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Arkansas hospitals receive 44 percent of the cost of treating Medicaid members on an outpatient basis, a formula that costs the healthcare providers millions of dollars each year.

The payment system has been in place since 1992, and increasing those payments is one of biggest issues now facing the state's hospitals, said Paul Cunningham, senior vice president of the Arkansas Hospital Association. The association is hoping the state General Assembly will revisit the payment system during the 2007 session.

"It costs hospitals right at $38 million per year to treat Medicaid patients (on an outpatient basis)," Cunningham said.

The $38 million loss is based on 2004 data, the latest figures available, Cunningham said. The numbers today are probably much higher.

The Hospital Association plans to ask the General Assembly for an immediate 50 percent across-the-board increase in Medicaid payments, Cunningham said. The association would like to see hospitals receive 80 percent of their Medicaid outpatient treatment costs.

Those costs include hospital employees' pay, technology and other goods and services required to provide hospital care.

The impact of increasing the outpatient payments, in addition to the higher inpatient per diem cap now being contemplated, would be huge, said Pam Stoyanoff, senior vice president and chief financial officer of St. Vincent Health System.

The state Department of Health and Human Services has asked the Centers for Medicaid and Medicare Services to increase the hospital inpatient per diem cap to $850 a day from the current $675.

On the inpatient side alone, St. Vincent would cut its Medicaid treatment losses by $3 million to $4 million per year, Stoyanoff said.

Stoyanoff said the proposed increases are long overdue.

"It's ridiculous. I don't know of a state that reimburses for Medicaid at a lower rate than this," she said.

Stoyanoff said the low reimbursement rates do not make a lot of sense when one considers that the federal government reimburses Arkansas $3 for every $1 spent in the Medicaid program.

While there is a time lag in the federal payments, the Medicaid program basically pays for itself, she said.

Mark Lowman, vice president Strategic Development for Baptist Health, said around 9 percent of the system's patients are Medicaid enrollees, and that number has doubled in the past five years.

Arkansas has 680,000 low-income mothers, children and elderly people who receive Medicaid, Lowman said. Part of Baptist Health's mission is treating those people.

"Currently the payment is less than the cost of actually providing these services," Lowman said.

In 2005, Baptist Health recorded a $19 million loss in treating Medicaid patients on both an inpatient and outpatient basis, Lowman said.

Stoyanoff said hospitals also incur higher costs for treating Medicaid patients because few of them have a family doctor or primary care physician.

Lots of Medicaid patients substitute the emergency room for a primary care physician, Stoyanoff said. Much of the time, the Medicaid patients are seeking care for conditions that are not emergency situations.

As a result, already crowded emergency departments become even more clogged, Stoyanoff said, forcing hospitals to divert actual emergencies to other facilities.

All of those things add to hospitals' costs, she said.

Baptist's and other Arkansas hospitals' situation is far from unique.

In 2005, Medicaid and Medicare underpaid hospitals nationwide by $9.8 billion and $15.5 billion respectively, according to the American Hospital Association (AHA) Annual Survey of Hospitals. In 2000, the gap between the actual cost of treating Medicaid patients and the payments hospitals received was $1.4 billion.

The gap between Medicare treatment costs and payments was $2.6 billion.

More than 75 percent of hospitals received Medicaid payments that did not cover the actual cost of treatment, according to the AHA. And the downward pressure appears far from over.

The 2007 budget proposed by President George Bush proposed deep cuts to both Medicare and Medicaid. The original budget sought $13.5 billion in Medicaid cuts over five years. The proposed cuts have been delayed while Congress wrestles with the mid-term elections.

Meanwhile, Arkansas's strong economic performance — the state revenue surplus is projected to reach somewhere between $800 million and $900 million — may also affect Medicaid funding.

Gov. Mike Huckabee and leading gubernatorial candidates are calling for tax cuts, such as phasing out or eliminating the sales tax on groceries. The tax generates $224 million to $270 million a year, and a portion of those funds help pay for the state's Medicaid program.

However, two of the state's most powerful lawmakers, Sen. Jack Critcher (D-Batesville) and Rep. Benny Petrus (D-Stuttgart) told the Arkansas Democrat Gazette they are not as sure about eliminating the tax.

Both men said they don't want to eliminate the grocery sales tax now and then see the Legislature forced to raise taxes a few years down the road because more money is needed for education, Medicaid and other state services.




December 2006

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