Medicaid cuts threaten financially vulnerable rural hospitals

  • Rural Alaska health care providers who mainly serve patients on Medicaid and are often short on cash on hand are worried over proposed funding cuts that could impact their ability to continue operating. (Photo/File/AP)

Proposed cuts to the Alaska Medicaid program may fall the hardest on organizations that can least afford it: rural hospitals and health clinics.

Among Alaska’s budget line items, the Alaska Department of Health and Social Services is the gorilla in the room, with an approximately $3.2 billion budget in the current 2019 fiscal year. Within that, Medicaid services consume about $2.3 billion.

Gov. Michael J. Dunleavy’s proposed fiscal year 2020 budget, to begin July 1, would cut about $250 million directly from the Medicaid budget, though how those cuts would be implemented is still unclear. Overall, the 2020 budget would cut about 25 percent from the DHSS budget.

Medicaid provides medical coverage for Alaskans with disabilities, the elderly and low-income residents. Since former Gov. Bill Walker accepted the federal expansion for Medicaid eligibility in 2015, about a quarter of Alaskans receive Medicaid.

During a hearing Feb. 22 of the Senate Finance Committee, DHSS Assistant Commissioner Sana Efird said the biggest reduction in federal funds came from the Medicaid budget. The Medicaid program is administered by the state but funded in part by matching through the federal government.

“The reduction, at this point, it is allocated in the Medicaid services component,” she said. “We are currently working on a plan that will show the specifics of that that reduction will be allocated for.”

Finance Committee co-chairman Sen. Bert Stedman, R-Sitka, said Sen. Natasha Von Imhof, R-Anchorage, would lead a subcommittee specifically on the DHSS budget.

Those cuts could take shape as a reduced reimbursement rate or eliminating covered services. Von Imhof specifically noted a proposal to cut adult dental services from Medicaid coverage. Sen. Lyman Hoffman, D-Bethel, noted that the department is counting on renewing the Section 1115 waiver program, which allows states to use federal funds to cover Medicaid programs in ways not otherwise allowed under federal rules for the purpose of a demonstration project.

The state received a Section 1115 waiver in November 2018 to expand substance abuse treatment and would have to renew it in November 2023. Efird said the department leadership is currently working on another waiver application to cover other types of services.

Hoffman said the administration has “the cart before the horse” when counting on obtaining waivers in the future to pay for services with federal funds.

“You cannot balance this budget with federal funds,” he said. “You say may not affect people’s lives, but they may affect people’s lives.”

The Alaska State Hospital and Nursing Home Association asserted that the budget will force hospitals to close. Becky Hultberg, the organization’s president and CEO, said in a press release that the cuts will cost thousands of jobs.

“While Governor Dunleavy may not believe government has a role in health care, his belief is disconnected from the reality that our current health care system relies on government payments for a significant percentage of total services, and our entire system will crumble without them,” she said. “This is a classic example of ideology taking precedent over practicality, and all Alaskans will feel the consequences.”

Shaky Medicaid funding is already stressing rural healthcare infrastructure, and cutting it could push some rural hospitals and clinics over the edge. A report from health care consulting firm Navigant Health, released Feb. 22, noted that six hospitals in Alaska were at “high financial risk” of closing in 2018.

That financial vulnerability comes from a “degradation” of the payer mix, leading to more reliance on the low reimbursement rates from Medicare, Medicaid or uninsured patients, declining inpatient care and inability to employ new technology or innovation programs, according to the report.

Last summer, the state ran out of Medicaid reimbursement funds before the turnover of the fiscal year. For hospitals, that meant essentially holding their financial breaths until the state could appropriate more funding to pay for Medicaid patients; in 2018, that would have been longer than a month.

For the bigger hospitals that have a higher percentage of private payers and more cash on hand available, that’s doable; for the smaller hospitals, which sometimes have less than a month’s cash on hand to pay for emergency expenses and payroll, those delays could spell disaster.

Hospitals like Cordova, Homer, Seward and Wrangell rely on Medicare and Medicaid for about three-quarters of their reimbursements, according to a November 2018 report from ASHNHA.

In Wrangell Medical Center’s case, the situation became dire enough for the hospital to strike a deal with the Southeast Regional Health Consortium to join its network on Nov. 1, 2018, taking some of the financial risk out of its hands.

It’s been a huge relief for the hospital, said hospital manager Robert Rang. For one, SEARHC has invested in the facility, paying for new computer and phone systems. It’s also helped level off the concerns about the hospital’s cash-on-hand problem.

“Suddenly, now we have the ability to cover the lows,” he said. “Before, it was peaks and valleys in our revenue sources. We’d get our long-term care money once a month … With SEARHC, your ups and downs are not quite as noticeable.”

The other benefit to joining SEARHC was its status as a Tribal health organization. Tribal health organizations in Alaska operate a little differently on Medicaid; they draw down more on federal funds for Medicaid as opposed to relying on the state.

Pending changes at the federal level, that may buffer hospitals and clinics within Tribal health networks if the cuts at the state level are only to reimbursement rates as opposed to cutting services entirely.

For hospitals outside those networks, the hammer of those cuts may fall harder. At the Senate Labor and Commerce Committee hearing, Sen. Peter Micciche, R-Soldotna, asked that the state come up with a way to change program operations rather than just reduce appropriations because the shortfall lands in the laps of community hospital administrators.

“Ultimately, the reason I’m saying that is this is a tax shift in that my community-owned hospitals picking up the cost,” he said.


Elizabeth Earl can be reached at [email protected].

03/01/2019 - 3:24pm