Arkansas may soon emerge from a public health emergency even though some of its hospitals are facing such a severe financial problem that some are on the verge of closure.
When the federal government declares an end to the COVID-19 public health emergency, the state Department of Human Services will begin removing ineligible Medicaid recipients for the first time in three years.
The Federal Families First Coronavirus Response Act increased federal Medicaid matching funds in exchange for states that meet certain conditions. These include extending beneficiaries’ eligibility during the declared public health emergency, unless they have moved out of state, asked for coverage to end, been incarcerated, or died.
Medicaid is funded primarily by the federal government with a state grant and is administered by the states. It covers low-income individuals, many nursing home residents, and many children. As of December 19, 417,716 Arkansans were considered “extended” because they could not be canceled. That was 36.7% of the 1,138,372 Arkansans then on Medicaid.
Under Act 780 of 2021, DHS is required to complete the redefinition of eligibility for extended persons within 180 days of the end of the emergency. DHS is preparing for this to happen in the near future.
“Resolving the public health emergency will be the largest and most complex effort state Medicaid programs have undertaken since implementing the Affordable Care Act nearly a decade ago,” then-DHS Director Mark White said Nov. 4. White has since been named DHS Chief of Staff by Governor Sarah Sanders.
HOSPITAL FINANCIAL CRISIS
Some hospitals are “on the verge of a major financial crisis” due to rising labor and supply costs along with flat revenues, said Bo Ryall, president and CEO of the Arkansas Hospital Association.
“I could say three are in immediate risk of closure, and I would say another six or eight could be 30 to 60 days away from being in a dire situation,” he said Dec. 28.
Ryall said hospitals had to cope with rising costs for itinerant nurses and other temporary staff. To keep their full-time workers, they raised salaries that they can’t now reduce. Supply costs have increased. Hospitals cannot pass on their higher costs to customers as other companies do. Instead, they have to depend on payments from insurance providers, Medicare and Medicaid.
Medicaid hasn’t provided a general, across-the-board increase in the hospitalization rate since 2007, and those dollars haven’t been adjusted for inflation. Many hospitals receive $850 a day reimbursement if the patient has had heart surgery or a broken leg. Twenty-eight “critical access hospitals” in rural and underserved areas are paid more, as are UAMS and Arkansas Children’s Hospital, but that’s not enough. The last change to outpatient rates dates back to 1992, and it was a reduction.
Ryall said hospitals will lobby lawmakers this legislative session for increased payments.
“It’s overdue, and Medicaid is paying below cost,” he said. “This is a time when we desperately need help.”
Arkansas is paid the least by the federal government for Medicare patients because payments from the program are tied to an area wage rate. Because its wages are lower, Arkansas is one of the three highest-paying states in the nation, along with Alabama and West Virginia. Ryall said Medicare often underpays, as do privately funded Medicare Advantage plans.
Dr. Joe Thompson, president and CEO of the Arkansas Center for Health Improvement, said rural hospitals have been stressed by the emigration of younger, healthier people, leaving behind older, less healthy individuals who are more expensive to take care of. Unlike larger, urban hospitals, it is more difficult for rural providers to achieve efficiencies by consolidating.
The looming financial crisis was preempted by the state’s decision to expand its Medicaid population under the Affordable Care Act, otherwise known as Obamacare. Sixty hospitals have closed in surrounding states and while Arkansas has lost only one rural hospital in De Queen, the pressure is mounting. Thompson said the business model for rural health care is “broken”.
“I think the financial stability of the health care system is probably as fragile now as we’ve seen in the last two decades,” he said.
Arkansas Blue Cross Blue Shield president and chief executive officer Curtis Barnett said the insurer has partnered with health care providers through upfront financing and expedited payments. He increased the payment program for outpatient services and increased admission rates for rural critical access hospitals. He is looking into further changes related to improving quality and outcomes.
But Barnett said private insurers are only part of the payment system. Hospital administrators in some parts of the state have told him that 80% of their reimbursements come from Medicaid and Medicare.
“It’s not just about repayment,” he said. “It’s out there, what are the types and levels of medical services that communities need and can support? What is the role of telehealth in supporting local providers extending services? And then there are the workforce issues that many hospitals and also these communities also face with regards to how to retain and attract talent and how to enable these providers to operate at the peak of their license? All of these things go into a larger policy initiative that I think will be needed in the long run to bring some relief and get us probably where we need to be as a state.”
WORKFORCE NEEDS, HEALTH LEVELS
Thompson said a long-term strategy is needed to address the challenges facing the healthcare workforce. The shortage of nurses has been a problem for years. The shortage of doctors isn’t that challenging, but it’s still significant. Arkansas is blessed with growing physician training opportunities with two new schools of osteopathy and the Alice L. Walton School of Medicine, along with a new Lyon College-UAMS school of dentistry to open in Little Rock.
But the state has no residency opportunities for medical students graduating now. Historically, Medicare has provided the most funding for slots, but it has put limits in place in the last decade.
In addition to the unhealthy financial situation of Arkansas hospitals, residents of the state have serious physical health problems. Arkansas was ranked 48th in the latest America’s Health Rankings report by the United Health Foundation in collaboration with the American Public Health Association. The state dropped from 41st to 49th in food safety and from 38th to 44th in childhood immunizations.
“There is no part of the state that necessarily does better than the average in the United States,” Thompson said, including prosperous Benton and Washington counties in northwestern Arkansas.
Barnett said Arkansas Blue Cross Blue Shield now reimburses more for treatments for musculoskeletal conditions such as back and knee problems and rheumatoid arthritis than any other area for its commercial population. Heart disease and diabetes still rank first among the expanding Medicaid population covered by the Affordable Care Act. The increase in musculoskeletal payments is driven by an older, unhealthy, and obese population whose low level of physical activity it has been exacerbated by the pandemic, he said. There is also a large supply of doctors to treat these problems.
Barnett said 80 percent of healthcare costs are related to chronic health conditions, and people who suffer from such conditions are twice as likely to have a behavioral health condition as well.
Another area of cost increases is specialty prescription drugs such as biologics, cell therapy, and gene therapy, which account for about half of total drug spending. The availability of these drugs is on the rise, with more than 20 new ones expected to be released in 2023, Barnett said. About five are expected to be priced at a million dollars or more for a single-serving regimen.
Barnett said those costs pose serious risks to the economics of the health care system and to the sustainability of some plans, particularly those that are self-funded. She said the system needs to use pricing strategies, rely on evidence-based protocols, and ensure that drugs are prescribed appropriately.
He said the use of telehealth has declined. In 2020, 12% of insurer claims were related to telehealth, and at one point at the height of the pandemic, when many people weren’t going to the doctor, it was 30-35%. It dropped to 4.5% last year, with usage still high among behavioral health providers.
Editor’s note: The State of the State series provides twice-yearly reports on Arkansas’ major economic sectors. The series publishes stories early in the year and stories in July/August to provide an extensive mid-year update on the state’s economy. Link here for the State of the State page and previous stories.