Healthcare Reform: Hospital Advocacy and Medicaid in Texas

Ben Bradshaw December 6, 2011 Baylor University

Executive Summary Ben Bradshaw The Texas State legislature Medicaid is attempting to solve a budget shortfall of $25 billion by passing a budget, which would dramatically cut state funding for Medicaid programs. There has been concern among healthcare professionals, and those associated with them, as well as those concerned about the wellbeing of the beneficiaries of Medicaid that the cuts would put important healthcare organizations out of business and prevent necessary care from being given to those who need it. The cuts would certainly dramatically impact those on the program as well as the organizations providing their care. The Texas Hospital Association, among other groups, strongly opposes the cuts. It seems unlikely, in view of the budget shortfall and the determination of the legislature to fix the problem that the cuts will be undone. Therefore, the healthcare community needs to explore alternative means of financing the care of those on the programs. The Texas Hospital Association needs to create an alternative plan to Medicaid, with the approval of those they represent, which would meet the same goals at a lower cost. One potential methods of doing this is to place the burden of this care onto insurance agencies instead of the government. Emphasis will need to be put on prevention of the need for care where possible and the new measures should require that those who are able to pay for their own health coverage do so. The healthcare industry will not be able to win a Texan political debate on this issue and should instead focus on alternative means to receive payment.

Ben Bradshaw December 6, 2011 Healthcare Reform: Hospital Advocacy and Medicaid in Texas The healthcare industry is rapidly changing. It is one of the most highly regulated and politicized industries in our country. With the much new regulation coming into effect on the federal level, hospitals are very concerned about what they will have to change and how these new policies will affect their day-to-day operations. Medicaid is a major area of change in the healthcare political arena. The number of its beneficiaries has been steadily increasing in recent years and is about to take another leap forward. The Texas state government, due to budget shortfalls of $25 billion, contemplated dropping out of the federally funded Medicaid program (5). State Representative Warren Chisum explained his disproval of the state of federal regulations on Medicaid with these words: With Obamacare mandates coming down, we have a situation where we cannot reduce benefits or change eligibility (5). It is estimated that this cut could have saved the Texas government $60 billion over the next 6 years (5). If these cuts had occurred, the effect on the millions of patients in the program in Texas and the hospitals serving them could have been enormous. However, the outcry against this proposal has been enormous. Exiting the Medicaid program entirely has not yet happened in Texas, and is no longer imminent. Instead, there has been much discussion about making deep cuts and some legislation has been passed (10). There are many opinions on whether or not these cuts will be a good thing, but most of the public backlash has been negative.

Opponents of the cuts to Texas Medicaid fear that it would prevent the poor from receiving the care they need and decrease the number of physicians that would accept Medicaid patients (7). There are fears that the cuts will occur in areas that will hurt poor children and the elderly poor as well (9). These groups are viewed as some of those with the fewest political ties (9). Medicaid, in general, is considered a program for the poor. As such, cuts to it may seem heartless and inhumane. However, many questions can be raised about whether or not all of the people on Medicaid really need to be on it. The new form of Medicaid proposed by the federal government would allow many middle-class people to gain Medicaid benefits (14). Many people who could be making a living and paying for health insurance for themselves and their children have chosen not to and are already on Medicaid as a result. It is quite possible for well-educated people to stay in school and start having children early and be on Medicaid benefits. Our current social ideology seems to easily accept being on a government welfare program. However, this was not always the case. Many states still differ from one another in ideology, and thus their treatment of Medicaid (15). The entitlement programs, such as Medicaid, have created a sense of entitlement, which is encouraging some people who do not necessarily need the programs to participate in them. Perhaps the Texas government could consider replacing Medicaid with a system that would only help those who are truly unable to provide health insurance for themselves or their children. This would be preferable to cutting the program entirely.

In fact, there was indeed a major backlash against proposals to scrap Medicaid. The Texas government has decided to focus more on making cuts to Medicaid, instead of eliminating it (8). These deep cuts are also strongly opposed by many organizations (8). There is fear that these cuts could negatively affect hospitals, small healthcare organizations, poor children, and the elderly poor. The response to the proposed Medicaid cuts has been very emotional. It appears as though many of the opponents of the cuts think that the Texas state government is planning to replace Medicaid with nothing, but this is not the case. The Texas government plans to privatize Medicaid functions, believing that this will reduce costs (10). This move would be potentially beneficial to the insurance industry, removing some of the restrictions placed on them at this point. The effect on the insurance company could, potentially, be negative. They may end up having to subsidize some of the poor who are receiving coverage. However, the insurance companies have much better incentives than the state government to make sure that they only provide cheap, or free, coverage to those who really need it. They have more incentives to efficiently use their money than the government does. It is easy to see why the legislature is looking to Medicaid as an area where costs can be cut. Medicaid expanses are becoming overwhelming and will continue to grow; Medicaid is federally controlled in a very inflexible way and the new legislature on healthcare increases the burden on the states. The American College of Physicians (ACP) does not believe that Medicaid in its current form is currently financially viable; it must be fundamentally altered (6). They believe that it needs to be restructured to emphasize preventative care and give states more discretionary

control over their own Medicaid budgets (6). The current economic downturn could case Medicaid patient increases by as much as 50% in some states (6). The Texas state governments move to privatize some of the insurance functions is not a move the American College of Physicians approves. The ACP would prefer that Medicaid, where the federal government mandates it must be, be fully funded by the federal government (6). The ACP also thinks that the main purpose of Medicaid should be to provide insurance and coverage for low-income children and adults (6). The ACP also advocates increasing the payouts of Medicaid to better cover the hospital and physician expenses (6). Overall, ACP is pro-Medicaid but thinks it should be expanded and financed by the federal government as well as reorganized. However, the ACP has elaborated very little on what they think these reorganizations should entail, and what they have more clearly outlined would definitely not reduce the costs of Medicaid. It is unclear exactly what the healthcare communitys response will be to these cuts, though it seems mostly negative. The Texas Hospital Association (THA) advocacy group strongly opposes these cuts (2). THA is the only group that represents hospitals in Texas politically, representing more than 430 of them (1). THA claims the responsibility of advocating for these hospitals politically and, lately, has focused on trying to prevent the government from cutting hospital funding; especially in the form of cutting Medicaid (2). THAs first issue that it wished to address this year was the cuts to Medicaid/CHIP (3), which they are strongly opposed to. THA agrees that Medicaid must be reformed and reorganized, but expanded, not cut. (3).

THA sees the large numbers of un-insured in Texas as the cause of the burden on Medicaid (3). They think that providing insurance for these people is necessary and should be funded by the state (3). They seek to do this through state funded insurance exchange programs and regulations on the maximum price insurance companies can charge (3). If THA gets its way, Medicaid expenses will grow rather than shrink and additional costs will be incurred to insure more people as well as placing a heavier burden on the insurance companies. The Texas government will not listen to this kind of suggestion at this point. They will not consider expanding an already far too expensive program. THAs position does not seem to necessarily address the un-insurance problem. According to the Montreal Economic Institute, the insurance problem is more or less a job problem and ought not to be addressed by hospitals (4). If it is true that Medicaid is causing inefficiencies and not focusing enough on preventative care, then the state government is right to cut it and privatize some of its functions. It is increasingly the case that health care providers are refusing to accept Medicaid patients (11). However, the impact of cutting Medicaid could have very negative effects on the hospital industry if not adequately replaced. Some small hospitals and institutions may go out of business (12). Many hospitals derive a very high amount of their revenue from Medicaid (13). These hospitals may have to cost-shift, cut Medicaid patients as much as they can, or close (13). The dangers of cutting Medicaid are apparent. However, part of the rational for making the cuts is to switch the mentality to emphasize prevention (5). This would have to happen in order for

hospitals to survive the cuts. The hospitals, represented by THA, are, of course, opposed to having to make these very difficult and possible impossible changes (3). Based on where the majority of the complaints are coming from, it seems very probably that the cuts to Medicaid will put some small healthcare endeavors, like nursing homes, out of business. These organizations are heavily reliant on Medicaid to pay for patients that have no opportunity to pay for themselves the elderly poor. Larger hospitals will also be affected drastically by these cuts. Many of their patients are poor children and people who have no health insurance. However, in spite of the potential negative impacts, the Texas legislature is still looking at cutting this funding. It seems very probably that Medicaid funding will decrease. The Texas legislature must find a way to cut costs to overcome its $25 billion shortfall. The Texas Hospital Association is fighting a hopeless battle against an overwhelmingly Republican government that insists on fixing the budget problems. Healthcare is not the only area that will be cut, but it will certainly be cut. Medicaid is currently filled with perverse financial incentives (16). If these were to be corrected on the federal level, many of the rising costs of the program would not be so unbearable for the states and Texas would not need to try and get around the program on its own (16). However, in light of the current political environment, the Texas state legislature would be foolish to depend on the federal system being fixed in time to reconcile the state budget programs. Texas must consider alternative means of removing these perverse incentives in order to cut costs. The legislature is looking at cuts to Medicaid for these very reasons.

Healthcare organizations need to be aware of this political environment and act accordingly. The Texas Hospital Association may need to abandon its current battle in favor of a more winnable alternative. It seems advisable that hospitals and other healthcare groups focus on getting a good state-funded replacement for the Medicaid program. Instead of trying to avoid the cuts entirely, they should align themselves with the Texas legislature in understanding the importance of cutting healthcare expenses. Both the government and the healthcare organizations need to find a way to ensure that those who are capable of paying for their own health insurance or care are the ones getting billed for it. This means replacing Medicaid with a program that more carefully examines whether or not applicants need assistance for their healthcare. The healthcare system faces a unique problem that is not shared by other industries: it cannot refuse to sell its product to people who need it. For example, suppose a child in a poor family gets sick he will be taken care of; the question is who pays for his care? In the current system, the government will pay for him through Medicaid. If Medicaid is cut and not replaced by anything, the organization that takes care of the child will absorb the cost of his care. If this happens, many of these organizations will go out of business of have to cut down on how much care they can provide. If Medicaid is cut and some of its functions are privatized, an insurance company will be the one paying for this child. This seems like the most viable option. Insurance companies might have to subsidize insurance for poor families, but they would, therefore, have the best incentive not to provide cheap, or

free, coverage to those who dont really need it. If they are given good clear guidelines for who they must sell cheaply to, they will be very careful to watch for violations. By requiring insurance companies to provide coverage under certain guidelines and then giving them some discretion on when not to, incentives would be better aligned on both sides and costs would be reduced. The healthcare industry needs to promote privatization, as capitalist market principles will drive costs lower in those areas. The government needs to be careful not to put valuable healthcare resources out of business by not thinking through their decisions. The hospitals, nursing homes, and other providers need to align themselves and, through THA, present a plan to the legislature that would provide a solution to both the industrys problems and the legislatures problems. The only way that THA will be able to win their battle against the state legislature is to provide a proposal that will meet the governments goals as well as the goals of the people they represent.

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http://thenewamerican.com/usnews/health-care/7812-texas-house-approvessweeping-medicaid-reform-package 11. Seniors Guide. 2011, Where are the Medicare/Medicaid Providers? Seniorsguide.net Retrieved 12-1-11 http://www.seniorsguide.net/articles/where-are-the-medicaremedicaidproviders/ 12. Small Hospitals endangered by Medicaid cuts http://www.yakima-herald.com/stories/2011/12/02/small-hospitals-endangeredby-medicaid-cuts 13. Dranove, D. 1998. Medicaid-dependent hospitals and their patients: how have they fared? ncbi.com Retrieved 12-2-11 http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1070259/ 14. Alonso-Zaldivar, Ricardo. 2011, Medicaid for middle class? Yes, for now. Boston.com Retrieved 12-2-11 http://articles.boston.com/2011-06-22/news/29690740_1_health-care-lawmedicaid-low-income-children 15. Dilulia, John. 1998. Medicaid and devolution: a view from the states. The Brookings Institution. Retrieved 12-6-11 http://books.google.com/books?id=SWMN7WyrQcC&pg=PA263&lpg=PA263&dq=ideology+shift+medicaid&source=bl&ots=_YRok1 40SQ&sig=-4KIpUnapucpPC-qfF97nIUDmWQ&hl=en&ei=DELeTuP4BSJsQKVsLW_Bg&sa=X&oi=book_result&ct=result&resnum=5&ved=0CEAQ6AEwBA# v=onepage&q=ideology%20shift%20medicaid&f=false 16. Bass, Alison. 2011. Lets fix Medicaids perverse financial incentives before hacking its budget Careandcost.net Retrieved 1206011 http://careandcost.com/2011/04/19/lets-fix-medicaids-perverse-financialincentives-before-hacking-its-budget/