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Two unfortunate consequences: a one-two punch for hospitals and the working poor donut hole

Hospitals in North Carolina face a catch-22 of the worst kind: the $600 million kind, the kind they have no control over, the kind that involves politics.

Hospitals in North Carolina are seeing a financial hit they can ill-afford after state lawmakers in the General Assembly turned down the federal government’s offer to expand Medicaid last year. It would have added 500,000 uninsured poor to Medicaid rolls.

Now, those 500,000 people will remain where they have been: on the doorstep of the emergency room, where hospitals end up treating them anyway but have no hope of collecting. 

So-called “charity care” for the uninsured poor is taking a toll on hospitals, and on other patients indirectly.

“The hardworking North Carolinians who pay their hospital bills then have to pay more,” said Hugh Tilson, executive vice president of the N.C. Hospital Association.

But it’s also not good practice for the uninsured patients, who put off care until it reaches a crisis level. Or, who use the ER like a clinic.

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“One reason we support giving patients insurance is so they don’t have to come to the hospital to get their chronic diseases managed,” Tilson said. “For whatever reason, if expanding Medicaid is not what policy makers want to do, then we would like to work with them on another solution.”

The hit to hospitals’ bottom line was particularly acute in rural communities with older populations — like Western North Carolina — where there are fewer patients on private insurance to offset the cost of the charity care.

And then there’s the second conundrum caused by the lack of Medicare expansion. The federal government is notorious for not paying hospitals the true cost of treating Medicare and Medicaid patients. 

Patients on Medicare and Medicaid are a losing proposition for hospitals. The federal government doesn’t reimburse hospitals for the full cost of the care they provide.

Hospitals have been clamoring for an increase in Medicare and Medicaid reimbursements, but last year the opposite happened.

Hospital reimbursements were cut even further. The federal government pointed out that the blow would be softened, however, thanks to the Medicaid expansion and the Affordable Care Act, or Obamacare. With more people on Medicaid and more people now insured through Obamacare, hospitals would have fewer charity cases to write off, and that should offset the hit from shrinking federal reimbursements.

That didn’t work out so well for hospitals in North Carolina, however. They saw reimbursements shrink due to federal cuts, but didn’t shed charity cases as intended by Medicaid expansion.

Ron Paulus, CEO of Mission Health based in Asheville, said he understands the concerns of some lawmakers over Medicaid expansion. But federal cuts in hospital reimbursements were “predicated specifically on the assumption that Medicaid would be expanded in all states.” 

• For Mission, the cuts come to about $300 million annually, without the ability to offset those cuts through Medicaid expansion, Paulus said.

• For WestCare, which operates Harris Regional Hospital in Sylva and Swain Medical Center, failure to expand Medicaid is costing $600,000 annually.

• Haywood Regional Medical Center does not have an estimate on the financial impact due to the lack of Medicaid expansion.

And there’s even more to the picture than that. Hospitals with a disproportionate share of Medicaid patients get a special payment from the federal government, which recognizes the burden faced by fewer privately insured patients coming through the door.

The special payments are based in part on the number of Medicaid patients seen by a hospital.

“As a result, these payments will increasingly be made to hospitals in states that have expanded Medicaid, which will result in an accelerated punishment for North Carolina hospitals,” Paulus said.

The uninsured poor also got a double-whammy when lawmakers turned down Medicaid expansion. Medicaid expansion was supposed to work in tandem with Obamacare. Obamacare was supposed to pick up where Medicaid left off.

Assuming the poorest of the poor would be covered under expanded Medicaid, that income bracket wasn’t addressed by Obamacare.

Subsidies to offset the cost of health insurance only kick in for the moderately poor, but not for the very poor who were presumably going to be covered by a Medicaid expansion, leaving them in a coverage gap. 

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