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The GOP Pulls Off the Medicaid Band-Aid. Ouch.

A consequence of last year’s Supreme Court ruling that upheld Obamacare – but allowed states to opt out of the Medicaid expansion – is that we would see GOP state governors placed in a real dilemma: They could either accept the Medicaid expansion and receive billions of dollars for their state health care systems from the Federal government at the risk of enraging their far-right base of supporters. OR the governors could reject the Medicaid expansion, leaving millions without coverage but still being able to say they stood up to that evil socialist plot to destroy America. Decisions, decisions… [1]:

Talking Points Memo
What The ‘Obamacare’ Decision Means For Medicaid
Sahil Kapur June 28, 2012, 4:58 PM

In a surprise move in its decision to uphold the ‘Obamacare’ mandate, the Supreme Court declared that states may opt out of the law’s Medicaid expansion without losing all federal funds for the program.

“In the 47 year history of the program, there has never been a successful challenge to any of the Medicaid expansions, so this was rather unusual,” said Ron Pollack, director of the consumer group Families USA.

The decision is expected to at least slow down implementation of the new Medicaid provisions. If states refuse to participate en masse, it could lead to significantly fewer people than the projected 17 million being covered under the Medicaid expansion.

The Supreme Court held that the Medicaid expansion in itself constitutional. But it essentially decreed it a new program, which means states cannot be punished for turning it down. The court rejected the Obama administration’s argument that states must accept the expansion or risk losing all federal Medicaid funds.

“The practical effect is that it will make the Medicaid expansions go more slowly,” said Sara Rosenbaum, a professor of health law at George Washington University. She added that it may be left to future courts to determine which parts of the Medicaid expansion count as a new program and which parts are merely additions to the existing one.

Republican governors will face pressure to reject the Medicaid expansion or risk being accused by conservatives of willingly embracing a big part of ‘Obamacare.’ But there’s an incentive in the other direction; namely: a huge cash gift from the federal government, which covers the full cost of the first three years of expansion.

One of the problems with not accepting the Medicaid expansion is that a key assumption behind the cost-cutting in Obamacare centers around the idea that Medicaid receipts to hospitals would go down per patient but there would be more people covered by Medicaid overall. Hospitals could make up the lower per-patient revenue with higher volumes. In the states that don’t expand their Medicaid coverage, however, the hospitals will still get paid less per Medicaid patient but they won’t get the increased volume of patients due to the increased coverage. So it isn’t just uninsured poor people that are in the cross-hairs of this fight. The hospitals get hurt too, along with their staff and patients. Non-profit hospitals that serve large numbers of Medicaid patients will be especially hurt [2]:

Hospitals Prepare to Cut Care in Medicaid Opt-Out States
By Stephanie Armour – May 14, 2013 12:06 PM CT

With 15 U.S. states opting out of President Barack Obama’s Medicaid expansion, hospitals that treat poor and uninsured patients are asking the government to delay $64 billion in planned funding cuts.

Medicaid funds to hospitals with a disproportionate share of low-income patients will be cut 50 percent, or $14.1 billion, from fiscal 2014 through 2019, according to draft regulations to be published in the Federal Register tomorrow. The American Hospital Association wants to delay by two years the start of the cuts for Medicaid and for $49.9 billion in reductions by Medicare, the health program for the elderly and disabled.

“They decided not to look at the effect of health care reform,” Tom Nickels, senior vice president for federal relations in Washington for the hospital association, said in a telephone interview today. “They don’t penalize states that have chosen not to expand.”

The reductions are mandated by President Barack Obama’s Affordable Care Act, and were supposed to be offset by an increase in the number of patients who would gain insurance through an expansion of state Medicaid programs. With some Republican-led states deciding not to cooperate, a loss of funding without a gain in more insured patients would hamper hospitals ability to keep caring for underserved populations.

“It’s a kick in the gut,” said John Bluford, chief executive officer of Truman Medical Centers in Kansas City, Missouri, which estimates it may lose as much as $150 million in Medicaid payments over seven years. “These are real dollars. It would wipe out our margins.”

Tenet Profit

The rules being circulated this week show Medicaid would reduce the so-called DSH payments by $500 million in the fiscal 2014 year starting in October. For 2015, $600 million more would be cut with the annual reductions reaching $5.6 billion in 2019.

For the first two years, the funding cuts won’t be based on whether states have opted to expand Medicaid. Tenet Healthcare Corp. (THC), the third-largest for-profit hospital chain in the U.S., estimated in February the Medicaid and Medicare cuts would cost it $35 million in government payments in the fourth quarter. Dallas-based Tenet has 26 percent of its beds in Florida and 20 percent in Texas, both states where the Republican governors have opted not to expand Medicaid.

HCA Holdings Inc. (HCA), the largest for-profit U.S. hospital chain, has 25 percent of its beds in Texas and 25 percent in Florida, according to said Brian Tanquilut, an analyst at Jefferies LLC in Los Angeles.

Saving Grace

For-profit hospitals like Tenet are unlikely to pass along the costs of the cuts to consumers in the way of raising rates to non-government payers, Tanquilut said. “They’ll eat it.”

Cuts in the Medicare DSH payments also will be offset by a separate April 26 regulatory proposal that would lead to a 0.8 percent net raise in overall Medicare payments for services that elderly and disabled patients get after being admitted to hospitals, Tanquilut said by telephone.

The overall Medicare rate — which includes the Medicare cuts to hospitals that treat a large number of low-income patients — should keep HCA’s earnings before interest, taxes and amortization expenses within its February 2013 guidance, R. Milton Johnson, president and chief financial officer, said on an April conference call with investors.

The saving grace for for-profit hospitals, Tanquilut said, is that the Affordable Care Act will bring financial benefits that nonprofit and public hospitals like Truman Medical won’t see. Large, urban hospitals that provide the biggest share of charity care and treat more Medicaid patients are most at risk, Moody’s Investors Service Inc. said in a March 14 report.

Tight Bind

With only about one-fifth of their patients having commercial insurance, these safety-net hospitals typically have profit margins of about 2.3 percent, a third of the industrywide average for all hospitals, according to 2010 data from the National Association of Public Hospitals and Health Systems. Losing Medicaid funding and not gaining more insured patients would swing that margin from a profit to a loss of 6.1 percent.

Hospitals may try to recoup losses by limiting the amount of care they provide to the uninsured or reducing staff, John Graves, an assistant professor at the Vanderbilt University School of Medicine in Nashville, Tennessee, said by telephone.

“They’re in a tight bind,” Graves said. “They have to recoup those losses through fewer services, shutting down.”

Death By A Thousand Cuts Indirect Hostage-Taking

To the surprise of many, the Obama administration called for a delay in the Medicaid cuts for states that opt-out of the expansion [3]. So are the hospitals out of the danger zone? Well….another predictable consequence of all this is that, given the choice to expand healthcare coverage for poor people vs sticking it to Obama, sticking it to Obama was going to be a clear winner in a lot of states. What wasn’t obvious, however, was that the GOP might be willing to shut down the Federal government in order to stop Obamacare’s implementation. Granted, they were most likely going to threaten to shut down the government over something, but limiting healthcare access to poor people was never the obvious play from the GOP’s playbook [4]:

Talking Points Memo
Conservatives Step Up Push To Undercut GOP On Obamacare
Sahil Kapur September 13, 2013, 6:00 PM

Obamacare is becoming a huge headache for the Republican Party.

Conservative advocacy groups are rallying behind House legislation backed by 43 Republicans [5] to threaten a government shutdown unless Obamacare is defunded, undercutting GOP leaders’ efforts to lock in low spending levels [6] by goading the party into a self-defeating confrontation.

Within 24 hours of its Thursday release, Sen. Mike Lee (R-UT) threw his support behind the bill, as did the well-funded groups Club For Growth, FreedomWorks and Heritage Action.

“The Club for Growth strongly supports the legislation offered by Congressman Tom Graves to save America from Obamacare,” said Chris Chocola, the group’s president, boasting that “momentum is building” to stop the health care reform law.

House GOP leaders, who have few votes to spare, are determined to pass their proposal to continue spending at sequestration levels and force a Senate vote to defund Obamacare without risking a shutdown. House leadership is open to tweaking the specifics but they want to achieve three goals: continue the sequester, give Senate Republicans a chance to fight Obamacare and maintain leverage against the health care going into the debt limit fight. The 43 Republicans behind the Graves bill haven’t implicitly committed to opposing leaders’ version.

Conservatives, meanwhile, are undercutting — and infuriating — Republican leaders who want to be pragmatic about what they can achieve in the continuing resolution. Democrats, they recognize, are vulnerable on spending levels but won’t cave [6] on Obamacare. As a result, if the hard right’s desires get in the way of reaffirming sequestration cuts (even temporarily), the GOP may lose on all fronts. Veteran Republicans realize the party out of power will be blamed if the government shuts down, and their negotiating hand weakened over how much it should spend upon re-opening.

The conservative opposition to Obamacare has become unappeasable and it’s tearing the GOP apart. The base is anxious to make a stand now because implementation of the law is set to accelerate on Oct. 1 and its major components poised to take effect on Jan. 1. Advocates privately gloat about their chances of sticking it to GOP leaders as they mobilize in favor of a standoff. Stare down President Barack Obama until he blinks on his own signature achievement, they demand of the GOP, even if it means shutting down the government. But Republican leaders aren’t optimistic that he’ll blink, and worry that initiating this battle could damage their already weak brand and threaten their otherwise secure House majority.

The House GOP leadership proposal entails a two-pronged bill to fund the government until Dec. 15 at sequestration levels and force the Senate to vote on defunding Obamacare. The Senate can reject the Obamacare component, as is expected, and send the rest of the continuing resolution straight to the president’s desk.

Republican leaders tentatively plan on bringing up a stopgap measure next week, and aides maintain an air of confidence about success. They face a tough road to securing the votes for just about any bill to keep the government open. Will they succeed?

“That remains to be seen,” said a House GOP leadership aide.

The latest proposal by House Majority Whip Eric Cantor to threaten a default on the US debt in place of a government shutdown threat is another very non-obvious play for the GOP to call at this point. It’s not actually all that out of character for the GOP [7], but threatening to default on the national debt unless we all agree to keep limiting health care to the poor isn’t the obvious best move for the GOP in this situation. Everyone is used to a little zealotry for the GOP at this point but this just might be another overreach [8]:

Cantor: If We Can’t Defund Obamacare, Let’s Delay It
Sahil Kapur September 12, 2013, 10:40 AM

In order to persuade conservatives lawmakers to vote to keep the federal government funded past Sept. 30, House Republican leaders are proposing to stare down President Barack Obama over the debt ceiling by seeking a one-year delay of Obamacare.

At a closed-door meeting Tuesday, House Majority Leader Eric Cantor (R-VA) floated [9] a strategy [10] to delay the rollout of Obamacare for one year in exchange for lifting the debt ceiling. The meeting was focused on pitching a plan that lets Republicans vote to defund Obamacare without risking a government shutdown if the Senate rejects the idea, a move that is meeting fierce resistance [11] on their right flank, which wants to go further.

A senior Republican aide familiar with Cantor’s remarks said he was essentially trying to persuade his members that the debt limit, which the federal government is expected to hit in mid-October, provides a better opportunity than a threatened government shutdown to undermine Obamacare.

“He didn’t draw any red lines,” said the GOP aide. “He said it’s a better opportunity than [the continuing resolution] and a delay there is very doable.” The aide added that the concession wouldn’t necessarily just involve Obamacare; there could be other reforms. The aide admitted that it depends in part on what the president is willing to give up.

It all sounds far-fetched. After all, trading a government shutdown for default would be like trading a common cold for cancer. And it remains to be seen whether GOP leaders would let the economy collapse if they don’t get their way, or if they’re merely saying what they have to say to get through the shutdown crisis.

An upside to proposing the debt ceiling idea now is that it helps persuade Republican lawmakers not to withhold their support for keeping the government open. Cantor’s suggestion this week comes as Republicans are taking heavy fire from conservative advocates for refraining from risking a government shutdown over Obamacare. House leaders have postponed consideration [12] of the continuing resolution until next week to build support.

Last month, Speaker John Boehner (R-OH) floated the idea [13] of delaying or defunding the health care reform law in a debt ceiling package. But he, too, stopped short of drawing any red lines. A leadership aide described it at the time as an “option.”

Despite the anti-Obamacare frenzy consuming their right flank, Republican leaders recognize that both a shutdown and default would be a disaster for their party, potentially threatening their House majority ahead of a mid-term election when they hope to win back the Senate [14]. Their balancing act to satisfy conservatives enough to avert a shutdown but not to create expectations that threatening debt default is the way to go.

Then again, maybe this isn’t overreach at all that we’re looking at. Maybe it’s really an incredibly sneaky plan to simultaneously limit access to healthcare for people (a core value [15] held by much of the contemporary GOP base) AND blame it all on Obamacare. At least in some states…states that don’t accept the Medicaid expansion. Because by threatening to shutdown the government or defaulting on the debt over their opposition to Obamacare the GOP is still going to destroy the finances of hospitals in the states that refuse to accept the Medicaid expansion. That’s because that delay in the Medicaid cuts that the Obama administration agreed to in May [3] can’t actually be implemented until Congress passes a budget. Now all they have to do is ensure that the public blames all the hospital closures and healthcare problems that results from these cuts on Obamacare and not the perpetual budget and healthcare warfare waged by the GOP which [16] shouldn’t [17] be [18] too hard to do. If this wasn’t an accident, it was kind of brilliant. Except for the part about how the GOP has to explain shutting down the government or defaulting on the national debt. So it’s possible that the GOP is operating in “Mad Dog [19]” mode right now, and given the larger debt battles that are swirling around this issue, this is potentially a much scarier story about politically and ideologically-driven attempts to restrict health care to poor people than stories about politically and ideologically-driven attempts to restrict health care to poor people normally are [20]:

Without New Budget, HHS Finalizes $1.1 Billion in Medicaid Hospital Cuts
Dylan Scott 4:58 PM EDT, Friday September 13, 2013

Because a gridlocked Congress won’t be passing a new budget anytime soon, the U.S. Department of Health and Human Services finalized a rule Friday for $1.1 billion in Medicaid cuts to hospitals under the Affordable Care Act, cuts that could hit hospitals particularly hard in states that don’t expand Medicaid through the law.

President Obama proposed postponing the cuts one year in his FY 2014 budget because not every state is expanding Medicaid as originally planned. The cuts, which are to payments for hospitals that perform a lot of uncompensated care, were included in Obamacare because the law would cover more people, decreasing the overall amount of uncompensated care.

The president’s proposal reflected the reality that 20-plus states have refused to expand Medicaid coverage under the health care reform law. If the cuts went into effect, hospitals in those non-expanding states would receive smaller reimbursements from HHS without the compensatory expansion of coverage.

But without a new budget from Congress, HHS wasn’t able to implement the president’s proposal.

“HHS has no flexibility to institute a delay of the DSH allotment reductions without congressional action,” the rule released Friday said.

For those [21] governors [22] that still fear a dystopian world free of uninsured poor people It might worth reminding them that there would still uninsured people left in their states even if they accept it [23]. It’s a long shot, but it just might work.