As Connecticut hospitals weigh the pros and cons of health care reform, they are bracing for an unwelcomed reality: the likelihood of stagnant Medicare reimbursement rates for the foreseeable future.
Many in-state hospitals are projecting no increase on Medicare reimbursement rates until at least 2014, as the federal government reins in spending so it can expand insurance coverage to millions of uninsured Americans.
It’s a major issue for Connecticut hospitals, most of which are already providing Medicare services at a loss and who depend on that revenue stream for nearly half of their business.
In conjunction with poor reimbursement rates from the state-funded Medicaid program, hospitals will look to private insurers to make up for the shortfall, likely leading to prolonged and tense negotiations over rates in the coming years.
“They are paying for expanded coverage by depressing Medicare rate increases,” said Stephen Frayne, senior vice president of health policy for the Connecticut Hospital Association. “There is a lot of trepidation about how we are going to make all of this work. It’s a huge challenge.”
Connecticut hospitals depend heavily on government-run programs, which supply about 60 percent of their revenue, Frayne said.
About 45 percent comes from Medicare and 15 percent from Medicaid. Remaining income comes from commercial insurers.
Hospitals are already losing money treating Medicare and Medicaid patients, so further reductions or rate freezes will exacerbate their financial difficulties, Frayne said. At the same time, medical expenses are projected to increase 6 percent annually.
The state’s Medicaid program, which serves low-income people, has been the worse of the underfunded programs. The last Medicaid rate hike was two years ago when lawmakers approved an $80 million increase, bumping Connecticut’s total annual payout to about $800 million, Frayne said.
Jeffrey Flaks, executive vice president and chief operating officer of Hartford Hospital, said the hospital loses about 33 cents for every dollar it spends on Medicaid patients, and 4 cents for every dollar spent on individuals covered by Medicare.
“Those two programs do result in a deficiency,” Flaks said. “Fluctuation of government payment rates in either direction can have a large impact on hospital finances.”
State Sen. Jonathan Harris, D-West Hartford, who is co-chair of the public health committee, said he has concerns about the financial health of the state’s hospitals, but it’s uncertain if the state can afford to kick in more money, given the pending billion-dollar budget deficit.
“It’s tough to see where the money is going to come from for a bump up in the Medicaid reimbursement rates,” Harris said.
Frayne noted that there are cost saving opportunities in the new health care law that will benefit hospitals, including a movement toward the adoption of electronic medical records, which will save time and cut down on duplicative care.
Expanded coverage will also mean hospitals see fewer uninsured patients, allowing them collect money for services they previously provided for free.
But whether those savings will offset the rising cost of medical care, and stagnant reimbursement rates, remains to be seen.
“We are assessing that right now,” Flaks said.
Nationally, some hospitals are projecting possible Medicare reimbursement reductions once health care reform kicks into high gear in 2014.
Connecticut officials have not been able to project that far out yet.
Adding to the pressure is the fact that hospitals are seeing more Medicare and Medicaid patients than ever before, because of the aging population and increase in unemployment.
In 2007, 30 percent of Bristol Hospital’s patients had better paying commercial insurance coverage, but now it’s only about 25 percent. Meanwhile its Medicaid patient population has ballooned by 17 percent, said Kurt Barwis, the hospital’s president.
As Connecticut hospitals look to private insurers to make up for the shortfall, Frayne said, there could be more public spats between the two sides.
Last year, for example, Hartford Healthcare warned that it would terminate its contract with Aetna, after the Hartford-based health insurer refused to accept a 30 percent reimbursement hike over two years.
Aetna countered, saying the rate increase would lead to significantly higher out-of-pocket expenses for patients.
Bristol and Middlesex hospitals had similar stalemates with Anthem Blue Cross and Blue Shield, but all involved were able to eventually reach agreements.
“Discussions between insurers and providers are probably going to be more difficult,” Frayne said. “Hospitals need to negotiate better rates with insurance companies to ensure they are bringing in adequate funds. Inevitably tensions occur in how to balance the payer and provider community.”
Frayne said Connecticut hospitals and insurance companies have a good relationship overall, and that both sides have worked together to lobby for more adequate government funding.
Keith Stover, a lobbyist for the Connecticut Association of Health Plans, said Connecticut’s long history of underfunding Medicaid programs has shifted the cost burden to the private sector.
“The real danger for the entire system is that employers and individuals will not be able to continue to shoulder that cost shift,” Stover said.
