Kentucky hospitals say they're losing money on Obamacare, as cost of treating new Medicaid patients exceeds reimbursements

By Melissa Patrick
Kentucky Health News

Kentucky hospitals are struggling financially because of the billions of dollars in cuts caused by the implementation of the Patient Protection and Affordable Care Act, and many aren't sure they will survive, the Kentucky Hospital Association said at its annual meeting May 8.

KHA applauded the successful implementation of the federal health reform in Kentucky, which has extended health insurance coverage to approximately 500,000 more Kentuckians, mainly through expansion of Medicaid, but said that has come at a "significant cost to our commonwealth hospitals."

"The expansion [of Medicaid] has infused money into some of our hospitals, which is good, but the rest of the story is the cuts," KHA President Michael Rust said.

KHA Chair Dennis Johnson, CEO of Hardin Memorial Health in Elizabethtown, said  the revenue from the expansion "is less than the cuts Kentucky hospitals will experience in order to finance the ACA."

Kevin Halter, KHA's incoming chair and CEO of Our Lady of Bellefonte Hospital in Ashland, said,
“Much has been made about the fact that Kentucky hospitals have received an additional $506 million in Medicaid payments last year through the expansion, suggesting that hospitals' bottom lines are healthier as a result, but what is often not mentioned is that hospitals lose money on every Medicaid patient they treat.”

The report says that changes in the way hospitals are paid under Obamacare are projected to result in the loss of almost $7 billion in federal cuts to Kentucky hospitals through 2024:

• Lower-than-cost Medicaid and Medicare reimbursements, 82 percent and 86 percent respectively, with actual Medicaid and Medicare payment cuts from 2010 to 2024 projected to be $4.6 billion
• Readmission penalties, which can be as much as 3 percent of Medicare payments, imposed on hospitals that readmit patients within 30 days of discharge, regardless of the reason
• Medicare cuts to hospitals that have any increase in hospital-acquired infections
• Cuts, delayed until 2017, in extra payments to hospitals that have a "disproportionate share" of Medicare and Medicaid patients.

KHA also cited impacts that aren't associated with the reform law, such as sequestration, or automatic across-the-board federal budget cuts, and other cuts in Medicare.

Hospital officials said that rural hospitals have been hit hardest by these changes because 72 percent of their patients are on Medicaid or Medicare. A recent report by state Auditor Adam Edelen found that 68 percent of Kentucky's rural hospitals have below-average of poor financial health, with 34 percent of the total in the latter classification.

Part of the problem is that the law was built on the nationwide presumption that about half of the newly insured would have private health insurance and the other half Medicaid, but in Kentucky, a poor state, 75 percent of the newly insured are covered by the Medicaid expansion, which covers those earning less than 138 percent of the federal poverty line, or about $33,000 for a family of four.

Halter said while hospitals got $506 million for treating patients covered by the expansion, that treatment costs the hospitals $617 million to deliver that care. While low Medicaid reimbursement is not a new problem, Johnson said, "There's no question it's been accelerated under the ACA."

Gov. Steve Beshear said expanded Medicaid payments had "blunted the impact of other fiscal pressures on hospitals. . . . We are very aware of the challenges that medical providers face in Kentucky. Rather than trying to turn back the clock and return to old business practices, we are working directly with providers to help them develop new strategies for better, more efficient, quality health care delivery."

The challenges are real.

A September 2014 survey found that more than 65 percent of the 109 responding Kentucky hospitals had reduced staff since June 2013, eliminating more than 7,700 positions, with more jobs lost in rural hospitals than the urban ones. About 44 percent had frozen or reduced wages, and 40 percent of had cut costs by reducing or eliminating programs, such as closing psychiatric units and outpatient clinics.

"The reality is that hospitals are being forced to reduce costs to deal with these financial pressures," said Charles Lovell, CEO Caldwell Medical Center in Princeton. "This is the third year without our employees getting an increase."

While Obamacare has reduced hospitals' losses on patients who can't pay, Halter noted that 12 percent of Kentuckians remain uninsured, and the report said hospital emergency rooms are still the first choice for many new Medicaid patients because they have't found a regular physician. Many Kentucky counties are short of doctors.

Fate of rural hospitals rests in the hands of community members, writes publisher of weekly Crittenden Press in Marion

Just like country grocery stores in rural areas often have to close because community members drive past them to chain stores to save a few cents, rural hospitals will also suffer and eventually disappear if citizens do not use them, Publisher Chris Evans writes for The Crittenden Press in Marion.

When Evans was growing up in northwest Tennessee, his grandparents had to close their grocery store, which had been the center of the community, because too many people chose to purchase their food and other items from the new Walmart eight miles down the road. "Our rural hospitals are headed down the same path of extinction unless we recognize and reverse the trend," Evans writes.

Charlie Hunt, volunteer chairman of Crittenden Health Systems, which owns the local hospital, told Evans, "The only way for rural hospitals to survive is through community support."

In Kentucky, one-quarter of the 66 rural hospitals are in danger of closing, according to state Auditor Adam Edelen. In general, "Country hospitals do not have a good record for making money or breaking even, for that matter," Evans writes in a front-page column for the weekly he and his wife own.

Based on the results of Obamacare, Evans opines, it appears that America is moving toward a single-payer health care system like Canada's. Then instead of the government paying for 85 percent of Crittenden Hospital's services, it will pay for 100 percent. "When that happens, hospitals will have to play solely by government rules or get completely out of the game," Evans writes. Most of the 50 rural hospitals that have been shuttered in the past few years have been in the rural South.

"Hunt, who chairs the board, said that approximately 10 percent of the future of this hospital rests in the hands of its leaders. The other 90 percent falls squarely on the shoulders of this community," Evans writes. The column is not online, but PDFs of the pages on which it appears are posted here.

Auditor will hold meetings in Prestonsburg, Princeton and Sonerset to discuss his report on financial status of rural hospitals

State Auditor Adam Edelen will hold three public meetings in rural communities to discuss the findings of his special report about the financial health of rural hospitals.

The meetings will be held Monday, April 21 at 1 p.m. at the Mountain Arts Center in Prestonsburg; Monday, May 4 at 11 a.m. (CT) at the Caldwell County Memorial Hospital in Princeton; and Thursday, May 6 at 1 p.m. at the Liberty center of Somerset Community College.

The report, which covers fiscal years 2011 through 2013, found that as many as one-third of Kentucky's rural hospitals were in poor financial shape, with 68 percent of them ranking below the national average financially.

“Although closure may be an unfortunate reality for some," Edelen said in the press conference, "I believe more can and should be done to help these hospitals rethink their models of business in delivering health care in the 21st century." He went on to suggest rural hospitals consider hiring outside managers, merge with larger hospitals, form coalitions with other rural hospitals or find a specialized health niche as possible alternate business models to consider.

The report calls for the creation of a state work group to monitor rural hospitals, including making sure state law gives them the flexibility to retool their business models. Susan Zepeda, president and CEO of the Foundation for a Healthy Kentucky, suggested that the proposed work "could be incorporated into the work already under way under a State Innovation Model grant, which is engaging many sectors of health service in Kentucky in an ambitious, collaborative redesign effort."

Edelen said some of the primary problems faced by rural hospitals stem from the many changes in health care since the inception of Medicaid managed care, a decrease in the number of health-care providers, and an economic climate in some areas that doesn't support the current health payment model, which depends on the majority of its users to have private health insurance.

The report suggested that the Cabinet for Health and Family Services negotiate better contracts with managed-care organizations as it approaches the June 30 deadline, especially to address provider payments, stricter penalties for non-compliance and increased administrative burdens that managed care has put on hospitals. Edelen and Haynes sounded hopeful that this was going to happen.

Gov. Steve Beshear called Edelen's report "a dated snapshot" because the 2013 data used in the report does not include 2014 information,when the federal health reform was fully implemented through expansion of Medicaid to people with incomes up to 138 percent of the federal poverty line. Beshear said hospitals received $506 million to care for such people in 2014 while seeing significant reductions in losses on patients who couldn't or wouldn't pay.

Edelen's spokeswoman, Stephenie Hoelscher, said in an email that Edelen believes the full effect of all the changes in health care to hospitals' bottom line is still not clear, and his report establishes a baseline for critical analysis going forward.

Beshear says Ky. rural hospitals 'have a positive cash flow' but he can't prove it; industry says it sees 'some improvement'

By Al Cross
Kentucky Health News

FRANKFORT, Ky. -- Gov. Steve Beshear says Kentucky's rural hospitals are profitable again, thanks to his expansion of Medicaid, but he offers little evidence to support his claim, and the hospital industry disputes it.

In a long, joint interview with Colorado Gov. John Hickenlooper at the Brookings Institution in Washington, D.C., Feb. 20, Beshear said, “Our rural hospitals have a positive cash flow for the first time in a long time, so it’s working, it’s going to work, and my job is just to get it so embedded that nobody can do anything about it.”

Kentucky Health News asked Beshear's office for evidence of rural Kentucky hospitals’ positive cash flow, but the office cited only a news story about Carroll County Memorial Hospital in Carrollton, which said it turned a small profit in 2013 (thanks to federal health-reform grants for digitizing medical records) and a much larger one in 2014.

"Some of them have improved and some of them have not," said Mike Rust, president of the Kentucky Hospital Association. As a result of Medicaid expansion, he said, "Some have benefited greatly but others are still struggling."

The association's vice president of health policy, Elizabeth Cobb, said, "In general we’re seeing some improvement in rural hospital finances," largely from a decline in the number of charity cases as a result of previous patients having coverage. "We were already taking care of most of those," she said.

State figures show Medicaid payments to rural hospitals rose 20 percent in the state fiscal year that ended June 30, 2013, but only 6 percent in the next year, when the Medicaid expansion began; and that the payments to urban hospitals rose 4 percent and 10 percent the last two years.

Based on claims from July through September, the state forecasts that Medicaid payments to rural hospitals in the current fiscal year will increase 26 percent, and payments to urban hospitals will rise 15 percent. (The state has estimates for each hospital.)

Cobb said the expansion hasn't generated as many new patients as might be expected for rural hospitals because of the shortage of primary-care physicians who admit patients: "We're not seeing a huge expansion of utilization as a result of Medicaid expansion."

That keeps patients coming to hospital emergency rooms for care, some of which is deemed non-emergency by managed-care organizations, the insurance-company subsidiaries that have overseen the care of Medicaid beneficiaries since 2011. Two MCOs pay only a $50 "triage fee" in such cases, regardless of what diagnostic tests the hospital performs; that was the topic of a legislative hearing last week.

And that is just one part of hospitals' problems with the MCOs. "What we're seeing generally is that while hospitals are receiving payment for some patients who may have been uninsured previously and are now insured by Medicaid, we're still seeing the challenges of hospitals being paid by managed-care organizations," Cobb said. "There's an increase in the administrative burden for small hospitals to work with five different MCO plans that all have very different rules and criteria."

Clinton County Hospital Administrator J.D. Mullins cited MCO problems is explaining his facility's decision to file for bankruptcy last year, mainly to restructure payments on the federal loan for a $14.7 million addition completed a few years ago, the Clinton County News reported.

"These companies’ polices have restricted access to the hospital’s services and reduced our reimbursement even more," Mullins told the Albany paper. "When the idea of a new hospital facility was first proposed, no one could have foreseen the condition of health care today."

The hospital is in the district of Sen. Max Wise, R-Campbellsville, who told fellow members of the Senate Health and Welfare Committee Feb. 26, "I would love to take the governor's report to the six of my seven counties out in rural Kentucky that are struggling right now in their hospitals. . . . What I'm hearing from them is the system is broken and it continues to be broken."

Wsie was referring to Beshear's recent report that Medicaid expansion is generating more money, jobs and tax revenue than forecast. Another committee member, Sen. Ralph Alvarado, R-Winchester, said, "Almost every senator here has received letters that say: This stinks, we are not getting paid, we are going under."

Cobb said some rural hospitals are reporting cuts in jobs and services. That is probably reflected in U.S. Bureau of Labor Statistics data compiled by Paul Coomes, emeritus economics professor at the University of Louisville. It shows hospital employment trending down while other health-care jobs have been going up.

While Carroll County and others are benefiting from federal digitization grants, "That funding’s going to go away," Cobb said, and "Every year you've got to pay for upgrades, and the requirements continue to increase at the federal level." Federal officials say digitization should make hospitals more efficient.

Of the Carrollton hospital, Cobb said, "That’s a special situation. That’s not a typical one." She said the facility "put in place a lot of measures to try to improve their management" and has partnered with larger hospitals to offer more services, such as cardiology, "and that’s breathed some life back in."

Rural hospitals in Nicholas and Fulton counties have closed in the last year, and state Auditor Adam Edelen, who is preparing to issue a report on rural hospitals, has warned that others are in danger, threatening to put new obstacles between rural Kentuckians and health care. "Not acknowledging the looming access issue is a disservice to the low-income and elderly Kentuckians who are depending on an intact provider network,” Edelen spokeswoman Stephenie Hoelscher said.

Bill would require Medicaid managed-care firms to pay contracted fees for ER visits; Senate hearing targets two companies

This story has been updated with comments from Wellcare of Kentucky.

By Melissa Patrick
Kentucky Health News

FRANKFORT, Ky. -- Managed care is touted as a way to achieve value-based care in the Medicaid program, but hospital emergency rooms in Kentucky aren't finding much value in not being paid the contracted price for their services by two of the managed care organizations.

Officials of two Kentucky hospitals told the Senate Health and Welfare Committee Feb. 25 that Wellcare of Kentucky and CoventryCares of Kentucky are denying payment for as many as half of their emergency-room patients who seek care in their facilities, reimbursing the hospital a flat $50 "triage fee," less the patient's $8 co-payment, regardless of diagnostic tests performed in the ER.

Cheri Sibley, CEO of Clark Regional Medical Center in Winchester, noted that emergency rooms are required by law to screen patients with appropriate diagnostic tests to rule out an emergency condition if they come to the emergency room and ask for care.

Wellcare and Coventry are two of the five Medicaid managed-care organizations that oversee care for the state.

Wellcare said in an e-mail that it is required by the Department of Medicaid Services to "have an affirmative program to address the high cost of emergency room treatment for conditions that do not require this level of care." The company said the triage fee is just one measure it has taken; it said an "emergency room prudent layperson program" has helped "identify and sometimes prevent payments as much as 500 percent to 1,300 percent more in an emergency room as compared to a physicians office for common ailments such as ear aches and sore throats."

Sen. Ralph Alvarado, a physician from Winchester, has sponsored a bill that would require MCOs to pay the previously negotiated rate for emergency-room examinations and allow the ER doctor to determine whether a patient's condition is an emergency or not,.

"This bill is an attempt to keep our Medicaid managed-care organizations accountable," Alvarado said at the meeting. "MCOs have been shortchanging our providers and our hospitals -- and, I would argue, purposefully -- for the past three years. . . . MCOs are basically managing health-care cost by non-payments to providers."

Since the advent of managed care in 2011, hospitals have complained about late and denied payments and difficulty dealing with MCOs. "The problem has reached critical mass, threatening the survival and financial viability of our hospitals, and almost every legislature has been contacted by their local hospital provider regarding these (issues)," Alvarado said.

Kentucky implemented managed care as a way to save money. Basically, insurance company subsidiaries get a certain sum per patient and increase their profits by controlling costs. The Cabinet for Health and Family Services maintains that managed care focuses on quality and provides better accountability for care as opposed to the traditional fee-for-service model, but provider complaints about slow payments and rejections of claims have persisted since its inception.

Hospitals bill insurance and Medicaid based on the level of complexity of emergency-room care provided based on the symptoms the patient presents, regardless of the final diagnosis. Payment has typically been based on a fee that was pre-negotiated between the hospital and the MCO.

Wellcare and Coventry have since implemented a non-negotiated "triage policy," which allows these organizations to determine, after the fact, whether a patient had an emergency. If they determine that a patient was a non-emergency, regardless of presenting symptoms and cost of diagnostic procedures (X-rays, CT scans, lab tests, and so on), they only pay $50 minus the $8 co-payment, or $42. Wellcare implemented this policy in September 2012 and Coventry in April 2013.

The legislaure's Administrative Regulation Review Subcommittee found last May that the triage policies did not follow federal standards, according to Sibley and Alvarado.

"One side seems to be meeting their contractual obligation, while the other side seems to be deficient in meeting their contractual obligations," said Sen. Julie Raque Adams, R-Louisville, chair of the committee.

Hospitals can appeal MCOs' decisions, but "hospitals report that only a small number of these are overturned with no explanation of decision given," Sibley said.

Sibley gave an example of a claim that had been determined a non-emergency by one of these companies at her hospital: An 18-month-old girl was brought to the ER because she was blue in color, wheezing and short of breath. She had an X-ray, other diagnostic tests and a breathing treatment, but the hospital was paid $42 by the MCO plus the $8 co-payment, if the patient paid it.

"The two MCOs in question should not be deciding which patients are non-emergencies," Sibley said. "They should be abiding by their negotiated contract and paying the contract rate," 95 percent of allowed cost.

Sibley presented Kentucky Hospital Association data from 64 hospitals affected by these triage policies. The report found that during calendar year 2014, the hospitals reported submitting nearly 380,000 emergency room claims to Wellcare and Coventry, of which 140,000 were denied except for the $50 fee. The overall denial rate was about 37 percent; Wellcare's was 48 percent.

The KHA report said the difference in the flat fee and the contracted rate totaled $37.4 million, and that the more complex visits (and this likely the more expensive) were the ones most often denied payment.

"With one in four Kentuckians now on Medicaid, this problem is only going to get worse, if this is not corrected by this Senate Bill 88," Alvarado's legislation, Sibley said.

Georgetown Community Hospital CEO William Haugh said almost 30 percent of its ER visits in 2014 were Coventry or Wellcare clients. Wellcare classified almost 60 percent as triage cases and paid only $50 each. The hospital appealed 92 percent of those cases, with a success rate of 16 percent, or 285 patient encounters. Haugh said that amounted to a $334,258 underpayment, plus an estimated $40,000 cost for preparing and prosecuting the appeals.

Haugh said Coventry classified 26.4 percent of its clients' Georgetown ER visits as triage and paid only $50 each. The hospital appealed 94 percent of those and had a success rate of 36 percent, or 366 patient encounters. He estimated an underpayment of $148,000 plus $22,000 in labor for appeals, and said the overall financial impact to the hospital was $543,894.

Wellcare said its appeals process allows three opportunities for review, with at least two independent medical directors.

The state Medicaid program's chief medical officer, Dr. John Langefeld, said the emergency-room problems are not a "straightforward, easy issue," He said many patients go to ERs for reasons beyond medical care. The cabinet has said that some hospitals have relied too much on ER revenues.

Sen. Reginald Thomas, D-Lexington, said rural hospitals need to change their business models and wondered if the bill was an attempt to mask that problem. Meanwhile, he added later, there is "documentation that hospitals have benefited from Medicaid expansion" under the federal Patient Protection and Affordable Care Act, in a recent report from Gov. Steve Beshear.

Adams replied that Beshear says, ""It is great, and it's putting all this money back in the system," but in fact we are not seeing it on the provider level."

Alvarado said, "There is a difference between what actually happens and what the governor's office wants to show you. So when you have KentuckyOne [Health] coming out publicly declaring a $218 million dollar loss in one year, that is hardly a profitability for them based on the ACA."

Alvarado said Citibank reported the companies have made $155 million in profits off of Kentucky Medicaid. "I'd get rich, too, if I didn't pay my bills," Alvarado said. "It is an outrage."

Most rural hospitals in Kentucky are struggling financially and looking for ways to survive

Most rural hospitals in Kentucky are loosing money, putting them at risk of closing if they don't find another way to do business, Miranda Combs reports for Lexington's WKYT-TV.

More than 65 percent of  Kentucky rural hospitals in 2012 had a negative operating budget, according to the latest report from the Kentucky Hospital Association, Combs reports.

"We've got a number of hospitals in Kentucky who have less than 15 days of cash reserves," state Auditor Adam Edelen told Kentucky Health News in September. "One hospital in particular told me that leaders meet weekly to figure out about who's getting paid and how much just to keep the doors open. . . . County officials are afraid they are going to lose their hospital, while the cabinet says all is well."

Officials with the state Cabinet for Health and Family Services acknoweledge problems at some hospitals, but told Combs that "Medicaid expansion is benefiting many rural hospitals" and that "$600 million in payments were made in the first nine to 10 months of expansion."

Edelen's office is expecting to release its rural hospital financial report, which included input from a series of town-hall meetings across the state last year, "some time this month," Stephenie Hoelscher, Edelen's communication director, said in a phone interview.

Last year, Nicholas County Hospital in Carlisle closed because of financial difficulties. Those living in this county must now travel an extra 30 minutes to reach a hospital, Combs reports.

"Everybody said that the hospital was a Band-Aid station, but still, they saved many a lives in this county," Jimmy Price, who had heart trouble last year, told Combs. "I was on the verge of a heart attack and my son came and took me to the hospital out here and they airlifted me to UK."

Some blame federal health reform and the state's expansion of Medicaid for the problems. Dr. Daniel Mongiardo of Hazard, a former lieutenant governor and state senator, told Combs, "Now that we have all these new patients, more patients that are paying less than the cost of care, these hospitals are burning through money a lot faster."

Many providers in rural areas have reported cash-flow problems caused by delays in payment from Medicaid managed-care companies, lower-than-cost reimbursements and increased administrative burdens.

Another Kentucky rural hospital, Parkway Regional Hospital in Fulton, Ky. is scheduled to close its inpatient and emergency room operations March 31, but is still looking for ways to keep its outpatient care open, Kristy Robinson Horine reports for The Bridge, a magazine published by the University of Kentucky's Center for Excellence in Rural Health.

Fleming County Hospital, a $30 million facility built in 2008, is struggling financially and looking for a way to survive, Judge-Executive Larry Foxworthy told Combs. There isn't "much money coming in" with the hospital running at 40 percent capacity, he said.

"Rural hospitals will have to make drastic changes," Foxworthy told Combs. "That means affiliation, partnerships, even acquisitions from a larger company or hospital. We are looking at all options."

WKYT asked Baptist Health and KentuckyOne Health and University of Kentucky Hospital for their positions on helping out rural hospitals in Kentucky.

Baptist Health suggested that these hospitals move toward a community-clinic model and away from acute care. UK said, "We have built partnerships to strengthen many hospitals around Kentucky by helping them build their clinical capabilities in areas such as stroke and heart care." KentuckyOne said "Overcoming the barriers to healthcare across rural communities is a priority."

The closing of a rural hospital has economic impact. Not only do communities lose high-paying jobs, Horine writes, but communities lose tax revenue. Alison Davis, executive director of the Community and Economic Development Initiative of Kentucky at UK, told Horine that money is also lost because of the "multiplier effect" of local money spent in other communities for health care.

The loss of rural hospitals leads to decreased access to both primary and specialty care, Horine notes, as well as ancillary and support services and places an increased burden on local EMS and transportation services.

“Where you live should not determine what kind of healthcare that you get,” Mongiardo told Combs. “We are moving back in that direction by the changes that we are seeing right now by the struggling rural hospitals.”