Hawaii to Fill Medicaid Fee Shortfall for Six Months

by Andrew Walden, Heartland Foundation, January 6, 2015

Hawaii’s Department of Human Services announced that it will extend for six months increased fees paid to Medicaid primary care providers. Fees nationally were boosted for two years under the Affordable Care Act, but federal funding for the increase expired on December 31, 2014.

Without the six-month extension, Medicaid providers in Hawaii would have suffered a 48 percent pay cut, according to the State Department of Human Services.  Other states--where legislators have not agreed to make up the difference--face even steeper cuts, including California, Florida, New York and Pennsylvania, where fees will decline by more than 50 percent.

Even in the states using local funds to prevent the cuts, health care professionals are hesitant to take on new Medicaid patients.

According to orthopedic surgeon Ed Gutteling of Hilo, low Medicaid reimbursement rates mean that few doctors will see patients enrolled in the program. “Eventually the only doctors who will stay with Medicaid are the community health centers, which are federally subsidized and mandated to serve all patients, and doctors employed by hospitals and large institutions that are subsidized to do so,” Gutteling said.

Interviewed by the New York Times, New Jersey Dr. George J. Petruncio described the cuts as a “bait and switch” move. “The government attempted to entice physicians into Medicaid with higher rates, then lowers reimbursement once the doctors are involved,” he told the Times.

Costs Exceed Reimbursements

Low Medicaid reimbursements force doctors to be selective in the patients they will see, or if they will see them at all.

“I have calculated that my overhead exceeds my reimbursement from Medicaid for all office visits, and I only come out ahead on procedures such as fracture manipulation, casting and surgery,” explained Gutteling. “Consequently, if the patient is unlikely to need a procedure or operation, I will not see them.  Most of my orthopedic colleagues will not see them at all.”

Although Hawaii’s health insurance exchange has been characterized as the worst-performing in the country – only about 3,500 people enrolled in 2014  – the state’s Medicaid enrollment soared by more than 50,000 people under Obamacare.

“The reimbursements are inadequate and unreasonable,” complained State Senator Sam Slom (Rep. – Oahu). "They are low because they reflect a disrespect of what the medical profession actually does and sacrifices. Many of my colleagues think Doctors should not make any profit or even cover their costs; they should be a pro bono arm of the government."

Health Woes In Hawaii

The state has budgeted about $5.5 million to fund the extension of higher Medicaid reimbursements through June of 2015, but after that it will be up to the state legislature to determine in the current legislative session whether they can find money in the budget to pay the $11 million annual cost.

The possibility of Medicaid reimbursements being cut nearly in half beginning in July would be one more blow to Hawaii’s already struggling health care system.

Outside of Honolulu, Hawaii's rural islands are served by the insolvent state-owned Hawaii Health Services Corp (HHSC), the nation's fourth largest publicly owned hospital system.

At a December 30 briefing, Edward Chu, Chief Financial Officer of HHSC told legislators that poor Medicaid reimbursement rates were behind Hawaii's shortage of long term care beds.  With 85 percent of HHSC long term care patients on Medicaid, Chu explained, hospitals have a disincentive to alleviate the long term care bed shortage and instead keep patients in higher-billing acute-care beds.  Even with more generous payments for keeping patients in acute-care beds, Chu estimates HHSC will suffer $74 million in losses on their Medicaid patients in 2014.

Because of these losses and others, HHSC requested a $203 million subsidy from the state, but newly elected Governor David Ige is proposing a budget which provides only $86 million in subsidies for HHSC.

A 2009 legislative report called for HHSC to be separated from the State and from the Civil Service system and transferred to a non-profit corporation. Several potential suitors to take over HHSC have emerged, but legislators have so far failed to overcome resistance from the Hawaii Government Employees Association and United Public Workers union.

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