Now that the debate over Medicaid expansion and restoration is over and the issue has moved from the political arena to the medical arena, hospitals are already starting to see an impact.

“Our self-pay has been declining since Medicaid expansion took effect,” said David Covert, chief operating officer, Western Division, IASIS Healthcare, and CEO for St. Luke’s Medical Center and Tempe St. Luke’s Hospital.

This early trend showing a drop in uncompensated care is good news for hospitals. It is precisely what advocates of Medicaid expansion and restoration said needed to happen to help the business of healthcare get off life support.

“The uncompensated care problem in this state is the biggest issue hospitals face,” said Greg Vigdor, president and CEO of the Arizona Hospital and Healthcare Association (AzHHA). “Uncompensated care since the Recession has essentially doubled. Most of that was attributed to Medicaid eligibility being rolled back (in 2011). Eliminating the problem of uncompensated care was a crucial concern for Arizona hospitals.”

The two major contributors to uncompensated care are charity care and bad debt. Bad debt, by far the largest portion of uncompensated care, is when a patient does not qualify for charity care because they are above the income threshold, but they fail to pay their bill. It encompasses uninsured patients and also insured patients who fail to pay their co-pays, deductibles, or co-insurance.

The problem arises, experts said, because someone has to absorb the cost for that medical treatment. “When a hospital provides care to someone who doesn’t pay, there has to be a cost shift,” Vigdor said. “You figure out a way to add the cost of that uncompensated care onto somebody’s else’s bill.”

While Arizona hospitals do ground-breaking work healing patients, they haven’t had as much luck fixing what ails themselves. In 2013, at least five Arizona hospitals filed for bankruptcy protection or went under when their expenses exceeded revenues. Casa Grande Regional Medical Center (CGRMC), a 177-bed, acute care hospital, was on the verge of filing for bankruptcy after the hospital’s uncompensated care more than tripled from $13 million in 2011 to $42 million in 2013, according to reports.

“It’s hard to make margins work when doing that level of uncompensated care,” said Daniel Derksen, MD, director of the Center for Rural Health and chair of the Public Health Policy and Management Section at the University of Arizona Mel and Enid Zuckerman College of Public Health.
CGRMC’s losses were attributed to reductions in reimbursements and eligibility requirements by the Arizona Healthcare Cost Containment System (AHCCCS), the state’s Medicaid agency. CGRMC was bought by Banner Health.

Three other small hospitals — Florence Hospital in Anthem, Arizona Regional Medical Center in Apache Junction and Douglas Hospital — filed for bankruptcy protection in 2013. In Phoenix, Surgical Specialty Hospital had to shut down because of uncompensated care.

When Gov. Jan Brewer signed a law in 2013 that expanded Medicaid to low-income Arizonans earning less than 133 percent of the federal poverty level, she extended potential health coverage to an additional 350,000 people and experts estimated the move would bring in $1.6 billion in federal funds during the first year of expansion. Experts hoped it would relieve some of the uncompensated care pressure that was crippling Arizona hospitals. So far, it’s working.

“In 2013, we had been in a cost-cutting mode because our hospital had a self-pay/charity population of about 25 percent,” said Crystal Hamilton, CEO of Abrazo Health’s Maryvale Hospital in Phoenix. “Since the Medicaid expansion started in January 2014, the self-pay population has dropped to about 10 percent.”

Not only is the expansion and restoration having an impact on hospitals’ financial health, it’s also impacting patients’ health.
“A common scenario for people lacking insurance is to wait longer to access care,” said Bill Byron, vice president of public relations for Banner Health. “Often, this can result in routine health issues evolving into more serious issues by the time these people come to an emergency room, where the cost of care is very high.”

The positive trends should only continue. Of Arizona’s 1.2 million uninsured residents, 300,000 have gained coverage through Medicaid expansion and restoration or through the Affordable Care Act. “We’re one-fourth of the way there,” Derksen said.

The challenge now, experts agree, is getting healthcare coverage for the rest of Arizona’s uninsured residents in order to keep improving hospitals’ bottom line and residents’ health.

“Our challenge is reaching the Hispanic and American Indian populations,” Derksen said. “If you look at our 1.2 million uninsured in Arizona, 600,000 to 700,000 of them are Hispanic-Latino. Of those 600,000 to 700,000 uninsured Hispanic-Latinos, we only had about 6 percent enroll in a plan. That’s a pretty low participation rate.”

Derksen said it didn’t help that the website wasn’t functional during the first month of enrollment and the Spanish version — — wasn’t functional for the first couple months. “In addition, some of the terms — co-pay, deductible, cost share — don’t translate well from English into Spanish,” Derksen said. “So it was difficult even for people who had assistance to really understand the choices and feel confident they are making the right choice for their family.”

To help uninsured patients gain coverage, Arizona hospitals have developed programs to assist in the enrollment process and walk through the application process with uninsured patients.

“We had a campaign starting in October 2013 to provide education to the community about the Medicaid expansion,” Hamilton said. “Bilingual Medicaid financial counselors have been helping people with their applications and we continue to offer assistance on site.”

The key now, Derksen said, is for healthcare providers and administrators to get people the information they need in the language they understand so they know what their cost share is going to be and how to select a plan in this marketplace.

Healthcare experts said the impact of insuring an additional 300,000 Arizonans is steadily building and Byron said Banner’s emergency rooms have experienced the positive impact first. But beyond the bottom line, Vigdor said Medicaid expansion and restoration was “just the right thing to do.

“Getting more people covered is what the members of the AzHHA believe in,” he said. “It’s not like getting the uncompensated care taken care of was a financial windfall. It’s just the right thing to do to allow people to access care outside of the emergency room.”

Hamilton said the drop in uncompensated care gave Maryvale the opportunity to explore expanding the service lines it offers.

“It allows us to hire more staff, reinvest capital into our facilities and expand patient services,” Hamilton said. “The additional revenue will have a significant economic impact on our community.”

It also offers hope to Arizona hospitals that they will actually be able to move into the future.

“It provides some sense of stability to see in your financial numbers that you can actually work toward a new future,” Vigdor said. “Otherwise, you’re just chasing ghosts.”