Further musings on the lawsuit by ARH Hospitals against KY Medicaid

Appalachian Regional Healthcare, and ARH Mary Breckinridge Hospital are suing the Kentucky Medicaid managed care company, Kentucky Spirit, and the Kentucky Cabinet for Health and Family Services in hopes of getting paid better and quicker for their services to Medicaid beneficiaries. The lawsuit is outlined in greater detail in an earlier submission by KHPI, and by Insider Louisville which first reported the story. Hospital finance is at best always confusing so I did some exploratory research regarding Critical Access Hospitals such as Mary Breckinridge, and how they are paid. I also took a quick look at how much hospitals in Kentucky charge their patients for the same inpatient diagnoses. Very interesting! The smell of blood in the water is getting stronger.

What is a critical access hospital?

Critical Care Access Hospitals (CAH) were created in the late 1990s by Federal law to keep a class of small rural hospitals afloat by paying them extra for Medicare patient admissions. CAH hospitals must meet strict criteria defined by federal law which Kentucky’s own statute mirrors. CAH hospitals may have no more than 25 beds of which no more than 15 may be acute care beds. Their average length of stay must be less than 96 hours and they must provide emergency services. They must be located in rural areas. Their population served is poorer, older, and more unemployed than the rest. The hospital must have a higher per cent Medicare patient mix than the state average. As you might imagine, CAH hospitals are smaller and less well equipped to take care of sicker patients. Therefore they are required to have contractual arrangements with other hospitals to take care of their sickest patients. In Kentucky, 29 of our 95 hospitals are CAH hospitals, including three of ARH’s 8 Eastern-Kentucky hospitals.

Why might it matter to ARH?

As I remembered, CAH hospitals get reimbursed for 100% of their reasonable costs for Medicare patients, plus 1%. That may not seem like much of a profit margin, but it is more than other hospitals get. Unfortunately is also takes away incentives to do things most efficiently. The more you charge, the more you get. For outpatient services, the hospitals get less– about 80% of the full 101% of reasonable outpatient costs for Medicare patients but with the opportunity to collect copays and deductibles. There are other bonuses as well. For example, hospitals can get paid for more pre-admission testing and services than non-CAH hospitals for which such charges would be included in the fixed payment for the admission. Hospital-owned ambulance services also get paid at the 80%-plus rate, including for the required transfers to other hospitals. As it happens, many states have adopted the same payment rules for Medicaid patients in CAH facilities. Kentucky’s statute, KRS 216.380(13) is quite explicit.

(13) The Cabinet for Health and Family Services and any insurer or managed care program for Medicaid recipients that contracts with the Department for Medicaid Services for the receipt of Federal Social Security Act Title XIX funds shall provide for reimbursement of services provided to Medicaid recipients in a critical access hospital at rates that are at least equal to those established by the Federal Health Care Financing Administration or Centers for Medicare and Medicaid Services for Medicare reimbursement to a critical access hospital. [Emphasis mine.]

The above looks like it is still good law to me. I am unaware if the Medicaid waivers the state would have had to have been granted to allow universal Medicaid managed care in Kentucky might override other federal and state laws. Perhaps some savvy health care lawyer will inform us. Would Kentucky Medicaid have to pay CAH hospitals their full costs and those hospitals still be able to take advantage of other state and federal programs that support the care of Medicaid and indigent patients such as the Medicare and Medicaid Disproportionate Share Programs? There are billions of dollars in that golden goose.

Hospital Charges.

The Kentucky Hospital Association maintains a public database of charges and quality measurements for individual hospitals in the state. (In contrast to the Medicare “Hospital-Compare database,” individual hospitals within hospital systems are broken out, allowing a finer-grained analysis.) I took a quick look at some common respiratory admissions for pneumonia and for chronic obstructive pulmonary disease.. [I will do a more detailed analysis later.] It became apparent that the ARH critical hospitals care for a less sick population of patients. As is true for all Kentucky hospitals, the 8 ARH hospitals billed widely different amounts for the same diagnosis. For the eight different conditions I looked at, the cost-based ARH Mary Breckenridge charged much less, and DRG-based ARH Hazard charged much more for the same diagnosis than the state average.

The present lawsuit does not focus specifically on Critical Access Hospitals, but the fact that Mary Breckenridge Hospital is the only ARH hospital specifically named as a Plaintiff makes me suspect that ARH hopes to leverage that portion of federal and state law to the advantage of the rest of its business, and by extension to the rest of the hospital and healthcare industry in Kentucky. Would such a result be good for the hospital industry? For us citizens? My instinct is that it would not. For example, Louisville’s hospitals are among the most expensive in the state but their quality varies a great deal. In health care, paying more does not come close to guaranteeing a better result. I hope we can review this matter in greater depth as the lawsuit unfolds.  Finally, lest I be judged too hard on hospitals in general, let me be clear about one thing.  If we as a public expect our hospitals, doctors, and other healthcare providers to take care of everyone that walks in the door, we as a public are responsible for providing a reasonable mechanism to finance that enterprise.  This does not imply that every service provided is necessary or reasonably priced.  Indeed it is the difficulty of defining these latter criteria that has brought us to our unhealthy knees.  I guarantee we can do better than we are now.

Perter Hasselbacher, MD
April 22, 2012