If Gov. Robert Bentley's decision to reject an expansion of Medicaid stands, the results for Alabama hospitals could be disastrous.

Eric Fleischauer

An exception

The U.S. Supreme Court upheld the constitutionality of the ACA, but with an exception. The court ruled the federal government could not penalize states that refused to expand Medicaid by withholding assistance for their existing Medicaid programs. As drafted, ACA left states with no real choice on the expansion, because the states need federal funding to maintain their programs at any level. Alabama's Medicaid program receives $2 in federal money for every $1 in state contributions.

The court's decision, however, gave states a choice. They could either accept the expansion or not. Federal funds would cover the full cost of the expansion for three years, with the reimbursement amount gradually dropping to 90 percent.

Bentley and a handful of other Republican governors have said they would reject the expansion.

Bentley's decision would deprive more than 300,000 Alabamians of access to affordable health care. A recent study by the University of Alabama in Birmingham concluded that, between 2014 and 2020, an expansion would generate nearly $20 billion in new economic activities and $1.7 billion in additional tax revenue.

The issue for hospitals, though, could be the one that forces Bentley to reconsider his position.

About 16 percent of Alabamians have no insurance, meaning they have no private insurance and are ineligible for Medicaid or Medicare. Most emergency rooms — including those in the Huntsville Hospital Health System, which includes Decatur Morgan Hospital — are legally required to treat all patients, regardless of ability to pay. The cost of treating uninsured patients is huge, because for many patients the emergency room is the only option for health care.

The federal government helps offset these costs with Disproportionate Share, or DISH, payments. In the case of Huntsville Hospital, this means the federal government increases its reimbursement rate on Medicare services by an amount designed to help reduce the loss the hospital takes on uninsured patients. Huntsville Hospital receives about $20 million a year in DISH payments.

The whole idea of the ACA, of course, was to make sure everyone had insurance. If Alabama expanded Medicaid coverage — a certainty until the Supreme Court gave Bentley an option to refuse — hospitals no longer would have a significant number of uninsured patients. Patients would have access to preventive care, making emergency room visits less common.

Even those who ended up at the emergency room would have some form of public or private insurance.

Consequently, the ACA gradually eliminates the DISH payments. Their only function was to offset the cost of treating uninsured patients, and that was no longer necessary.

Hospitals lose money

Bentley's decision to reject the Medicaid expansion does not affect the DISH payments. The Huntsville Hospital system already has started losing the payments.

Regardless of Bentley's decision, Huntsville Hospital will lose $20 million. Statewide, hospitals received $308 million in fiscal 2011. Regardless of Bentley's decision, those payments will continue dropping until 2020, when they go to zero.

The problem is that the hospitals will still have just as many uninsured patients as they did before. Hospitals in states like Arizona, which is expanding Medicaid, will lose their DISH payments, but will be able to more than replace the lost revenue because essentially all of their patients will have some form of insurance.

The fact that Alabama hospitals will take a financial hit if Bentley refuses to expand Medicaid is a problem. In Alabama, the problem is worse than in most states.

A federal index determines rates of reimbursement for Medicaid and Medicare. The reimbursement rates for Alabama hospitals are among the lowest in the nation.

Private insurance reimbursement rates also vary by state. Blue Cross, which controls 90 percent of the state's insurance market, reimburses at extremely low levels in Alabama.

Breaking even is almost impossible for hospitals in Alabama. That's why Capella Health, which previously owned Parkway and Hartselle medical centers, got rid of all of its Alabama facilities. The for-profit company, hampered by low reimbursement rates, could not make a profit.

The low rates of reimbursement mean that Alabama hospitals have no financial cushion. They have whittled their costs to the point they are at the sixth percentile nationally, and many are barely solvent. Especially in rural areas, losing the DISH payments without gaining expanded Medicaid payments likely will result in many hospital closures. Even relatively strong hospitals such as Huntsville Hospital will struggle to absorb the loss of DISH payments without a corresponding expansion of Medicaid coverage.

Providing access to health care for more than 300,000 Alabamians is a persuasive moral reason for expanding Medicaid, but those 300,000 have no organized political voice. Alabama hospitals do. Maybe Bentley will listen to them.

Eric Fleischauer can be reached on Twitter @mile304 or eric@decaturdaily.com.