hospital accountants.

For Indiana hospitals, those losses were recently cut in half by a new hospital assessment fee program, which was created by the Legislature in 2012. It raised Medicaid rates for inpatient procedures to match Medicare rates, which draws down extra money from the federal government. The hospitals then pay a fee to the state government to offset its costs, but the fee is smaller than the extra federal revenue, giving the hospitals a boost.

But the hospital officials I talked to said that the gains in Medicaid funding affect only a portion of hospital budgets, and are simply not enough to offset the other pressures they face.

Consider St. Vincent Health, which laid off more than 850 people last month. In its most recently reported fiscal year, it lost $95.4 million on payments from Medicare and Medicaid that were below its costs. That amount was more than 4 percent of St. Vincent's total revenue from patients. If St. Vincent served more Medicaid patients, those losses would grow.

What might shrink is the amount of charity care St. Vincent provides, which totaled nearly $60 million, or less than 3 percent of its patient revenue in its most recently reported year. St. Vincent might also see a reduction in its bad debt expenses, which totaled more than $120 million in its most recent year, or 5.5 percent of its patient revenue.

Odds are, shifting from patients paying 12 cents on the dollar to patients paying 60 cents or even 80 cents on the dollar would provide a big boost to the balance sheet. But since we're talking, at least in the case of St. Vincent, about only 12 percent of its budget, it just doesn't seem to move the needle that much.

Still, if, as hospital accountant Ed Abel recently predicted, the recent cuts at St. Vincent and its peers were just the 'first pass', perhaps Hoosier hospitals will be clamoring for Pence to expand Medicaid.