Proposed American Health Care Act could have negative financial impact on safety-net hospitals

A study by the Commonwealth Fund suggests that beginning in 2020, safety-net hospitals will see a reduction in revenue and margins as a result of cuts and spending caps by the federal government under the American Health Care Act (AHCA). Although the study believes that safety-net hospitals in rural areas of states that previously expanded Medicare coverage under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) will be hit the hardest, it suggests that all safety-net hospitals will be affected by this proposed law.

The study reviewed 660 safety-net hospitals (hospitals that receive Medicaid disproportionate share hospital (DSH) payments) to determine the impact of the proposed AHCA. These hospitals provided 30 percent of all uncompensated hospital care in 2015. The ACA had previously allowed states to expand Medicare coverage to individuals under the age of 65 with incomes up to 138 percent of poverty, and the federal government provided enhanced federal funding for these newly eligible Medicare members. Thirty-one states and the District of Columbia had expanded under the law.

Changes

The AHCA would eliminate the enhanced federal matching rate and the individual mandate requirement of the ACA, and beginning on December 31, 2019, the enhanced matching rate would only be given for individuals that had been enrolled by December 31 and have not lapsed coverage for more than a month. A standard federal matching rate would be provided for those enrollees after the cut-off date. Additionally, the AHCA would eliminate the ACA hospital presumptive eligibility benefit which allowed a hospital to enroll low-income patients in Medicaid and receive Medicaid payment for the services provided to these patients up to three months prior their enrollment. The study also noted that the ACHA would impose federal per-capita limits on Medicaid spending. Some changes would not be cuts or caps, such as the restoration of previous DSH cuts made by the ACA to states that did not expand Medicare, and safety net funding to non-expansion states that would supplement payments to safety-net Medicaid providers.

The study assumes that with these changes, the safety-net hospitals will see a decrease in revenue and margins, especially those safety-net hospitals in rural expansion states. It estimates that the elimination of the individual mandate will result in lower Medicaid enrollment and less individuals seeking hospital care due to lack of coverage, and assumes that this would result in revenue reduction for the safety-net hospitals. Additionally, the hospital preventive presumption and retroactive eligibility elimination could cause a loss in Medicaid revenue and hospitals could be subject to rising levels of uncompensated care. The caps on spending would also reduce the revenues and net income because the caps would reduce the federal Medicaid spending and the study assumes that the states will reduce overall spending and reduce provider payment levels. The study does note, however, that safety-net to non-expansion states and the restoration of DSH payments would increase revenues for safety-net hospitals.

The fund believes that although some of the measures may increase the revenue for the safety-net hospitals, the ACHA would overall negatively impact safety-net hospitals, with hospitals located in rural areas most affected. The study suggests that this regulation would cause these hospital margins to drop from 2.9 percent to 0.5 percent by 2026. Safety-net hospitals in states that expanded Medicaid may see uncompensated care costs double by 2016, and hospitals in rural areas of these states which have a high amount of Medicaid payers would be most negatively affected.