Published in Health Care

Shortfall in Medicaid payments to hospitals lessens impact of gains, groups say

BY Sunday, September 04, 2016 02:57am

Hospitals across Michigan benefitted from the state’s expansion of Medicaid two years ago. 

That’s because the hospitals saw declines in what they spent to provide care to people who either were unable to pay their medical bills or received some form of financial assistance.

Yet as hospitals reduced their bad debt and financial assistance in 2014, the amount they lost on providing care to Medicaid patients grew, according to an annual report by a trio of health care trade associations.

The higher shortfall in Medicaid payments to hospitals based on the cost of care, combined with an ongoing shortfall in Medicare payments in the 2014 fiscal year, nearly washed out the reductions in bad debt and financial assistance for hospitals, the Michigan Health & Hospital Association, Michigan State Medical Society and Michigan Osteopathic Association noted in the report.

“We’re still providing a large amount of care for patients that don’t have the ability to pay for it,” said Jim Lee, vice president of data policy and development at the MHA. “Medicaid shortfalls are still high and continue to increase. The shortfall from government payers continues to be a challenge that we have.”

The 133 hospitals in Michigan collectively reported a Medicaid payment shortfall of $843.4 million in the 2014 fiscal year, which compares to $769.9 million in the prior year.

Medicare payment shortfalls totaled $252.2 million, versus $306.5 million in the prior 12-month period.

Although the report covers just three months of the period following the state’s April 2014 expansion of Medicaid, there were marked declines in bad debt and financial assistance.

Bad debt decreased from $620.4 million to $561.8 million as thousands of new patients became eligible and signed up for Medicaid. At the same time, financial
assistance through free or discounted care provided by hospitals declined from $420.3 million to $353.1 million.

The MHA believes those declines are primarily the result of the Medicaid expansion and the formation of the Healthy Michigan Plan, Lee said. He anticipates that those declines will continue to show up in subsequent annual reports and demonstrate further declines in bad debt and financial assistance.

Along the way, the state’s population should get healthier because more people are covered and better able financially to access medical care when needed.

“People are no longer waiting to get care. Now that they have an insurance card, they are able to get care at a physician’s office or for a specific procedure at a hospital,” Lee said. “There are a number of research studies that (say) people who don’t have insurance delay their care, and that’s never a good thing for their health.”


A study by the University of Michigan Institute for Healthcare Policy and Innovation indicates that the launch of the Healthy Michigan Plan through the Medicaid expansion led to a decline by four percentage points in the number of uninsured people seeking care at one of 130 hospitals in the state over the last nine months of 2014. The number of patients covered by Medicaid increased by six points in the same period, according to the U-M study.

Overall, 94 percent of Michigan hospitals treated fewer uninsured patients from April to December of 2014 and 88 percent had more Medicaid-covered patients compared to the same period in each of the two years before the coverage expansion.

“This is evidence that broader availability of insurance coverage for residents of Michigan is translating into coverage at the time when people are most in need of it — namely, when they are sick enough to be in the hospital,” said Dr. Matthew Davis, the study’s lead author and a U-M professor of internal medicine, pediatrics, public policy and public health.“The Healthy Michigan Plan appears to be shifting the balance for almost all Michigan hospitals to have a higher proportion of patients who have insurance coverage.”

A recent study reported on by the Journal of the American Medical Association also found that the expansion of Medicaid in Arkansas, Kentucky and Texas resulted in significant increases in outpatient utilization rates and preventative care, improved health care quality, reductions in costly ER visits, and better health.


At the same time those kinds of benefits have occurred, there comes the big issue of increasing Medicaid payment shortfalls, which Lee expects will only go higher in the years ahead, potentially wiping out gains. He also anticipates that Medicare shortfalls, despite the opposite occurring in this year’s report, will grow as well.

“The pressure for Medicare will continue in terms of decreased reimbursement,” Lee said. “The notion is that what we are paid today will be the highest and in the future, it will never be as high as it is today. It will always be decreased.”

The MHA’s annual Community Benefits Report offers a glimpse of the trends and challenges hospitals face. It includes annual economic impact data showing health care in Michigan employs nearly 587,000 people directly, with 227,000 of them working at hospitals that pay nearly $34 billion in wages and benefits.

Health care providers and their employees also paid about $14 billion in local, state and federal taxes. 

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