Private Texas hospitals, including at least 21 facilities owned by the publicly traded Hospital Corporation of America, could see a plunge in supplemental Medicaid payments if a聽 to revamp its health care program for the poor is approved by the federal government.
HCA, the nation鈥檚 largest for-profit hospital chain, drew $657 million in supplemental Medicaid payments from Texas in 2010, making it especially vulnerable.
The payments 鈥� about one-quarter of all state-paid hospital financing 鈥� support public hospitals and those that treat high numbers of uninsured and Medicaid patients. They鈥檙e also used to induce other private hospitals to care for the poor, expanding the reach of the health care safety net.
But some powerful backers of the Texas聽 say not enough of the funds are reaching the poor, going instead to finance hospital construction projects and pad the bottom line of big companies and health systems.
HCA鈥檚 share of the funds is 鈥渘ot based on seeing patients that were poor or could not pay. It was based on a formula that skewed in their benefit,鈥� said state Rep. Garnet Coleman, a Houston Democrat who chairs a legislative committee overseeing the proposal. 鈥淭he [proposal] corrects that, and rightly so. That was a windfall on a loophole that must be closed.鈥�
HCA鈥檚 157 hospitals nationwide generated $30 billion in revenue and $2.2 billion in pre-tax profits in 2010, the company said in filings to the Securities and Exchange Commission. Texas is among its biggest markets, home to 39 of its hospitals. More than half of the company鈥檚 revenues come from its combined 75 hospitals in Florida and Texas.
The state says its proposal would make the $2.7 billion-a-year Texas supplemental payment program more transparent 鈥� and guarantee the money buys care for the poor. The proposal would expand funding available under federal rules, reroute some payments through public hospitals and create a new funding stream for hospital projects that help the poor, such as new community clinics. The new money would be distributed by coalitions of public and private hospitals.
Another change in the proposal could sharply curtail the dollars available to dozens of private hospitals beginning in 2013. The change affects the formula that sets the maximum amount of supplemental payments each hospital can receive.
Hospitals that treat a disproportionate share of uninsured people could see higher payments, said Stephanie Goodman, a spokeswoman for the Texas Health and Human Services Commission, but those 鈥渢hat don鈥檛 do a lot of uncompensated care should see a reduction.鈥� Most of HCA鈥檚 Texas hospitals fall into the latter category.
鈥淲e want to make sure the dollars are directed to the hospitals that are doing the bulk of uncompensated care,鈥� Goodman said.
The money at stake is especially profitable to HCA, said Thomas Gallucci, a senior analyst at Lazard Capital Markets, because it comes on top of normal Medicaid payments. Gallucci provided data reported by HCA showing that, of the $657 million in 2010 supplemental payments from the state of Texas, $303 million were profits.
The exact impact on HCA and other private hospitals is impossible to determine. Texas鈥檚 proposal got a tentative thumbs-up in a Sept. 14 , but has not gained final approval. Hospitals continue to lobby the state for changes, and data needed to project the exact effects are not available. Hospitals may also be able to figure out new ways to increase their funding.
But, 鈥渢here definitely appears to be a risk,鈥� said Jason Gurda, a Leerink Swann financial analyst. 鈥淭he potential loss of [some of] those payments in 2013 would be a huge headwind.鈥�
A corporate HCA spokesman did not return a phone message. A Texas-based HCA employee declined to comment on the record. But, in an August filing with the SEC, the company acknowledged that the proposal 鈥渃ould result in the payment programs being reduced or eliminated.鈥�
In an August meeting of the Houston-area Harris County Hospital Board, a senior HCA executive, Maura Walsh, complained, 鈥淲e don鈥檛 know the rules of the game are going to be,鈥� according to a recording of the meeting.
Interviews with a dozen hospital finance consultants, executives, lobbyists, attorneys and public officials underscore the hazard the Medicaid proposal poses to the private hospitals. Most agreed to speak on the condition of anonymity, to protect business and political interests. One consultant predicted some private hospitals could lose as much as 50 percent of their total Medicaid revenue.
A spokesman for the Texas Hospital Association, John Hawkins, said hospitals could 鈥渋nnovate鈥� new ways to subsidize care for the uninsured if they lose supplemental payments, and could access the new funding the proposal makes available for specific projects. If a hospital loses some payments, it could also treat fewer Medicaid and uninsured patients, leaving the burden to other facilities, Hawkins said.
Under the current system, public hospitals and counties forge agreements with private hospitals that commit to caring for the uninsured. The public entities contribute money, which the federal government matches. The state then distributes funds to private hospitals up to limits set by complicated formulas under the so-called 鈥渦pper payment limit program.鈥�
Public hospitals and those that deliver large amounts of uncompensated care receive payments based on the cost of care they provide to Medicaid patients and the uninsured from various programs. By contrast, private hospitals, including most of HCA鈥檚 facilities, are paid the difference between what the hospital charges for Medicaid services and the actual Medicaid payments.
Under the proposal, all hospitals would be paid based on their costs, which are often much lower than what they charge for care.
Even if hospitals end up losing significant Medicaid funding, they may find it鈥檚 difficult to cut back providing care. Marty McVey, a private investor who purchased Spring Branch Medical Center from HCA in February, hasn鈥檛 received supplemental payments since then. But the Medicaid and uninsured patients kept coming, he said. 鈥淭hey don鈥檛 see or care who owns the hospital.鈥�