Rural hospitals worry Medicaid transition could end essential funding

'We don't want to lose what we've gained'

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Part 2 in a series on Iowa's Medicaid changeover. Read Part 1 here.

CEDAR RAPIDS — Virginia Gay Hospital is working hard to keep its head above water.

The tiny hospital in Vinton is moving its medical records over to an electronic medical record system — a costly and time-consuming process that also is a federal requirement. And as with the rest of the health care industry, it switched to a new medical coding system on Oct. 1 — a process that took more money to implement and more time to train employees.

The hospital is trying to work within an accountable care organization — a way to manage a population’s health — and is pushing to have better care coordination for its patients.

But Michael Riege, the hospital’s chief executive officer, worries the state’s plan to transition 560,000 Medicaid enrollees to plans managed by four out-of-state companies by Jan. 1 could be the tipping point.

He also oversees a 40-bed nursing facility, a home health agency and four rural health clinics.

“We’re trying to do what the government wants us to do,” he said. “But there’s a limit, and I think we’re reaching that limit.”

Gov. Terry Branstad announced the changeover earlier this year. The state awarded contracts to four managed-care companies — Amerigroup Iowa, AmeriHealth Caritas Iowa, UnitedHealthcare Plan of the River Valley and WellCare of Iowa — in August, but it has not been a smooth rollout. The Centers for Medicare and Medicaid Services — the federal agency that must still approve the plan — has cited readiness concerns and held a series of calls this week with providers and advocates to gain additional feedback.

CMS reported 2,275 individuals in total sat in on the calls, during which providers told officials they have concerns with reimbursement rates or have not received up-to-date information, while consumers and advocates explained they still have not received enrollment packets and questioned if provider networks would be adequate.

CMS officials said they will conduct four site visits in Iowa in early December to determine the state’s readiness, which will include determining if the necessary provider networks, staffing and information systems are set up to ensure a smooth transition.

The governor has defended the plan and timeline, and has said increased Medicaid costs are the driving reason for the switch — costs have increased 73 percent since 2003, according to the state — and the move has the potential to save $51 million in its first six months.


But rural providers — who already face tight budgets and small staffs — are concerned what the transition will mean for their bottom lines, some health care administrators say.

Iowa has a large rural health care system, made up of about 82 critical access hospitals — a special designation for smaller 25-bed facilities — and 142 rural health clinics. These facilities care for more than 1.4 million people, about 46 percent of the state’s population.

Rural populations tend to be older and poorer than those living in urban areas. Because of that, rural hospitals are more reliant on government-funded health plans.

As with their urban counterparts, rural hospitals say the timeline is too rushed and the contracts contain concerning statements. One contract, for example, prohibits providers from having direct communication with a governmental agency without the managed-care organization’s permission, and another contract states providers cannot sell any assets without permission.

Rural residents in Iowa are older, make less money

Rural and urban areas of Iowa were defined by the USDA. Census data was last updated in 2013. To download the data, click here.

Rural hospital administrators say it’s a challenge to get through the hundreds of pages in each of the four companies’ provider manuals — some of which are out of date or still in draft form. Some administrators are seeking outside legal counsel, but others don’t have the financial resources and are instead relying on the help of one or two employees.

There’s also a handful of other concerns rural hospitals have, including a shorter time frame to submit bills, added paperwork and increased preauthorization for services and tests, such as an MRI.

“The use of preauthorization is a way to say no,” said Steve Slessor, chief executive officer at the Buchanan County Health Center in Independence.

Medicaid patients make up about 10 percent of the payer mix at the hospital, which also has a long-term care facility, Slessor noted. He hasn’t signed any contracts yet, but he has — with the help of his chief financial officer — reviewed the documents for two and had meetings with the other two.

The hospital brings in a number of specialists from Cedar Rapids and Waterloo to provide services to patients, in addition to working with an independent group in town, he said. The addition of four new Medicaid managed-care organizations has the potential to really complicate things, he added.

Unless the hospital, all the specialists it works with and the other physicians group all sign with all four companies, patients may not be able to continue to receive the care they have been getting, he said.

“It does almost feel like an all-or-nothing decision from a hospital standpoint,” he said.

Serious consequences

But his biggest worry is over something called cost-based reimbursement and if the managed-care organizations intend to keep this essential lifeline in place.

The CMS created the critical-access designation in 1997 to put a stop to a string of hospital closures around the country by adding financial stability. Cost-based reimbursement allows designated hospitals to be reimbursed at a higher rate to help offset lower patient volumes.

Under the current Medicaid system, small rural hospitals are paid an interim rate for each Medicaid patient they see, said Dan Royer, vice president of finance policy at the Iowa Hospital Association. Then at the end of each year, they calculate the total cost of providing care.

If the cost exceeds what they already were paid during the year, the state pays the hospital the difference, he said.

However, under managed care, critical-access hospitals will continue to receive their current predetermined rates for services provided to Medicaid patients, but they will not receive the cost-settlement payment at the end of the year, he said.

“Therefore, any hospitals whose costs increase beyond what they have already been paid will experience a financial loss,” Royer said. “For hospitals that currently operate under extremely thin margins, this change could have serious financial consequences.”

The Iowa Hospital Association has come out against the transition — going as far as filing a petition for declaratory judgment and injunctive relief with the Polk County District Court, asking the court to delay implementation until a legal conflict is addressed.

“We don’t want to lose what we’ve gained,” Virginia Gay’s Riege said. “And we need some assurances that cost-based reimbursements will stay.”

Medicaid patients make up 10 to 14 percent of Virginia Gay’s payer mix, he said, and he fears the change could reduce what the hospital is paid.

“But I don’t know if anyone is listening or not,” he added.

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