The Impact of Medicaid Expansion on U of U Health Care
By: David Entwistle and Dr. Sean Mulvihill | Aug 15, 2013 9:00 AM
As the state of Utah considers whether to expand Medicaid, it is important to understand the impact of expansion on University of Utah Health Care.
Medicaid expansion will reduce uncompensated care. Revenue for care given to newly insured individuals will help offset the drastic cuts to provider reimbursement brought on by sequestration and the ACA, lessening the pressure on commercial insurance payers to cover the reimbursement gap of uninsured Utahns.
Population management will reduce state Medicaid costs and improve health. Most of the expanded Medicaid population will be enrolled in Accountable Care Organizations (ACOs), which incentivize providers to keep costs low by keeping patients healthy. Because ACO costs cannot, by state law, grow faster than state revenues, the ACO model helps ensure the sustainability and affordability of Utah’s Medicaid program. University pilot programs are already showing substantial cost savings while improving the health of patients.
University of Utah Health Care is a willing partner. Hospitals in the state of Utah provide a significant part of the required state match for Medicaid, which reduces the financial burden on the general taxpayers of the state. The University of Utah is open to exploring additional match contributions as a viable funding option for expansion.
It’s a balance.
Like most businesses, we must balance the cost of providing services with the revenue received for those services. With rising costs, and shrinking revenues, the balance is getting harder to maintain.
Expenses for the clinical enterprise are primarily the direct and indirect costs of delivering health care. We also work hard to achieve a small reinvestment margin (5%) that is used exclusively to cover debt payments, replace equipment and infrastructure, and support academic and research programs. Most relevant to the Medicaid expansion discussion, we provide uncompensated care to thousands of uninsured or underinsured Utahns. Last year, we provided $100M in uncompensated care.
Revenues are primarily from government payers and commercial payers, both of whom are looking at ways to decrease payments. We currently collect about 93% of the cost of inpatient services and 85% of the cost of outpatient services to Medicare beneficiaries, and government reimbursement rates are declining. We are also expecting a loss of $8.7M annually as a result of sequestration, cuts to medical education support, and other reductions under the Affordable Care Act.
As uncompensated costs increase and government payments decrease, we look for new ways to reduce our costs or cut back services, and like other health care entities, we look to our commercial payers to cover the reimbursement gap. The commercial payers respond by passing on the added expense to their customers, including employers and the individuals and families they insure, in the form of higher premiums. As a result, the cost of caring for the uninsured and underinsured is ultimately shared by the entire community.
If Utah fully expands Medicaid, approximately 123,000 more Utahns will have access to health insurance, significantly reducing the number of uninsured individuals in the state. For the U, this means we will be able to receive compensation for the clinical care we provide to newly insured individuals, reducing the burden of uncompensated care and its effect on our commercial payers.
In January 2013, Utah began enrolling Medicaid beneficiaries in accountable care organizations (ACOs), including the University’s ACO “Healthy U,” which covers 42,000 lives across the Wasatch Front. Under the ACO model, the U receives a lump sum payment for each of these patients, incentivizing us to control costs, keep our patients healthy, and avoid costly medical interventions like unnecessary emergency room care or hospitalization.
- Emergency Room Diversion. Last year, we identified 185 Medicaid patients who had 10 or more visits to the emergency room, at a total cost of $3.7 million. To prevent future unnecessary visits to the emergency room and to he lp these patients obtain more appropriate care, we proactively assigned these patients to a primary care physician and a care manager. This has saved critical Medicaid dollars and helped ensure that the emergency room is used only for truly emergent care.
- U Baby Program. With Utah’s high birth rate, focusing on prenatal care makes sense. Normal full-term births cost about $4,500, while the average cost of a pre-term birth over the course of a year is $81,000 per baby. By providing interventions for women at risk, the U Baby program has achieved an annual pre-term birth rate of 6.6 percent, which is below the Utah average of 10.9 percent. This saves Medicaid an estimated $2 million per year on costs associated with caring for pre-term babies.
Partners in the solution.
Utah lawmakers are understandably concerned about how to fund the Medicaid expansion going forward. Utah hospitals contribute $70 million annually to fund Medicaid patient care services, thus reducing the burden on Utah taxpayers. The federal match on this contribution is $163 million, yielding total patient care funding of $233 million. University of Utah Health Care is working with Utah legislators to explore financing options to pay for Medicaid expansion that will reduce the requirement for additional state General Funds.
About the author:
David Entwistle is CEO of University of Utah Hospitals and Clinics, Dr. Sean Mulvihill is CEO of the University of Utah Medical Groupcomments powered by Disqus