April 18, 2014

Be Careful What You Wish For

John D. McKinnon | 8/1/1995
Federal health-care entitlements have benefited Florida more than any other state. But a balanced federal budget would end the party. Florida business could get stuck.

Now that Congress appears at last to be getting serious about controlling the growth of federal health-care entitlements, what's at stake for Florida? Maybe a way of life.

"We are the health-care state," says Doug Cook, executive director of Florida's Agency for Health Care Administration. "When you make these kinds of reductions in national health-care spending - almost half a trillion dollars - it will have a direct negative impact on Florida's economy."

Predictably, hospitals, nursing homes and other health-care providers that live off federal dollars are screaming to protect their budgets. But a wide range of Florida business also worries about taking a hit. No one in Washington is actually proposing to restrict eligibility for Medicare or Medicaid. Instead, they're talking about paying health-care providers less to provide the same level of care to Medicare and Medicaid patients.

So who will pay for the difference? Unless there are dramatic gains in efficiency, much of the current cost of Medicare and Medicaid could well be shifted by health-care providers to private health-care plans.

"If the block grants reimburse providers for less than their cost, the cost shift goes back right on the private employer who's trying to pay for health care," says Jodi Chase, senior vice president and general counsel for Associated Industries of Florida, who's monitoring the action in Washington.

Another way the budget cuts could affect all Florida business is by reducing the state's over-all level of economic activity, at least temporarily. Says Lester Abberger, a lobbyist for the Florida Hospital Association: "Health care is the largest employer in this state, bigger than tourism. With so much of it financed through government programs like Medicaid and Medicare, the economic consequences to that industry are going to be catastrophic."

Congress wants to reduce Medicare spending from its current base line by $270 billion. President Clinton is not likely to go along with a cut that large, but may well give Congress half a loaf. That will still be a major hit for Florida health-care providers. Medicare alone pays for some 50% of hospital patient-days in Florida, far above the national average of 35%. If Congress and the President also agree to mandate more managed care for the recipients of federal health-care entitlements, that will also create losers among traditional fee-for-service physicians, as well as retirement communities that offer their own fee-for-service health care.

Congress' proposed cuts for Medicaid, which provides health care for the poor, are smaller, but they are proportionally deeper. And they are likely to be felt almost immediately if enacted. Who will get hurt?

Not just poor folks. As with Medicare, any cuts in Medicaid reimbursement rates that go below actual cost could wind up being paid by private insurance. Says Anthony Carvalho, a lobbyist for non-profit and public hospitals: "Reducing funding for Medicaid patients will exacerbate our problem tremendously. One thing we'll have to do is find ways to cost-shift to the private sector. It's more difficult to do because of managed care. But it's one of the few alternatives left to us."

Beyond that, the list of specific losers is a long one, according to analysts: It's topped by hospitals, followed by nursing homes, managed-care organizations, pharmacies, physicians, institutions for the handicapped, home health providers, transportation workers and community mental health providers.

This gets ugly. For example, under the Medicaid plan being considered by the U.S. House at mid-summer, the state's total Medicaid payments over the next seven years would shrink, according to the Florida Agency for Health Care Administration, from about $68 billion to about $53 billion. Lost income for Florida hospitals would come to $5.5 billion; for nursing homes, $3.2 billion; for HMOs and pre-paid health plans, $1.7 billion; for pharmacies, $1.3 billion; for physicians, $1 billion; for institutional care providers, $507 million; for home health-care providers, $246 million; for transportation providers, $210 million; for community mental health providers, $198 million.

To keep these numbers in context, it's important to remember that they reflect reductions in projected future growth, not absolute cuts in total spending. They're based on the assumption that Congress will cap Medicaid increases on a sliding scale from 8% in 1995-96 down to 5.5% next year, and 4% thereafter. But this projection compares with a Medicaid baseline that, due largely to extra demand created by an aging population and other factors beyond government control, has been growing by 10-12% in recent years. So real pain is coming.

No one is likely to be hurt as much as Florida's nursing homes, which now rely on Medicaid to pay for more than 60% of their patient-days. Capping Medicaid payments for nursing homes will force the state to stretch the money over a demand that is growing much faster.

"With many of the nursing homes, Medicaid money is the only thing that keeps them afloat," says Sen. William "Doc" Myers, R-Hobe Sound, a physician who is the state Senate's senior health-care expert. Myers notes that under scenarios now being debated in Washington, nursing homes could see their Medicaid reimbursement rates cut by 5 to 10%. "I don't know whether they can take that or not," Myers warns.

Many nursing homes will have to shut down. Others will convert to adult congregate living facilities (ACLFs), where private pay is more common and regulations and staffing requirements are less stringent. Those who continue to operate nursing homes and accept Medicaid will face the uncertainty of declining fees - as well as unaccustomed competition from hospitals. With occupancy rates stuck around 60%, hospitals are likely to step up political pressure to provide more nursing-home services in their empty beds. State government also will be under financial pressure to find other alternatives to expensive nursing-home care.

"That issue will become very, very important to hospitals for survival, and in turn the nursing home industry will be fighting for survival too," explains state Rep. Ben Graber, a Broward County physician who is chairman of the House Health Care Committee. "The fact is we won't be able to afford to keep all these people in nursing homes anymore. You'll see tremendous competition for patients."

To counter the threats from hospitals and other providers, the nursing home industry is considering ways to extract more money from Medicaid patients or their families. One option might be to convert potential Medicaid patients into private-pay patients. This could be accomplished by persuading regulators to tighten up on loopholes that currently allow many middle-class elderly people to meet Medicaid's poverty test on paper by transferring assets to their children. Nursing homes also would like to loosen some tight state regulations on their operations in order to reduce a few costs.

Regulators say they're considering changes in reimbursement methods that would give nursing homes more incentives to act like HMOs and save money on care. But many state officials say there's little room for savings in reimbursements to nursing homes and most other health-care providers. Most already suffered reimbursement rate cuts in the most recent budget adopted by the Legislature in May. "There's just not a long way to go there," says Marshall Kelley, the state's Medicaid director.

A possible exception, according to several analysts, is the Medicaid HMO industry, which continues to operate on a generous state formula. Medicaid HMOs are making pots of money, some analysts say. During the 1995 session, the Legislature came close to making sharp cuts in reimbursement rates to Medicaid HMOs, and it's likely to try again in 1996.

Other measures that the state will consider: trimming the specialized services that have been optional for states under Medicaid. In Florida, those include prescription drugs, chiropractic care, podiatry, orthodontic care, speech therapy, mental health care and dental, visual and hearing services. Another possible target is a loophole that has allowed hospitals to bring separate units such as mental health facilities under their licenses, making reimbursement possible for previously non-reimbursable services.

Ultimately, officials will also have to tighten eligibility requirements for Medicaid as well. That may well reduce effective demand for health care, but it will also swell the ranks of the uninsured whose chronic health-care needs must be met by someone. In the real world, many more middle-class Americans may find themselves forced to take in their own aging parents rather than relying on subsidized nursing home care. And many businesses will find themselves forced to pay for more indigent care. Getting everyone's hands out of everyone else's pockets turns out to be more challenging than simply passing a budget resolution.

--

Tallahassee Talk

Some trade development officials around the state are ticked off about decreases in funding their groups got from the Florida International Affairs Commission (FIAC) a few weeks ago. For 1995-96, FIAC awarded big increases in annual grants to two groups with strong bases in South Florida, the Latin Chamber of Commerce of the United States and the World Trade Association. FIAC slashed funding for several smaller groups around the state, including some regional IACs. Brett Wattles of Ocala, president of the Greater Central Florida IAC, complains that his group was singled out because he supported transfer of Florida's international trade marketing operations from the Department of Commerce to Enterprise Florida. FIAC supporters want Commerce operations moved to FIAC. Wattles says he believes the cuts were intended as a political message to dissident economic development officials. Several FIAC officials deny that, saying they were seeking only to increase funding for programs that had broad geographic impact. Both the WTA and the Latin Chamber offer export assistance to small companies in a number of cities. "The governor has been very enthusiastic about following up on the Summit of the Americas, and the Latin Chamber and the World Trade Association are on the forefront of that," says Sally Patrenos, FIAC's deputy director.

Tags: Florida Small Business, Politics & Law, Business Florida

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