Hospitals See Their Medicaid Rates Cut by 15 Percent
October 17, 2011 – Oregon’s largest hospitals aren’t pleased with a decision by Governor Kitzhaber that reduced their Medicaid payments by 15 percent on October 1.
“Hospitals were extremely disappointed in this post-session budget decision that was made outside of the legislative process,” said Andy Van Pelt, director of communications at the Oregon Association of Hospitals and Health Systems.
“We shared our concerns directly with the Governor,” he added. “With that said, this process has made it very clear to all involved that in the face of historic state budget shortfalls, the temptation to find easy answers to our budget problems will only increase. There are simply no easy answers -- only solutions that will require collaboration and consensus building on the part of our elected officials. We have committed to continuing to be constructive partners at those tables.”
Because of the lagging economy, the decision to lower hospital rates was unavoidable, said Dr. Bruce Goldberg, director of the Oregon Health Authority.
“I know that hospitals need to stay in business; so do the managed care plans,” he said. “We need to create a climate where the hospitals and the health plans can work together.”
Currently, urban hospitals receive Medicaid payments based on a person’s medical condition, known as a Diagnostic Related Group (DRG). If hospitals could work alongside health plans to lower admission rates for people with asthma or heart failure, for example, ultimately they could share in those savings, Goldberg said.
“Hospitals make their finances work by admitting people so they need some incentives to keep people out of the hospital,” he added. “We have to move away from managing care by reducing rates or reducing benefits to create a more efficient healthcare system, and we hope that we can continue getting support from the federal government to move forward.”
But there’s not enough money in the current rates to generate any savings, said Jeff Heatherington, CEO of FamilyCare.
“The whole concept of saving a whole bunch of money at this point is mostly smoke and mirrors on part of the Oregon Health Authority because plans have squeezed most of savings out of the hospitals and out of utilization over the last 17 years,” he said. “The truth is that the Oregon Health Plan has been very successful in holding down the cost of healthcare, and the Authority has failed to recognize that success in their calculation of savings.”
Hospitals and Health Plans Align
Following the decision by Governor Kitzhaber, the managed care plans have been attempting to sign contracts with the urban hospitals using the new rate structure.
“Everyone’s still talking, which is a good sign,” Heatherington said.
The state’s largest Medicaid plan -- CareOregon – has been working with its hospitals through the entire process, said Patrick Curran, director of business integration.
“We have active contracts with the majority of hospitals in our network, and the ones we don’t have we’re in active discussions with them. I’m confident we’ll have contracts with all of participating hospitals.”
Oregon Health & Science University has agreed to the new contract rates from CareOregon, according to Jim Newman, spokesman.
“We’re working with them collaboratively on contract language to reduce costs/utilization, and I’m told we will contract with the majority of the MCOs that cover our patients; this year is no different than any other year of who we contract with and who we don’t,” he said.
Tuality Health Alliance also has contracts with Legacy Health System and Oregon Health & Science University, said Janet Meyer, chief operating officer. “We’re able to meet our low cost estimate bids and move forward and are satisfied with our arrangement.”
A Look at the New Rates
Under the new rate structure, hospitals that have contracts with managed care plans are being paid 68 percent, rather than 80 percent of the Medicare DRG value, which represents a flat rate based on a patient’s diagnosis and treatment.
As an example, for a vaginal delivery, Portland hospitals now receive $1,933.88 compared to the previous rate of $2,345.94. To look at the other procedures and their corresponding rates, click here.