Hospitals face uncertain prognosis with Affordable Care Act up in the air

In 2010, when federal lawmakers passed the Affordable Care Act, Minnesota health systems provided $226 million in charity care to patients who couldn't cover all of their treatment costs.

By the time Minnesota fully expanded its Medicaid insurance program as part of health law in 2014, annual charity care expenses dropped to just $164 million.

The savings point to one reason why hospitals and clinics are apprehensive about Republican control in Washington, D.C., where President-elect Donald Trump and congressional leaders have vowed to repeal and replace the health law.

"The industry is totally uncertain at this point," said Lawrence Massa, chief executive of the Minnesota Hospital Association. "Everybody is just kind of sitting back — it's hard to make big decisions now about committing resources beyond 2017, not knowing what's going to happen."

Health systems that typically include both hospitals and clinics once again dominate the Star Tribune's annual Nonprofit 100 list. The systems account for about one-third of the state's largest nonprofits but they generate more than half the revenue on the list.

The Affordable Care Act (ACA) hasn't been a make-or-break proposition for the finances of health systems, but it has driven a wide variety of changes at the state's 146 hospitals. Those hospitals, in turn, tend to be some of the largest employers and economic engines in their communities.

In exchange for the promise of more paying customers via expanded health insurance coverage under the law, hospitals agreed to smaller payments from the government's Medicare and Medicaid health insurance programs.

The bargain was highlighted in a report earlier this month from the American Hospital Association, which asserted that repealing the ACA would cause "an unprecedented public health crisis." Doing away with the law would increase by 22 million people the number of people lacking coverage by 2026, according to the report.

Republicans say they are focused on helping individuals with insurance through the law — also called Obamacare — that are struggling with higher costs and fewer choices. On Medicaid, House Speaker Paul Ryan, R-Wis., has a reform plan that's meant to tackle what he views as unsustainable costs in the program.

"Congressional leaders are working hand-in-glove with the incoming Trump administration to provide swift relief from this terrible law and replace it with patient-centered care," said AshLee Strong, spokesperson for Ryan, in a statement.

Stephen Parente, a University of Minnesota health economist who has worked on Republican proposals, said he believed the report this month from hospitals was "jumping the gun."

Impacts from an ACA repeal likely will be delayed for several years until a replacement plan is drafted, Parente said, suggesting hospitals in Minnesota and across the country will have time to react.

What's more, the impact on hospitals should be kept in perspective, he said, since most Minnesotans younger than 65 receive coverage from employer groups, rather than the government and the private insurance markets most altered by the health law.

"Most of the immediate path actually is not repeal and replace," Parente said. "It's reconcile and repeal in 2½ years, and then kind of see what replace would look like. And that deals with the Medicaid expansion question, too."

In Minnesota, the ACA expanded coverage and federal funding in the state's Medicaid and MinnesotaCare health insurance programs for lower-income residents. In a report to lawmakers this month, the state's Department of Human Services estimated that a repeal of the health law would result in nearly 300,000 people being at risk of losing coverage, as Minnesota loses more than $2 billion annually in federal funding.

The state has seen health law problems.

The roughly 250,000 Minnesotans who buy coverage in the individual health insurance market have seen significant instability. Due to mounting financial losses for insurers, the market was on the verge of collapse this summer, regulators say.

Beyond big premium increases in the individual market for 2017, regulators also approved tight doctor and hospital networks that control costs. As a result, consumers buying individual policies for 2017 can't purchase coverage that includes in-network access to the Mayo Clinic in Rochester, unless they live in the southeastern corner of the state.

In talking with federal policymakers about potential changes, Mayo Clinic officials are highlighting what worked well in Minnesota's old market for individuals, which offered a high-risk pool for people denied coverage because of health problems, said Kathleen Harrington, the chairwoman of policy and government relations at the clinic. Coverage through the high-risk pool came at above-market rates, but enrollees enjoyed very broad access to doctors and hospitals in the state.

"Minnesota did it well before," Harrington said. "The individual insurance market continues to be very, very sick."

Hospitals credit the Affordable Care Act with driving important changes in how health systems care for patients, both by expanding coverage and promoting reforms to the payment system that could boost efficiency and quality.

Coverage expansion has meant patients have a better chance at preventive and chronic care services, say officials with Minneapolis-based Allina Health System. So, they worry that repealing the law will lead to more patients in emergency rooms with costly treatment needs that could have been managed.

When hospitals agreed to trade lower payments in Medicare and Medicaid for expanded coverage under the health law, it wasn't a small gesture, said Ric Magnuson, the incoming chief financial officer at Allina.

"From Medicare [next year] we're getting about a 1.2 percent increase for inflation, and our overall expense inflation is going up about 3.5 percent," Magnuson said.

"So, there's a delta of 2 percent there that's not being covered by that program, that we've got to look for reduced charity/bad debt or improvement in our productivity to offset that," he said. "That's a pretty severe delta."

Minnesota is one of only two states that used the ACA to fund what's called the "Basic Health Program." This let the state expand federal funding for MinnesotaCare, which was created in the 1990s for a group of residents often described as the "working poor."

ACA repeal opens a question about whether federal funding for MinnesotaCare would go back to pre-ACA levels. That potentially creates an issue for Minnesota hospitals, because the old MinnesotaCare program capped each enrollee's annual hospital expenses at $10,000 per year — a sum that often fell short of actual care costs.

In those cases, the balance would be directed to charity care programs, said Larry Schulz, the chief executive of Lake Region Healthcare in Fergus Falls.

"Somebody else had to pick up that cost," Schulz said. "We have charity programs. But, at the end of the day, we still have to cover our expenses, so that resulted in others paying more."

The ACA has flaws, he said, but hospitals hope lawmakers "don't throw the baby out with the bathwater."

Christopher Snowbeck • 612-673-4744

Twitter: @chrissnowbeck