July 1, 2016

William Lessard

Provider Reimbursement Division

DMAS

600 Broad Street, Suite 1300

Richmond, Virginia 23219

RE: 2016 Notice of Intent to Amend Medicaid Reimbursement Rates 

Dear Mr. Lessard:

On behalf of the Virginia Hospital & Healthcare Association (VHHA) and our 29 member health systems, representing 107 community, physic iatric, rehabilitation and specialty hospitals, we thank you for the opportunity to comment on the Virginia Department of Medical Assistance Services (DMAS) 2016 Notice of Intent to Amend Medicaid Reimbursement Rates. Implementation of reduced reimbursement rates will impact the citizens of Virginia and the hospitals providing care to these citizens.

The purpose of periodically rebasing Medicaid hospital payments is simple – it is one of the levers available to help maintain the functional equilibrium of a reimbursement system that historically has fallen well short of covering providers’ costs for delivering care.

Disappointingly, in the wake of the recent release by the state Department of Medical Assistance Services (DMAS) of the final rebasing worksheets for inpatient acute care hospitals, rehabilitation hospitals and psychiatric hospitals, providers are again left facing a situation short on parity and basic fairness. Despite a modest inflation update authorized in the recent 2016 Virginia General Assembly session, for instance, the rates for inpatient care that hospitals will receive starting today are overall 4 percent lower than previous rates.  The net result of these actions, in conjunction with other state policy decisions, is that inpatient (74 percent of cost) and outpatient (70 percent of cost) reimbursement payments to hospitals continue to lag far behind acceptable levels.

That outcome is not helpful to the financial stability of hospitals that serve as major employers and economic engines throughout the Commonwealth. Just as critically, the impact of further cuts to Medicaid hospital payments seriously strain the resources of hospitals already struggling to preserve access to essential health care services to the public. This reality impacts hospitals and health systems around the state, especially those in less prosperous rural communities.

The potential harm of rate inadequacy and other policy decisions is real. For instance, hospital obstetrics and birthing departments are vanishing from hospitals in Virginia’s western and southern regions beyond the Interstate 81 corridor. Also troubling is the fact that federal funding cuts will amount to nearly $1 billion annually withheld from Virginia hospitals within five years.  That means support for safety net services will be harder to sustain, and the impact of further hospital cuts represents a growing threat to patient access to essential health services.

The majority of care provided by Virginia’s hospitals and health systems is for patients covered under either federal (Medicare) or state (Medicaid) health insurance programs, where payment terms are dictated to the service provider and fail to cover the costs of services provided. And under the new rebasing and inflation formulas, the situation for Medicaid is unlikely to change. Without an inflation adjustment in SFY 18, it is projected that the reimbursement percentage-to-cost rate will drop to 72 percent for inpatient care and 68 percent for outpatient care.

In addition to the inadequate Medicaid payment rates, recent federal action means Medicare margins are also negative. For cost reporting years ending in 2014, inpatient Medicare margins across the state averaged negative 7.6 percent, while outpatient margins were a negative 10.35 percent for an overall negative margin of 8.6 percent for Medicare business. With more than 60 percent of Virginia hospitals’ patient volume concentrated on Medicaid and Medicare enrollees (74 percent for rural hospitals), hospitals continue to face financial pressures and seek other strategies (which could include staff reduction, service line elimination, and other unwanted decisions) to achieve positive operating margins.

From 2008-2014, 33 percent (on average) of acute care hospitals in Virginia were in the red. Among rural providers over that period, the average is 51 percent. Rural hospitals are critical to the communities they serve as providers of essential health services and as key employers supporting 17,500 direct hospital jobs. Each hospital job supports two jobs in the local economy, and health care is a top employer in 82 percent of rural Virginia counties.

The impact of inadequate inflation adjustments, combined with funding cuts and other state policy action, necessitates further improvement in hospital reimbursement rates that continue to fall short of Virginia’s long-stated policy goal of 78 percent adequacy for inpatient payments. Without rate improvements, there is a heightened risk for further loss of essential medical services in communities where they are most needed.

Sincerely,

Christopher S. Bailey

Executive Vice President