Public hospital exec: ‘A grim menu of choices’ for Medicaid opt-outs

July 13, 2012

Bruce Siegel is the chief executive of the National Association of Public Hospitals, which represents the nation's safety-net hospitals. His members include more than 60 hospital systems, largely in urban areas. As public institutions, they tend to see a greater share of Medicaid and uninsured patients, and also provide more medical services that ultimately do not prove profitable.

That all made the Supreme Court ruling of the Medicaid expansion as optional a huge deal for Siegel and his members. "It's a pretty grim menu of choices," he says. We spoke Thursday afternoon about why he's taking governors' threats to opt-out seriously, what that would mean for public hospitals and how his group will push the White House for a fix. What follows is a transcript of our conversation, lightly edited for length and clarity:

Sarah Kliff: We're two weeks out from the Supreme Court decision, and there are a lot of governors who are either opposed or noncommital to participating in the Medicaid expansion. What does that mean for public hospitals?

Bruce Siegel: We see this as a huge problem. We're not surprised at how it's happening. We've seen some states and some governors turn back federal money in the past few years. You look at the stimulus dollars, for example. They could very well turn down Medicaid money.

You look at Florida, with Gov. Rick Scott there. He's had a fairly uneasy relationship with the hospitals in that state. It's been contentious over Medicaid for the last two years now. So I would take it all very seriously.

SK: Walk me through how this matters for the public, safety-net hospitals that you work with, and how that might be different from your private counterparts.

BS: Safety-net hospitals have about 40 percent Medicaid patients, so they're very dependent on Medicaid and what happens to it. I have some members that are 70 percent Medicaid. They also have a lot of uninsured patients, so they often get DSH payments [disproportionate share payments to hospitals that provide more uncompensated care].

We know we're going to see cuts to DSH funding and we're not happy about that. But we were hoping the Medicaid expansion would make up the difference, in places like Texas where you have a higher number of uninsured people.  Now, it looks like that may not happen

SK: I was writing about DSH payments last week and I was hoping you could explain why they're so important. They amounted to $11.5 billion last year, which isn't nothing, but is a pretty small part of Medicaid's $393 billion budget.

BS: It's important to keep in mind these payments don't go to every hospital. They are designed to target those who serve lots of uninsured people.  So DSH payments are very important for public hospitals in places like Mississippi, Alabama and Texas, really a lot of Southern states. They're not going to most hospitals. They're targeted to a very specific purpose.

SK: Let's say a big state like Texas, which got nearly $1 billion in DSH payments last year, doesn't participate. Game out what happens to the public hospitals in that state.

BS: The average American hospital has an operating margin of 7 percent. The average among our members is 2 percent.

We project that if you took away DSH, the margin drops to negative 6 percent. If that happens, you can't keep up a negative 6 percent margin for more than short time. After a year or two, you have to think about what happens next. You're having to think about what you shut down after a year or so.

We think there are essentially three options. One is you start cutting back on services. You start figuring out what isn't bringing in much revenue. And that could be things like community clinics or trauma services. You make some hard decisions.

You may be forced to go to local taxpayers. You find yourself basically putting this in the lap of taxpayers and tacking on the bill for your uninsured to their bills.

In the worst circumstance, you simply decide you can't go on in that situation and close your doors. It's a pretty grim menu of choices.

SK: How do you fight this at the state level?

BS: We're working in state capitals, trying to give our members facts to work with about what this does and doesn't mean, so they can have an intelligent discussion. There are different strategies for each state. We're raising awareness that you can't have it both ways. You can't say no to the coverage program and cut the DSH program in half, and have this work.. We need to get to a consensus that is a huge problem.

SK: And what about here in Washington? How are you working with the White House and Congress?

BS: We're going to have to find avenues in both places, and we don't quite know what they are yet. The administration will have to make their own decision about what legal authority they have to incentive states to participate.

SK: Does your legal team see any incentives that the White House could use?

BS: We think it's a bit early to tell. Our guess is lawyers are probably fighting about this at HHS while we speak. I'll let them get through that first. There are probably ways they can do this legally, but it's also a political question, of how much do you want this to look like coercion. This show is just beginning.

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