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Indiana’s hospitals face Obamacare timing problem

February 24, 2014

Obamacare is creating a timing problem for Indiana hospitals.

The delays of the employer mandate penalties that are expected to boost private insurance coverage, along with ongoing negotiations on an expansion of Medicaid in Indiana, mean it will be another year or two before hospitals see the additional revenue the law was supposed to bring them.

The Obama administration, which already said it would not enforce employer taxes for failing to provide affordable health insurance until 2015, issued another year’s delay Feb. 10 for companies with 50 to 99 employees.

Those moves are “credit negative” for not-for-profit hospitals, according to report issued last week by Moody’s Investors Service.

“The delay in the employer mandate causes a timing mismatch between the benefit of fewer uninsured patients and the negative impact hospitals face related to reduced payment updates and cuts to Medicare and Medicaid,” Moody’s analyst Sarah Vennekotter wrote in a Feb. 20 report.

Indeed, Obamacare’s cuts to hospital reimbursement, along with additional cuts passed as part of Congress’ latest budget agreements, are already taking a tangible toll.

Those cuts will total more than $6.5 billion between 2010 and 2019 for the roughly 165 hospitals in Indiana, according to the Indiana Hospital Association. That’s about $654 million per year, on average, over the decade.

Indiana hospitals bring in revenue of roughly $14 billion a year. So the federal cuts equal about 4 percent of hospitals’ net income. But cuts of that magnitude would effectively wipe out hospital profits.

And for rural hospitals, where profit margins are thinner, the cuts are pushing them into the red—if not matched by offsetting expense cuts.

Hospitals have responded with expense cuts. Three of the nation’s largest hospital layoffs last year occurred in Indiana, at Franciscan Alliance, Indiana University Health and St. Vincent Health. And smaller, county-owned hospitals have been cutting, too.

The hospitals facing the biggest reimbursement reductions serve lots of Medicaid patients and previously received “disproportionate share” payments for caring for a higher-than-normal number of poor patients. In Indianapolis, that’s Eskenazi Health, IU Health’s Methodist Hospital and Community Health Network’s East hospital.

But pretty soon, the cuts won’t just be staff; it will be entire services, warned Ed Abel, a hospital accountant at Indianapolis-based Blue & Co. He noted that roughly 20 percent of all Indiana hospitals don’t deliver babies—except in emergencies. Literally, every other year, more hospitals join that list.

“Sooner or later, whether they like it or not, they are going to have to consider whether they can continue to perform all the services they do,” Abel said.

The Obamacare cuts are difficult because they are certain, Abel said, while the benefits of coverage expansion can’t be quantified yet.

In Massachusetts, which passed a system similar to Obamacare in 2006, employer-sponsored coverage had increased 1 percentage point by 2013, even as the rest of the nation saw a 5.7-point decline in employer coverage, according to a report by the PricewaterhouseCoopers consulting firm.

Also, Indiana hospitals are hoping Gov. Mike Pence can make a deal with the Obama administration to expand the Healthy Indiana Plan, which would expand health insurance coverage to an estimated 182,000 Hoosiers with incomes below the federal poverty line.

If both those things happen, Abel said, hospital revenues should remain roughly where they were before Obamacare—depending on which hospital you’re talking about.

“There are some hospital executives that feel like it will result in an increase in payment, and there are some that think it will result in a decrease in payment. It’s kind of a glass-half-full, glass-half-empty sort of thing,” Abel. “The problem is, we don’t really know how much is being poured into the glass.”

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