The Beginning of the End?
At the time, I was surprised the hospital industry didn’t make more of this than it did because of where it might lead. “Couldn’t this cut the legs out from under hospitals?” I wondered.
I’m referring to Congress’ decision to repeal the Boren amendment as part of the Balanced Budget Act of 1997. In effect from 1990 to 1997, this amendment required state Medicaid programs to reimburse, on average, the actual costs that would be incurred by economical and efficient providers in caring for Medicaid patients.
This makes all the sense in the world. Essentially, states are “ordering up” Medicaid services on behalf of their low-income citizens, and the Boren amendment required them to pay for what they ordered. This requirement went away with the Boren amendment’s repeal. And as state budgets have been squeezed and squeezed and squeezed, so have Medicaid payment to providers.
In the early 2000s, Georgia hospitals went without Medicaid rate increases for several years. As the old saying goes, “Rust never sleeps.” Neither does medical inflation. So the effective payment rates went down by the cost of inflation for several consecutive years. Although there are some supplemental payment plans that make up part of the Medicaid shortfall, the net impact is that Georgia hospitals currently get paid approximately 90% - 92% (net of their contributions to a hospital tax program) of what they spend caring for Medicaid inpatients. Not what they charge or what they would like to be paid, but what they actually spend.
And Georgia hospitals are the lucky ones. According to Modern Healthcare, nationally Medicaid only pays, on average, about 62% of costs.
Medicaid patients represent a significant percentage of all inpatients: typically 15% to as much as 25%, depending on the local market. Losing money on this many patients creates a significant shortfall.
When any business loses a big chunk of money on a big chunk of its client base, it has three choices:
1. Stop serving those customers
2. Get someone else to make up for the loss
3. Go out of business
Because of EMTALA regulations and a societal obligation to care for those in need, Option 1 is not possible. Most prefer to avoid Option 3, but that outcome does creep up on some. Just this week, Optim Medical Center-Jenkins in Millen, GA announced its closure after years of financial stresses.
That leaves Option 2, which is where we are living today. Medicaid and Medicare deficits have been called a hidden health tax, a pretty apt description. These payment gaps contribute to the growing need for higher and higher deductibles and co-payments commercially insured patients are reeling from.
How long can this continue? Who knows. But it factors heavily in the economic stress both the healthcare industry and the broader population face.
I’m not that smart, but I figured out in 1997 that losing the Boren amendment was a very bad thing. I believe that in a real sense, it really may have marked the beginning of the end.