Fixing the $1 Billion Federal Unfunded Heath Care Mandate

January 18th, 2017 by 4 Comments

By Kelly McCutchen

There is no question Georgia’s rural hospitals are struggling. The great majority of these hospitals are losing money every year and several have been forced to close. Their struggles were one of the primary reasons cited for Medicaid expansion. But before throwing money at the problem, it’s important to understand one of the fundamental causes: a massive unfunded mandate from the federal government.

In 1986, Congress passed, and President Ronald Reagan signed, the Emergency Medical Treatment and Labor Act (EMTALA) requiring hospital emergency departments to treat and stabilize all patients regardless of their ability to pay. Unfortunately, Congress didn’t appropriate funding to cover the cost.

Imagine a law that required McDonald’s to give away food or Holiday Inn to provide a free room to anyone who shows up at their door who says they can’t afford to pay. While helping the poor is laudable, you can imagine the problems this would cause.

The Georgia Hospital Association estimates Georgia hospitals provide $1.02 billion of health care services to indigent Georgia citizens in 2014. Who is paying for those services? We all are, either through higher taxes or higher medical costs.

The accompanying chart from the Georgia Hospital Association shows how Georgia hospitals lose money on the majority of their patients due to below-cost government price controls on Medicare and Medicaid and even greater losses on uninsured patients. The result: Patients with private insurance pay over 40 percent more than necessary to make up for the losses.

Clearly, if the federal government funded its mandate this would provide immediate relief to Georgia taxpayers and citizens: If hospital uncompensated care is fully paid for there is no need to overcharge private payers. With hospital costs making up about a quarter of all health care expenses, a reduction of 40 percent in hospital costs could reduce overall health care costs by 10 percent. That equates to more than $300 million a year in savings just for state government employees and teachers, and larger amounts for Georgia employers and families.hucc

How do we accomplish this commonsense feat in today’s difficult political environment?

Under current law, the federal government has committed to increase funding by $3 billion to $4 billion if Georgia expands its Medicaid program. The problem with this approach is clear by looking again at the chart: Medicaid reimburses hospitals for only 86 percent of their costs. Can’t we come up with a better plan than spending several billion dollars and still leaving our hospitals losing money? Granted, for hospitals, it’s better than the status quo, but not a long-term solution.

What do Republican plans look like? Each of the three major Republican plans that have been introduced – Burr-Hatch-Upton, Price and Sessions-Cassidy – plus Speaker Ryan’s Better Way plan, include provisions for individuals to receive a refundable tax credit (think of it as a voucher) for health care. The amounts vary by age and geography, but the average amount is around $2,500. Another provision allows for unused tax credits (from individuals who are eligible for the tax credits but don’t sign up for insurance) to be dedicated to support safety net providers. We propose combining these concepts to eliminate the unfunded federal mandate and provide care for low-income, uninsured Georgians.

How much funding would this amount to for Georgia? A recent study by Deloitte estimated 565,000 uninsured Georgians with incomes below the federal poverty line. Under any likely Republican plan, there would be approximately $1.4 billion (565,000 x $2,500) in federal dollars available to pay for the health care expenses of these indigent patients. Worst case, that’s more than enough to fully reimburse hospitals for their uncompensated indigent care. Best case, there is enough money for more comprehensive coverage that each community could customize to meet their own specific situation. Savings would be reinvested in the community to further improve services.

Consider these two approaches, both of which could be fully funded under this proposal for Georgia:

Altoona, Pennsylvania: According to the Robert Wood Johnson Foundation, this direct primary care model “began as a $99 per month program that offered patients full preventive and sickness visits, full lab and diagnostics, and full hospitalization with a vast assortment of common medications provided free or at low cost. Three years later, the rates have not increased on a population that is 100 percent sick – the worst ‘adverse selection’ group an insurance company can imagine. Contrary to popular opinion from the status quo predictors, the health of the group is improving and the admission rates to the hospital and ER are lower than similar physician groups in the area and are far less than traditional group plan admission rates that, in theory, offer more Cadillac benefits.”

Grady Health System, Atlanta, Georgia: In 2015, Grady and community health providers proposed transforming how they deliver care to the uninsured by enrolling 50,000 currently uninsured Fulton and DeKalb County residents in a model that would rely on strong patient engagement and care coordination with value-based care delivery with payments based on quality results and reduced cost per patient. The proposal is patterned after successful efforts at safety net hospitals in Minneapolis and Cleveland that reduced the costs of care while improving outcomes. By transforming how healthcare is delivered and reimbursed, Grady estimated a potential cost reduction of 12-17 percent achieved through reduction in utilization of the highest cost areas, a 23-35 percent net reduction in emergency room use and an estimated 9-13 percent reduction in inpatient services. This care model would emphasize preventive and wellness services to address the social determinants that prevent utilization of the health system in the right place at the right time. Memorial Health System in Savannah estimated similar results when applying this model to their community.

Democrats and Republicans will have their differences in health care policy, but we should all be able to agree that forcing hospitals to treat patients without payment has proved to be a terribly misguided policy. That’s why we’ve encouraged the State of Georgia to negotiate a federal waiver that fully funds the cost of caring for our indigent patients.

This is essentially an insurance policy against delay in Washington, an interim demonstration project that would end once replacement legislation is finalized. Who knows how long it will take to find enough votes to replace the Affordable Care Act? This would provide immediate help to struggling Georgians and struggling health care providers. It improves access to care for the poor and lowers the cost of care for consumers while empowering flexible, local solutions. By addressing one of health care’s fundamental problems, it should also make it easier for our leaders in Washington to find common ground.

Kelly McCutchen is President of the Georgia Public Policy Foundation, an independent think tank that proposes market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the view of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.

© Georgia Public Policy Foundation (January 20, 2017). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.

4 thoughts on “Fixing the $1 Billion Federal Unfunded Heath Care Mandate

  1. In regard to the Altoona clinic you mention, the Foundation’s health care webpage gives a link leading to a more detailed quantitative analysis by the clinic’s directon. It may be the only peer-reviewed research published in academic journal on the effectiveness of direct primary care.

    I hope Georgia decision makers will study that article carefully before deciding whether to bring the Altoona model to Georgia. Here’s some of what they will learn.

    Most of the $208,000 net savings reported by the program can apparently be accounted for by the fact that the entire physician staff for the 1500 patient clinic comprised one possibly underpaid part-time medical director (at $24,000 a year, $16 per patient per year) and two entirely uncompensated part-time physicians.

    Between the first year of the study (2009-2010) and the last (2011-2012) the clinic’s operating costs doubled. Over the same period, the net savings produced by the clinic fell by 96%, to $17,000 per year, an amount that might have been entirely wiped had the volunteer physicians been upgraded to minimum wage.

    Notwithstanding what the clinic director may have said elsewhere about adverse selection, his peer-reviewed journal article concludes, based on the only evidence it reports, that “clinic patients were comparable to [traditional insurance] patients with reference to hospitalization- likely chronic diseases.”

    Notwithstanding what the clinic director may have misstated prior to the journal article’s publication, the basic $99 monthly clinic membership fee apparently does not include full hospitalization. The peer-reviewed journal article lists only primary care services, including certain medications, in the basic package of care all members receive. The modest minority of clinic members who have hospitalization insurance get that benefit from other sources.

    The most salient data presented in the academic journal analysis, and the only data that compare insurance-free clinic results to results from insurance based primary care, showed that the hospital admissions rate for clinic members is about 55% of the rate for those who received primary care through insurance-based practices. The authors, one of whom is the clinic’s director, gleefully attribute this large difference to the efficiency of the clinic.

    For the years under study, about 1 in 6 adults in the US was uninsured. But only 1 in 16 hospital admissions during that same period was that of an uninsured patient.

    In other words, the uninsured typically have roughly 3/8th as many hospital stays as their insured counterparts. Maybe the uninsured have trouble paying for hospital stays?

    70% of the clinic’s members are uninsured for hospitalization; while 30% carry hospitalization. Based on these proportions it can be projected that the clinic population should have an average hospitalization rate of about 55% that of a fully insured population. Since a 55% relative rate is exactly what was observed, membership in the clinic can not be said to have had any significant effect on hospital admission rates.

    Take away the quarter million dollars in savings attributed to a claimed, but not demonstrated, reduction in admission rate and net savings produced by the clinic swing from a $208,000 net gain to a net loss of $42,000.

    It’s might a good thing that the clinic did not waste even more hospital money by compensating those physicians.

    1. In the current iteration of the Altoona clinic, the same author-founders quote by Kelly McCutchen above now price their plan at $4200 per enrollee., not counting enrollee cost-sharing.

      In other words, even these truest of true believers in the efficacy of direct primary care – the pioneers of McCutchen’s featured model – are apparently unwilling to take on the complete care of a clinic member for anything less than 167% of the Foundation’s proposed $2500 per capita budget.

      If the patron saints of Altoona don’t believe that health care can be fully funded for $2500 a year, why should anyone?

  2. The $2,000 annual cost in the Robert Wood Johnson article included approximately $800 a year to fund the primary care clinic and $99 a month for an indemnity policy to cover hospitalization. The number in the Post Gazette article is citing the cost of a commercial insurance policy. Grady’s proposal is based on calculations made in 2016.

  3. Thanks for engaging. The quick response is (a) the $800 Altoona clinic relied almost entirely on volunteer doctors and (b) the $99 hospitalization policy apparently failed, and the very people who had purchased that policy are redirected by the clinic itself to commercial insurance policies.

    On Grady, which I had not previous addressed, no one doubts that giving access to primary care to those who have newer had primary care will reduce their need for emergency services and hospital stays. Whether direct primary care of any variety is actually any better at this traditional insurance-based primary care has never been demonstrated.

    The only serious study of the relative efficacy of direct primary was set out in an academic journal article on Altoona clinic; the article discussed in my first comment above and linked on the Foundation’s web page.

    As I mentioned, that article reveals that the Altoona primary care clinic relied on volunteer primary care physicians to deliver the direct primary care. No wonder that clinic could be funded at $800 a year! The Post-Gazette article reveals that the very same clinic – now featuring paid physicians – is now funded at $1560 per year.

    Don’t even think of telling me, after years of proclaiming Medicaid a failure because underpaid physicians don’t take Medicaid patients, that your poster child Altona clinic is somehow overfunded .

    When you add an inflation update to the 2010 cost of $99 per month special Altoona hospitalization policy to the extra costs of actually paying physicians, the Altoona program’s bill rises by 44% over the $2000 figure you quote, to $2883.

    But that special Altoona policy no longer exists. It’s not me that is sending clinic patients to those commercial insurance policies; that’s precisely where the Altoona clinic now send the very same clinic patients who used to buy the $99 special clinic-patents-only policy. Evidently, that special policy was not viable.

    Which brings us to the Post Gazette’s reference to a $3000 per year policy. That is what a catastrophic policy for a 42 year man in Altoona – or Athens-Clarke County, Georgia would cost. Given that current law allows profit and administration to be no more than 20% of the cost, the medical costs that policy pays are at least $2400. So, even if Georgia Medicaid expansion could run at zero administrative cost (it can’t), the total bill for a direct primary care clinic + catastrophic coverage plan of the type the Foundation envisions would be at least $3,960.for Medicaid expansion.

    But that would still leave a little problem. That catastrophic policy has a deductible of about $7000. Since no low income family in Georgia has that kind of money, the burden will fall on Georgia providers; the costs of the first few days of any hospital stay will be borne by Georgia hospitals.

    Of course, that burden might be somewhat mitigated if direct primary care was more effective at reducing utilization of higher than primary medical services. But there is no detailed, quantitive evidence that effect, not even in academic writing about the Altoona clinic.

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