Gary Sokolow, a director in Fitch Ratings’ public finance healthcare group, told Fierce Healthcare that nonprofit hospitals didn’t have to worry for the past three years about taking care of patients showing up in their emergency rooms because many of those patients were either Medicaid beneficiaries or could be automatically enrolled in the program while the eligibility determinations were suspended.
“And now, not-for-profit hospitals are going to have to re-register patients in order to continue to get paid for taking care of them, otherwise that falls into the charity bucket, and you get no reimbursement for them,” Sokolow said. “If they show up in your ER, you’re going to have to take care of them.”
The public health emergency enacted because of the COVID-19 pandemic funneled more funding to states to allow them to expand Medicaid enrollment. The Consolidated Appropriations Act mandates that funding return to pre-pandemic levels, forcing states to cull Medicaid rolls between April 1 and Dec. 31, 2023. About 15 million people—17.4% of current beneficiaries—could lose insurance coverage as a result, according to the Department of Health and Human Services.
Fitch Ratings said that the expiration of the Medicaid continuous enrollment provision under the PHE will be “mildly dilutive” to NFP payer mixes and add to operating pressures. Also, the higher the volume of Medicaid beneficiaries NFPs handle, the more chance of an adverse effect on credit rating, as well the quality of care.
Rick Pollack, president and CEO of the American Hospital Association (AHA), wrote last week in a press release that hospitals have been working with states, patients and communities in an attempt to prevent more individuals from being uninsured. They’ve been “communicating directly with Medicaid patients on actions they need to take to reapply for coverage; making information and resources available to patients online as well as during appointments; and developing education and training resources for front-line staff, including community health workers and financial counselors.”
Sokolow said that “there were always disruptions to that for a variety of reasons. It’s a challenging population to take care of, often moving around and experiencing fluctuations in income. So, that problem was there before. But hospitals were given a sort of vacation for the last few years from having to deal administratively if someone showed up in their ER.”
The disruption in the current flow of Medicaid patients will come with extra operational costs, says Sokolow, and not just for administrating the reenrollment process. For one thing, there will be higher labor costs caused by a labor shortage. “If you’re already struggling operationally and have some other challenges in the ERs, this is just one more thing that’s going to make it hard for you to have a good year performance-wise.”
NFPs that function as safety net hospitals, with Medicaid and self-insured individuals comprising more than 30% of their payer base, will likely see greater revenue erosion with disenrollment, according to Fitch. NFPs have thinner operational margins, and an increase in uninsured individuals would put greater financial stress on them.
This will exacerbate what Fitch calls a “credit divide” between NFPs and for-profit hospitals. Hospitals with significant financial resources might get a rating of double A plus. Those that don’t—and a sizable number of NFPs fit into that category—might find themselves with a C rating, which Fitch describes as a “highly uncertain capacity for timely payment of financial commitments relative to other issuers or obligations in the same country or monetary union.”
Sokolow said that “there’s not a direct correlation, but usually highly rated hospitals have payer mixes that have limited exposure to Medicaid, or a manageable amount of exposure to Medicaid. If you’re a lower-rated hospital, you have a thinner financial cushion, smaller balance sheet, cash flow. You probably have a higher elevated exposure to Medicaid.”
NFPs don’t have shareholders as for-profit hospitals and healthcare systems do. “Any excess income that a hospital makes, goes back to the hospital,” said Sokolow. “The balance doesn’t really go to any investors that are out there.”
But NFPs do have voluntary boards of directors, and Sokolow echoed the advice given by the AHA that the boards and hospital executives they oversee need to be forging stronger ties with state Medicaid agencies and looking for ways to provide coverage to millions of people who might lose it.
NFPs need to have a good understanding of what their exposure might be as reenrollment continues. They should know “what plan the state has for helping to register Medicaid beneficiaries. And how that might flow through their own Medicaid populations and what the disruption might mean for them,” Sokolow said.
The effect of what Sokolow described as a once-in-a-generation inflation rate also acts as a disrupter.
“The acceleration of the inflation rate over the last year and a half has taken everybody by surprise,” said Sokolow. “Everybody’s scrambling as they wait for normalization to happen. I think it just came out that the Consumer Price Index rose about 5% from a year ago. That’s better than last year but, still, relative to history? Pretty high.”