Report: State hospital profit margins down after Medicaid expansion

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Montana hospitals’ total profit margin sunk by 40 percent during the state’s first full year of the Medicaid expansion, according to a new report by the Montana Hospital Association.

“More Montanans are covered by health insurance and are receiving the care they need, at the time they need it,” said Dick Brown, Montana Hospital Association chief executive officer. “At issue are the payment shortfalls that hospitals continue to absorb in order to provide around-the-clock care in our rural communities.”

When the expansion, also known as the HELP Act, became law in 2015, health officials predicted 45,000 Montanans would enroll by 2020. As of May, more than 77,000 people had signed up.

The new report, released Wednesday, included data provided by 31 hospitals across the state, including Kalispell Regional Medical Center and North Valley Hospital in Whitefish.

When the state’s expansion went into effect last year, supporters predicted it would create a financial windfall for hospitals as uninsured patients found a source to pay for treatment. But the Montana Hospital Association’s report shows the expansion’s financial impact on hospitals is more complicated than that.

Over the last year, hospitals experienced increased use of services by newly insured patients. But reimbursement rates from Medicare and Medicaid fall below the cost to provide treatment.

As more patients found coverage through government payers, patients with commercial insurance dropped 11 percent from 2015 to 2016, according to the report.

At the same time, as part of the deal when state lawmakers expanded Medicaid coverage, hospitals were required to accept Medicaid payment amounts for treatment of people in state or local institutions and prisons.

“With reimbursement from Medicare, Medicaid and some managed care plans falling below the cost to deliver care, cost-shifting and the reliance on other revenue streams become more acute,” Brown said.

Statewide, Medicaid accounted for 16 percent of patient charges in 2016, compared to 11 percent in 2015.

At Kalispell Regional, from April 2015 through March 2016, Medicaid accounted for 7 percent of the hospital’s patient charges, according to a Kalispell Regional spokesperson. The hospital also had an operating margin of 0.8 percent. The following year during that same time frame, Medicaid dollars jumped to cover 13 percent of patient charges and Kalispell Regional broke even.

Brown said while each hospital’s situation and financial outcome varies, uncompensated care has generally improved.

Statewide hospital charity care, or charges absorbed by a hospital when a patient shows a financial need, dropped more than 53 percent from 2015 to 2016, according to the report. Bad debt, or bills patients have refused to pay, declined by nearly 36 percent.

But Brown said those savings were offset by people not seeking treatment because of high-deductible plans and rising costs related to drug and medical supplies. He said hospital regulatory compliance and staffing needs also contributed to hospitals’ loss of revenue.

THE REPORT was released as U.S. Senate Republican leaders craft a national health reform bill to replace former President Barack Obama’s health-care law, the Affordable Care Act.

Senators who have created the proposal behind closed doors announced plans to release their version of national health reform to the public on Thursday, according to the Associated Press.

Still on the table for the GOP proposal includes a federal rollback of the Medicaid expansion, as well as a cap on Medicaid spending.

Montana Hospital Association Vice President Bob Olsen said those federal cuts would be the “worst thing they could do.”

“We supported expansion,” he said. “Giving people access to care and earlier in their medical condition, that’s the best chance of reducing cost over the longer haul.”

Olsen also said he expects health costs for hospitals to level out. He said the first year of the Medicaid expansion in each state it was implemented showed a ramp-up period. Meaning, uninsured people who harbored a need for surgery or medical care waited for treatment until they secured coverage.

He said he expects the wave of people waiting to access treatment until a health need is dire — and expensive — to begin to shrink. That is, he said unless Medicaid coverage is reduced.

“Those needs don’t go away,” Olsen said. “A rollback on the expansion and cap in Medicaid spending going forward puts tremendous new financial pressure on Montana. Some might want to see [rollbacks] happen, but should understand it’s their pocketbook on the state level.”

Reporter Katheryn Houghton may be reached at 758-4436 or by email at khoughton@dailyinterlake.com.

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