This Georgia hospital shows why rejecting Medicaid isn’t easy.

June 26, 2013

The Affordable Care Act was originally written such that every state would have to accept a Medicaid expansion. But the Supreme Court struck down that part of the law last year. The result is an unexpected bind for safety-net hospitals in states that are refusing Medicaid. How bad of a bind? Just look at the choices facing Atlanta's Grady Memorial Hospital.


Grady hospital in Atlanta shows the difficulty for safety net hospitals in states that don't expand Medicaid. (David Goldman/AP)

Grady, Georgia’s largest hospital, with more than 950 beds, has long been considered the backbone of metro Atlanta’s health-care system. It serves about 600,000 patients every year, trains one-quarter of Georgia’s physicians and provides medical care to more uninsured patients than any other hospital in the state.

But like a number of other safety-net hospitals nationwide that provide uncompensated care to uninsured patients, Grady may be forced to make service cuts in light of Georgia’s refusal to expand its Medicaid program.

The state’s leaders have steadfastly opposed expanding Medicaid since expansion became an option last summer. Because of that development, Grady officials say that the Affordable Care Act could now be the worst thing to happen to the hospital — an 121-year-old institution that’s all too familiar with financial struggles.

As part of the original Affordable Care Act passed by Congress in 2010, Disproportionate Share Hospital payments —  DSH for short — were supposed to be gradually reduced by an estimated $17.1 billion between 2014 and 2020. Public hospitals have long relied on federal DSH funds to offset the costs of treating a large number of uninsured patients. Requiring states to expand their Medicaid programs would have brought in new money that more than offset the DSH cuts.

But things turned in June 2012 after the Supreme Court left it up to states to determine whether they wanted to expand Medicaid. Some conservative state leaders, including Georgia Gov. Nathan Deal, quickly and staunchly rejected what they viewed as another growing entitlement program.

Under the Medicaid expansion, Georgia would have received about $33 billion from the federal government over the course of a decade, while paying nothing during the first three years. After that, the state would only pay 10 percent of the expansion’s overall bill. Deal says the move would ultimately cost Georgia from $2.5 billion to $4.5 billion — a small fraction of the total money, but more than he says the state can afford.

If Georgia expanded Medicaid, Grady chief executive John Haupert says it would cover more than 27,000 uninsured patients now seeking free medical treatment at the hospital. It also would have helped the hospital with an estimated $60 million economic boon.

In recent years, Grady has received about $90 million in annual DSH funding. Matthew Hicks, the hospital’s vice president of government relations, projects that the Affordable Care Act will nearly slash that amount in half by 2018. Without the Medicaid expansion, the impending $45 million loss won’t be offset. “It's a double whammy,” he says. “You lose DSH funding, you don't have insured patients, and somehow you've got to make up that difference.”

Overall, Haupert and Hicks don’t consider Deal’s decision a deathblow for the hospital, but they said it would wipe out the modest $27 million profit Grady turned in 2012. More important, the Atlanta safety-net hospital might be forced to scale back its operations and defer millions of dollars worth of maintenance needs.

“You don't [cut expenses] by nickel and dime-ing the edges,” Haupert says in an interview. “You've got to wholesale eliminate clinical services to do that…Things like mental health, potentially obstetrics, and gynecology. Hard decisions to make.”

Haupert mentions those departments first because there are other service lines that simply can’t be cut. For instance, Grady houses the largest level-one trauma center within 100 miles of metro Atlanta and receives government funding for it. It’s also home to a world-class burn unit and an advanced stroke center that attracts private patients who are willing to pay out of pocket.

Although Grady is the second-largest mental health provider in Georgia — the first being the state’s prison system — Haupert says that closing that department may “cause the least pain.” It recently consolidated its outpatient behavioral health programs but still provides psychiatric treatment and outreach services to about 15,000 patients each year.

No matter where the downsizing occurs, Atlanta’s indigent population will undoubtedly feel the burden. “Any elimination of clinical services in a safety-net hospital is going to impact somebody and impact somebody big,” Haupert says. “It would mean reduction [of] services that are available to indigent patients.”

But there’s some hope for Grady and other safety-net hospitals. They could get a temporary reprieve if the White House can follow through on its promise to reverse an estimated $500 million in DSH cuts. In addition, Rep. John Lewis, a Democratic congressman who represents much of Atlanta, has introduced the DSH Reduction Relief Act, which would delay DSH funding cuts until 2016. Both efforts are promising signs for Grady.

“I think it definitely shows awareness on the part of the administration that they have to move cautiously with the implementation,” says Hicks.

Meanwhile, Georgia's governor in holding firm against Medicaid expansion. Although states such as Arkansas are finding a middle ground for expanding their Medicaid programs, Deal spokesman Brian Robinson argues that an effort toward compromise “isn’t going as smoothly” as originally thought.

“There’s not been some ‘Eureka!’ moment where all the states stumble on a way to make this happen,” Robinson says. “Absolutely every option provided to states at this juncture is unaffordable for the state of Georgia and probably for all other states, too.”

Deal, who is running for another term, probably won’t reconsider expanding Medicaid until after the 2014 gubernatorial election. Until then, he's likely to feel it’s safer for him to follow the party line than to explore innovative policy solutions. By that time, Hicks says, there may be more options on the table, thanks to Arkansas and other states that follow Democratic Gov. Mike Beebe’s lead.

“One of the benefits of delaying Medicaid expansion is that we can learn from the innovation that states like Arkansas are doing,” says Hicks. “We're actually going to get to see what this looks like and how it plays out.”

With each day that passes, however, safety-net institutions face potential program cuts. Or, as National Association of Public Hospitals CEO Bruce Siegel succinctly puts it: “When hospitals are held hostage, patients suffer, and nobody is thinking about the patients.”

While Grady’s enormous size may help the hospital weather the storm, other safety-net hospitals may not be so lucky. It’s very likely that smaller public hospitals will be hit harder.

“That [affects] safety net hospitals throughout the state,” says Hicks. “Memorial Health in Savannah, for example, is definitely impacted. Their payer mix is similar. The rural hospitals all have similar payer mixes. For us it's closing a service line. For them it's closing the hospital.”

Nevertheless, Haupert and Hicks hold some optimism. While national and state lawmakers have placed Grady and other safety-net hospitals in financial predicaments, both administrators says there’s a chance that could eventually change.

But for now, Grady officials, doctors, staff and patients can only wait and see how these decisions unfold.

Max Blau works as a staff writer for Creative Loafing, Atlanta's alternative weekly newspaper. He also contributes to Buzzfeed, Mashable, NPR, Paste Magazine, and other outlets. Follow him on Twitter at @maxblau.

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Brad Plumer · June 26, 2013