Rich Helppie
Here we are on The Common Bridge—no, it's the Healthcare Bridge—with my good friend and the host of the Healthcare Bridge, Nate Kaufman. Nate, who's hosting who today?
Nate Kaufman
I guess we're co-hosting today, Rich, so I'll let you go first.
Rich Helppie
Okay, well, I'll be in the role of the interviewer to start but we could just pass the hat back and forth as we wish. So you and I are united on the fact that the payment methods for healthcare in the United States of America are horribly broken, that they are not a system at all. We both published a lot about the way things should be, and I think we've gotten a lot of confirmation on it. But today, those people that should be reforming the system are fighting around Medicaid and, according to some places, it's about kicking people off their insurance, including people on Medicare, commercial insurance, and private pay, and giving money to billionaires. Does that sound like what we've got so far in Medicaid today, Nate?
Nate Kaufman
Well, what we have with Medicaid is a safety net payment system that is completely flawed. It averages paying about 70 cents per dollar of cost. A provider buys an aspirin for a dollar, Medicaid pays them 70 cents and as a result, there have been a series of, let's call them loopholes, that states have used since the states and the federal government share in the cost of Medicaid. Loopholes that they've used in order to fix a broken, underpaid system, and those loopholes are basically closing.
Rich Helppie
Yeah, and let's talk about the two that made it into the bill, the provider tax, the first one. I don't think most people understand the mechanics of this, but do you mind giving a quick overview on how the provider tax works?
Nate Kaufman
I'll do my best. Now it's state by state, but in general, Medicaid is a cost sharing system with the federal government so if the state comes up with X dollars, the federal government matches it. What the state has done in order to inflate the amount of dollars that they have to justifiably pay fair rates to the providers, they have taxed all of the hospitals, up to about 6% of revenue. That money goes into the state, it inflates the amount of money that the state is going to return to the hospitals in the form of paying for services and the federal government has to match that inflated amount. That's the simplest way I can explain it.
Rich Helppie
For our listeners, readers and viewers, the hospitals are losing money on services by 30 percent, little bit more in some places, a little bit less in others. Yet, they're going to tax those places - the hospitals, nursing homes, etc - based on the revenue line, even though they're not making any money at it, in order to take money into the state capitol and say, okay, federal government, you've got to match us. Now the federal government matches. Does the money get back to that provider from the federal government for Medicaid?
Nate Kaufman
Well, it's a good question, depending on the state. For example, in California, we have certain formulas that say that high Medicaid hospitals will get a disproportionate share of that money. Hospitals that are really losing money, we want to keep them in business, so they'll get a disproportionate payment because they see more Medicaid. And this loophole helps get them paid fairly for Medicaid. There is a sacrifice for a hospital that is making money and has low Medicaid but that's kind of how this whole thing works. Now, the other component of this, which many people don't know, is when that provider tax goes to the state, sometimes the state may keep some or all of that money and put it into its general fund and then pay Medicaid out of its general fund. The point is, at the end of the day, what's happened is the Big Bill that has been passed, is reducing - year over year - the amount of money that states can tax providers. So at the end of the day, the states are going to have less money.
Rich Helppie
Think about this, Nate, if you're a person not involved with healthcare, you'd think you want to lobby your congressperson to put more money into healthcare to pay for people that don't have the means - which I think most of us would agree with. So what's happening then is that the state is, in effect, keeping their money to use for other purposes and not giving it for patient care necessarily. (Nate Kaufman: That's correct.) And so this crazy system that's in place has very little to do with healthcare. I know some states that are going to have holes blown in their budget. I know that the Wall Street Journal has come to you as a source. I know that Modern Healthcare and other good places now are starting to produce the data. What do we know today about impacts on the general fund of states?
Nate Kaufman
Let's say you're in Michigan. Let's take Michigan as an example. According to a recent article in Modern Healthcare, the impact of this whole capping of the provider tax will be $40 billion less money going to the state. Of that, $28 billion less money will go to hospitals. Since the states keep some of this money in the general fund, they are going to see a deficit, because that money is no longer going to exist. Now here's the scary part; what is one of the biggest expenses in a state government? The answer is the healthcare benefits for their workers. Traditionally, states would pay whatever the insurance company they contract with pays providers. But in the future, in order to make up this deficit because of the reduced provider tax, the states are not only going to reduce Medicaid and the Medicaid enrollees, but they're going to have to look at their own healthcare benefits and probably do what Oregon did and say, we're just not going to pay more than 200% of Medicare to any provider for state employees. So the impact on the less money that we're going to see going into the state government is not just going to impact Medicaid, it's going to impact state services, and I think state healthcare benefits.
Rich Helppie
So let me make sure I can draw a line there; less revenue to the state, less the states taking that money from the providers, but in order to pay the state employees, they're going to pay out more money, which is going to be more taxes, ostensibly, on the citizens of that state.
Nate Kaufman
Well, they have two choices. They can either pay them more money, or they can go to the hospitals and physicians where these folks get care and say, we can no longer pay you this amount for state employees. By law, we're going to only pay you this amount, much less. That's the likely scenario. So if you look at cities or capitals from Hartford to Indianapolis to Atlanta, you have these large health systems that treat a lot of state employees and my bet is that the state employees payments for healthcare is going to go down because of this new law.
Richard Helppie
And further exacerbating the red ink from the hospitals, the doctors, the clinics, the nursing homes that are supposed to treat everybody; by law, they have to treat everybody. So this is not going to end well. Some other states are really scraping money into the general fund, Michigan doesn't stand alone in this, I think it's most of them that accepted the Medicaid expansion under the Patient Protection Affordable Care Act, also known as Obamacare. Is North Carolina still on the leader board right now in terms of the abuse of the general fund provisions?
Nate Kaufman
North Carolina is one. Connecticut: $20 billion less money will go to the state, but only $6 billion of that will affect hospitals, so where's the rest? Then if you look at California, you're talking about a state that is going to see $226 billion less money over the next ten years, of which about half of that was going to hospitals. Now some of it goes to physicians and other things, but the point is that these states are going to see significant reductions in the dollars they have to pay, not only for Medicaid, but for everything else.
Rich Helppie
Yet we know what the headlines in the decaying media ecosystem say, which is nonsense; I'm glad that we're getting this information out there. And now the next phase of this too, to placate the Republicans, they've said we're going to put in work requirements and no, it doesn't affect the disabled, it doesn't affect the people that have dependent children. But if you're making up to four times the poverty rate and you're an able-bodied adult with no dependents, the law, as it just got passed, is that you need to put in 80 hours of employment or volunteer work every month, and you have to re-qualify every six months in order to take Medicaid. Now, past practice has shown that those work incentives don't work very well. First of all, I can't believe the amount of waste that's going to go into just setting up a system for eligibility. There's just cost going in there. It's another drain. And also think about the person receiving that benefit, that they're trying to put together 80 hours of work every month and then we're going to say, oh, by the way, you're the guy that needs to go and qualify with the state to continue to get your healthcare benefit. Is there a crazier provision in this bill?
Nate Kaufman
Well, no... yes, there is. But the issue really boils down to the fact that it has never worked. Arkansas tried this. It doesn't work. The bureaucracy is going to be created, the people are not going to sign up. They're not going to be compliant for various reasons, from the fact that they're too busy to they're disabled to whatever. At the end of the day, we're going to have 11 million people for which hospitals and physicians would be paid something from Medicaid, who will become uninsured. Now I just want to remind everybody about the healthcare triangle which is cost, quality and access. If you reduce cost, there's less money going into the system, then either access and/or quality is going to suffer. That's what happens. As a result, now we've got less money going to cover more people, more uninsured, and that's going to create huge issues, especially in inner city hospitals and academic medical centers that depended on this business for survival.
Rich Helppie
The White House is saying that, based on their numbers, only about 5 million people that are in this Medicaid pool are without other insurances, and that they're now going to qualify for more subsidies in the exchanges. Which, I'm a believer in exchanges if there was an actual market, but there isn't. So we don't really know how this is going to land, but I think it really speaks to how broken the system itself is. I will embed a link about some places we think this might need to go. Nate, as we get done with this rat-a-tat, another provision of the bill is $50 billion that is targeted for rural hospitals. It was 25 billion going into the home stretch and then got bumped up to 50 billion to get it passed. I know Missouri was involved in that, some other states senates. How much sense does this make about this $50 billion for rural hospitals? What do we know about it today?
Nate Kaufman
This is what we call a knucklehead provision. Here's the problem with rural hospitals - and this is from the Center for Healthcare Quality and Payment Reform - the difference between a financially successful rural hospital and an unsuccessful rural hospital that's probably going to close, is the rates they receive from private insurance. Medicaid, they basically are breaking even; Medicare, they're breaking even. If the private insurance company uses their big leverage to demand low prices from the rural hospital, that rural hospital will fail. That's why they join other systems, so that they can get better rates, so they can keep their doors open. This provision does nothing to deal with the private payer rates that rural hospitals receive. All it does is it reduces the number amount of Medicaid money and tries to compensate for it. Well, even if Medicaid didn't change at all, 600 rural hospitals are in trouble because the private payers are not paying sufficiently to cover the overhead. That's the problem. And just one last point, the whole issue here is our system is broken and has nuances that have unintended consequences. You think we're going to put billions into rural hospitals; it's not going to solve the problem because you don't understand the issues.
Rich Helppie
One hundred percent, and the question is, put $50 billion into that fund, how do you get it out? But I think it just punctuates the point, moreover, that if we had a working, functioning healthcare system - which we don't have a system - you wouldn't need to drop a special $50 billion off, it would be covered. I think we're together on this, the way out of this is actual reform. Take everything that's taxpayer supported - Medicare, Medicaid, TRICARE, dare we say the VA - that becomes one system. Every citizen, every green card holder, gets that, paid for right off the 1040 based on your income. Maybe a hundred dollars at the low end, maybe it's $75,000 to $100,000 at the high end - haven't done the exact numbers on that. That would be a way to set a base. Let there be a private insurance system for those that want more, but if your employer gives it to you, it's compensation, and that's something we'll talk about on another one of these Healthcare Bridge episodes. Then Medicare Part D is open to everybody. Problem solved if we had the political will. Nate, it's your show so I think you get last bat that can take us home here.
Nate Kaufman
Let me just mention one other thing about rural hospitals, which I think is really important and that is that Medicare, by definition, for most critical access for all hospitals, pays at break even. Medicare Advantage is a negotiated rate between the hospital and the Medicare Advantage plan. Medicare Advantage tends to pay 10%-20% less than Medicare fee for service. Now 50% of the country is in Medicare Advantage. How are you going to solve the rural hospital problems when the problems are private insurance and private Medicare, and you've just cut Medicaid? I mean, I feel bad for rural communities. Once you close a rural hospital it's tough to open it, so we're going to have deserts.
Rich Helppie
Well, and everybody's going to get hurt, because the other side of the Medicare disadvantage plan is that there's a gatekeeper denying care, as you've written and spoken about so eloquently many times. I encourage people to listen to you and Jamie Orlikoff on the Healthcare Bridge. United Healthcare and others like them, they deny care on one end, they cut the payment to the providers on the other end, and they make billions, which by the way, is tax subsidized, which is part of the insanity. That's all I got for you, Nate.
Nate Kaufman
Yeah, just more discussion about the insanity of healthcare. That's what it is.
Rich Helppie
All right, so long my friend, take care.
Nate Kaufman
Bye, bye.
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