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September 21, 2014

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UMC fears for its future under health reform law

DARK DAYS AHEAD?

UMC officials hope insurance reform will help lower the hospital’s unpaid bills because more patients will have insurance. The problem is that in 2014, Clark County wil begin losing millions of dollars in federal Medicaid payments, which help offset UMC’s cost of caring for illegal immigrants. And many paitients without insurance will still seek care at UMC.

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Kathy Silver

Beyond the Sun

University Medical Center and other public hospitals that serve the uninsured could wind up financially pummeled by the new national health insurance law.

Come 2014, when the law takes full effect, Clark County will begin losing millions of dollars in federal matching funds officially known as Medicaid disproportionate share payments. Those payments help UMC defray the cost of providing care to indigent citizens or undocumented residents who aren’t insured.

Lawmakers in Washington told public hospitals the federal government needs to divert the payments to finance other provisions of the insurance reform legislation, including expansion of eligibility for Medicaid, UMC CEO Kathy Silver says.

The hospital will receive $66 million in Medicaid payments this year. That amount includes $43 million in federal money and $40 million in matching funding from the county. Of that $83 million, $17 million is given to the state to distribute to other hospitals. What frightens Silver is the loss of tens of millions of dollars and possibly the entire amount after the insurance reform law takes full effect.

The county would still give UMC money for operational expenses. But Silver fears that by taking away the federal matching dollars, the county would have no incentive to contribute the additional funding that goes into the Medicaid payments.

“Right now, we’re planning for the worst,” Silver says. “A lot of public hospitals are in the same boat, particularly those in urban areas that have been hardest hit by the recession.”

The National Association of Public Hospitals and Health Systems in Washington, of which UMC is a member, said the financial hit to hospitals might not be quite as bad as Silver thinks. The association’s senior vice president, Lynne Fagnani, says public hospitals will be able to retain no less than 60 percent of their federal Medicaid payments by 2024. But that would mean UMC would still lose more than $17 million a year in federal funds in today’s dollars, according to that calculation.

“The association supported the health reform legislation because we felt it was important for people to have coverage,” Fagnani says. “But we are cautiously concerned about whether the disproportionate share of dollars will still be needed.”

UMC spokesman Rick Plummer counters that his hospital believes it will lose a lot more in federal funding than the association projects.

“The cuts may hit UMC harder because of the high number of Medicaid patients UMC treats,” he says.

UMC has reason to be more concerned than other public hospitals. It is projected to run as much as $74 million in the red this year, so it can ill afford to take another severe financial hit.

The hospital collects about $350 million a year but is stuck with $200 million a year in unpaid patient bills, of which about $40 million can be attributed to illegal immigrants and others who can’t — or won’t — provide documentation proving they are in the U.S. legally. The Medicaid payments make up for some of the unpaid bills.

UMC officials are crossing their fingers that other aspects of the insurance reform will help lower the hospital’s unpaid bills to roughly $130 million a year by 2014 because more patients will have insurance. That’s $70 million better than now, which could more than make up the difference of losing the Medicaid payments.

The fear, however, is Nevadans who get new or better health insurance choose to go to private hospitals, Silver says. If that happens, the percentage of UMC’s patients who are undocumented or uninsured would increase while its percentage of insured patients would decline. That’s a recipe for disaster.

The new law mandates that all Americans purchase health insurance. The penalty for noncompliance starts in 2014 at $95 a year or 1 percent of an individual’s taxable income, whichever is greater, and increases in 2016 to $695 a year or 2.5 percent of taxable income.

Because the fine is so low initially, many young, healthy people will likely decide to pay that rather than spend potentially hundreds of dollars a month to have insurance, Silver says. An aide to Senate Majority Leader Harry Reid estimates that 5 percent of Nevadans would opt to disregard the law and take their chances at getting caught.

Where will those uninsured young people go for medical treatment? UMC, Silver says.

“The conventional wisdom in Washington is that we’re going to have all these newly insured individuals, ‘So hospitals, what’s the problem?’ ” Silver says. “The problem is: What about all the undocumented people and young people? What if all the people who get insurance seek care in private hospitals? It might make our situation a lot worse.”

Fagnani’s take: “Once 2014 occurs, we’ll see how that plays out. If young people without insurance are disproportionately served in public hospitals, we would want protection for that.”

With these dark financial clouds in the long-term forecast, UMC is banking on the notion that it could evolve into a destination hospital with a broad range of physician residency programs, coupled with world-class medical research that would bring more specialties to Southern Nevada. The draw of having top-notch cardiology, neurology and anesthesiology departments, to name a few, has the potential to lure many more paying customers to UMC. That, in turn, would allow the hospital to continue to treat indigent patients without taking a severe financial hit.

But Silver said that even in the best-case scenario, it would take at least eight to 10 years for UMC to approach this goal, and that is if the effort is supported by substantial philanthropy and grants. Until that happens, UMC is in for some more “rough years,” Silver says.

The Clark County Commission, meeting as UMC’s board of trustees Wednesday, is scheduled to consider opening the bidding process to have outside contractors study options for UMC and the viability of the hospital establishing a closer relationship with Nevada’s higher education system.

The board is also expected to discuss the possibility of having an independent panel of medical and business experts take over operation of UMC from the county commission. Silver says she will make recommendations on what she believes the qualifications of those members should be.

Las Vegas businessman and former university Chancellor Jim Rogers, who has been put in charge of coordinating plans for UMC’s future, says the potential negative impact of the insurance reform law is something UMC will have to adjust to.

“But we have so many other problems at the hospital to look into before we look into that,” he said.

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