Issues to Watch

The Case for Modernizing Medicaid Hospital Payments

Pennsylvania's hospitals provide access to care for the state's most vulnerable citizens. Many of those citizens have health care coverage through the Medicaid program, known as Medical Assistance (MA) in Pennsylvania.

Medicaid is funded by the federal and state government, and provides safety net health care to the elderly, the disabled, low-income children, and families who are eligible financially and have no insurance.

Medicaid has historically paid hospitals less than what it costs to deliver the care. This gap has been widening in more recent years as Medicaid hospital payments have not kept pace with the overall cost of care (larger and more diversified workforces, older and sicker patients, new technology, and pharmaceutical costs).

The state sets payments for hospital care for Medical Assistance patients. In Pennsylvania, general acute care hospitals are paid, on average, 82 cents for each dollar that care costs for Medicaid patients--compared to a national average payment of 88 cents for every dollar spent caring for Medicaid patients.

Since Medical Assistance does not pay adequate rates, there is pressure for other health insurers to make up the shortfall left by Medicaid's lower payment rates--thus, creating a hidden tax on citizens who then are asked to pay higher premiums, or on whose behalf employers pay higher premiums to make up the difference. In other words, not only do hospitals get hurt by this inadequate payment system, so do taxpayers and businesses.

In addition to the state underpaying hospitals for care to Medical Assistance patients, there are differences between hospitals in the patients they serve and the care they provide. In addition to having sufficient funds to pay hospitals for care, the system needs to recognize hospitals' burden of caring for the Medical Assistance population given their health needs.

Some hospitals serve large numbers and/or have a higher percentage of Medical Assistance patients. Some hospitals with teaching programs or special services (such as trauma, obstetrics, neonatal, burn) have substantial "standby costs" to provide such programs or services, and may have a larger volume or higher percentage of Medical Assistance and uninsured patients in these special services. A significant percentage of the Medical Assistance insured population in Pennsylvania resides in more rural communities as well as urban communities.

The hospital community has been and will continue to seek Medical Assistance payment modernization. Studies and reports have verified the need for change. Given the long-term impact of the recession on patients and hospitals, and the expectation of major changes due to federal health care reform, Medical Assistance modernization is a continuing priority for the hospital community. Pennsylvania needs a budget that assures fair payments, and the state needs to implement a balanced system for payments to hospitals to care for Medical Assistance patients.