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HRH faces loss of Medicaid funds revenue

SoVaNow.com / December 05, 2013



With the next phase of the Affordable Care Act (Obamacare) set to kick in Jan. 1, hospitals in states like Virginia that have not expanded their Medicaid programs stand to lose millions in federal payments for uncompensated care.

In South Boston, Halifax Regional Hospital (HRH) projects a 14 percent reduction this year in payments for uncompensated care, around $300,000, according to hospital marketing and public relations manager Olivia Epps. In South Hill, Community Memorial Healthcenter expects to lose nearly a quarter million dollars as payments are reduced in 2014, said hospital spokesperson McKinley Perkinson.

In fiscal year 2013, Virginia hospitals received nearly $90 million in Disproportionate Share Hospital (DSH) payments. Out of that amount, CMH was allotted $1.2 million and HRH received approximately $2.1 million.

Further reductions will phase in over the decade until the payments are eliminated in 2020.

HRH Chief Financial Officer Stewart Nelson points out that the reduction in the DSH payments will occur whether or not Medicaid expansion occurs in Virginia, Under the Affordable Care Act, the DSH (“dish”) payments, made through the Medicaid program, are ratcheted down in the expectation that a growing number of Medicaid patients will provide fresh revenue for hospitals and other providers.

The DSH allotment helps to cover the costs of treating uninsured, low-income patients not covered under Medicare, Medicaid, the Children’s Health Insurance Program (CHIP) or other programs.

Starting in 2014, Obamacare phases out these DSH payments on the basis of a fundamental tenet of the law — that most Americans will have insurance coverage, either through Medicaid or through individual policies purchased from private providers. The expansion of Medicaid is one of the primary ways the law envisions covering low-income individuals, who currently account for the bulk of uncompensated care at hospitals.

However, Virginia has yet to decide whether it will accept the Medicaid expansion, which is funded entirely by the federal government for the first three years and 90 percent after that.

States have the option of rejecting the Medicaid expansion owing to a decision by the U.S. Supreme Court, which ruled that part of the Affordable Care Act unconstitutional, precipitating a major redesign of the program. The decision freed states to reject the expansion, which would cover individuals making up to 138 percent of the federal poverty level, or about $23,550 for a family of four.

Virginia is among the 21 states that have not accepted expanded Medicaid, although Gov.-elect Terry McAuliffe has promised to make the expansion a priority of his new administration.

For a hospital such as CMH, which posted operating income of $8.1 million in fiscal year 2012 (see sidebar), the loss of $240,000 will have no immediate effect on their operations or services, Perkinson said.

“CMH has been working on refining our operation to be more cost effective, and undertook a major analysis last year which resulted in additional efficiencies,” she said. As a result, the hospital has no plans to reduce or change the services it offers, notwithstanding the reduction in Medicaid payments.

The loss of DSH money is, however, a big deal for other Virginia hospitals whose uncompensated care makes up nearly 6 percent of all expenses. CMH’s uncompensated care made up 7.7 percent of its expenses and HRH reports that its uncompensated care was 5.9 percent of its expenses in FY2012.

HRH, which like CMH posted a surplus in 2012 — the hospital’s operating net income was $3.79 million — is taking a wait and see approach to the pending reduction in DSH payments. Epps said, “Halifax Regional Health System has been through challenging times before and will adjust to the changing environment. There are no specific plans but we continue to focus on achieving savings and growth from merger integration process. We will continue to monitor reimbursement changes.”

But Epps made it clear that Sentara Healthcare — the owner of HRH — as well as the Virginia Hospital & Healthcare Association supports Medicaid expansion in Virginia. “As we have done in the past, we will keep our employees, doctors, community and legislators informed on the impact of this and other changes,” said Epps.

HRH has $3.8 million in net income, but figure dropped last year

Halifax Regional Hospital's net operating income totaled $3,788,887 in fiscal year 2012 on net patient revenue of $85.5 million. With income from investments and other non-operating sources included, the hospital’s net profit exceeded $5.8 million for the period.

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