Health Care

Funding Medicaid expansion through hospital fees draws opposition

February 10, 2020

Ray Carter

The Supplemental Hospital Offset Payment Program (SHOPP), a state fee assessed on hospitals’ net patient revenue that operates much like a traditional income tax, has been touted as a way to fund Oklahoma’s state share of Medicaid-expansion costs.

But that proposal is drawing fire, even from supporters of the Medicaid expansion authorized by the federal Affordable Care Act (ACA), better known as “Obamacare.” Critics say the fee will cause Oklahomans’ private insurance rates to increase and could harm some hospitals’ financial viability. At the same time, there’s enough legal uncertainty surrounding SHOPP that lawmakers debate whether they have to vote on any fee increase, despite an explicit request from Gov. Kevin Stitt to do so.

“Every hospital is unique in the state of Oklahoma when it comes to the SHOPP fee,” said Corey Lively, chief executive officer at Great Plains Regional Medical Center in Elk City and a supporter of the ACA’s traditional Medicaid expansion. “So summarily raising a SHOPP fee, it certainly does raise revenue, yes. That is correct. But it impacts every single hospital in a different way. And that’s why, before we begin to say how does it help or hurt Elk City, it is best that the governor, his office and the decision-makers there sit down with all of those involved, including the Legislature, the Oklahoma Hospital Association, and talk about what those details are. Because it’s not just simply saying, ‘Hey, we raised the rate and, hey, we get more revenue.’ It’s not nearly that simple.”

Asked if a higher SHOPP fee might represent a tipping point for some of Oklahoma’s rural hospitals facing the greatest financial struggles, Lively responded, “That’s a fair statement.”

In his State of the State address, Stitt discussed his plan for Medicaid expansion, which he has labelled SoonerCare 2.0. Stitt’s proposal would expand Medicaid via a block-grant waiver offered by the Trump administration. Although the state-federal match for Medicaid expansion is the same for Oklahoma under that plan, the federal funding would be provided through either a capped annual payment or on a set per-enrollee basis, meaning over time federal payments could increase at a slower rate. In exchange, states would be able to pocket a share of any federal savings they generate through cost controls and efficiencies.

The waiver would also allow Oklahoma to implement modest cost-sharing requirements for the expansion population. Prior estimates have shown the expansion population could include up to 628,000 able-bodied adults. Based on current Medicaid expenses, that translates into a state cost of up to $374 million annually. However, in his State of the State address, Stitt indicated he expects just 180,000 people to sign up for Medicaid-expansion coverage, but said that will still require $150 million in new state funding.

The governor told lawmakers the federal government “needs to see the support from the Oklahoma state legislature to feel confident that this plan is on solid financial footing. Today, I call on the House and the Senate to send to my desk legislation to give certainty that the Oklahoma Health Care Authority can use the full 4 percent of the SHOPP assessment to fund SoonerCare 2.0, while protecting reimbursements.”

Senate Democratic Leader Kay Floyd of Oklahoma City, whose caucus supports traditional Medicaid expansion under the ACA, said issues related to increasing the SHOPP fee are “just a small part of the concerns we have for the block-grant proposal.”

“Historically, when you affect SHOPP or you take money from SHOPP, it affects coverage and affects benefits, so we’d have to look at that very carefully,” Floyd said.

She said providers often pass on the cost of SHOPP fees to privately insured customers.

“It’s raised premiums for people,” Floyd said. “The cost is passed on. It’s affected benefits for pharmaceuticals and for drugs. There are a lot of possible ramifications with tinkering with SHOPP, so as I say, we need to really take a deep look at it, a very hard look at it, before we make those kinds of changes.”

On the other hand, Senate President Pro Tempore Greg Treat, R-Oklahoma City, suggests lawmakers may have no role in hiking SHOPP fees.

“The SHOPP fee, when I first heard of it was early on in my legislative service, and the hospitals were out here pushing it really hard,” Treat said. “I voted against it, the original, but we’ve amended over the years to say ‘up to 4 percent.’ We’re currently at 2.8 percent. I want to look to see: Is legislative action actually required? I’ve asked for documentation on that.”

The SHOPP fee was first enacted in 2011. The legislation creating the hospital assessment stated, “The assessment rate until December 31, 2012, shall be fixed at two and one-half percent (2.5%). At no time in subsequent years shall the assessment rate exceed four percent (4%).”

The program has since been extended in 2013, 2016, and 2019. In each instance, associated legislation made no change to the rate language in the law even as it extended the program’s expiration date, which now runs through Dec. 31, 2025.

Under existing law, the SHOPP fee varies from year to year and the Oklahoma Health Care Authority is responsible for setting the rate. The rate is based on an analysis of Medicaid claims data, the difference between Medicare and Medicaid payments, and various other factors.

Last year’s SHOPP fee was 2.8 percent. The rate for this year is 2.3 percent.

To generate a larger sum than what is collected through the SHOPP fee today, lawmakers may not have to vote to explicitly change the rate to 4 percent, but in order to generate enough revenue to cover Medicaid expansion they may have to vote to change the formula used to set the rate.

When lawmakers last voted to extend the SHOPP program, a fiscal analysis showed hospitals had made $487 million in SHOPP payments in the 2018 budget year. Medicaid expansion could require up to $374 million more.

Under both the waiver plan and traditional Medicaid expansion, states are not allowed to control costs by restricting Medicaid enrollment or coverage; in fact, states will be required to cover additional services under the waiver plan. As a result, it appears provider rates would be the main avenue of cost control, which has some hospitals nervous.

Jimmy Leopard, chief executive officer of Wagoner Community Hospital and a supporter of traditional Medicaid expansion, is among them.

“The devil is always in the details, but with what I know right now, I am very concerned about any changes to SHOPP because Oklahoma hospitals … have not had the opportunity to be involved in the process of developing this plan,” Leopard said.

Leopard said he supports the current SHOPP fee program, but if the assessment is increased to 4 percent “and I write a bigger check each quarter, I currently have no idea how, or even if, that money flows back to my hospital, so it could have a very detrimental financial impact.”

Leopard said he is also concerned that the amount collected by the fee increase will be larger than the amount required for Stitt’s proposed Medicaid expansion and that the fee increase could hinder efforts to deal with future changes in federal Medicaid matches.

While providers are concerned that Stitt’s Medicaid expansion plan will restrict provider rates to control costs, that is already a common problem with traditional Medicaid, and the same problem exists with alternative Medicaid-expansion plans.

As of 2016, the most recent year available, American Hospital Association data on national payment-to-cost ratios showed that Medicaid paid 88.1 percent of cost, meaning hospitals were losing money treating Medicaid patients.

The state recession that caused financial turmoil in Oklahoma government after 2015 coincided with reductions in federal matching funds for the traditional Medicaid program, leading to cuts to provider rates. Last year, lawmakers restored some provider rates for physicians, hospitals, and nursing homes, and also set aside money to preserve Medicaid provider rates during future reductions in federal matching funds.

House Democratic Leader Emily Virgin of Norman, who supports traditional Medicaid expansion, said her caucus is unlikely to support increasing the SHOPP fee if it funds Stitt’s Medicaid expansion plan.

So far, House Republican leaders have been the only group to publicly voice even tentative support for the proposed SHOPP increase. When Stitt announced his Medicaid-expansion plan, House Speaker Charles McCall, R-Atoka, praised it for having “responsible funding mechanisms.” Rep. Marcus McEntire, a Duncan Republican who chairs the House Appropriations & Budget Subcommittee on Health, praised the plan as a way to expand Medicaid “without raising taxes on Oklahoma citizens or raiding dollars from other core areas of service.”

Even if Stitt’s plan is rejected, hospital and provider taxes like SHOPP may still be used to fund an alternative Medicaid-expansion plan that will be placed on the ballot later this year. That measure would also add as many as 628,000 able-bodied adults to Oklahoma’s Medicaid program at a state cost of as much as $374 million annually, but the ballot measure would not allow for work requirements or similar measures to be imposed on new enrollees. The ballot measure would also make Medicaid expansion a constitutional right.

Virgin notes the ballot proposal ties lawmakers’ hands to keep them from altering the program, but still leaves them in charge of paying for the expansion.

“Putting it in the Constitution doesn’t mean that the Legislature doesn’t have a responsibility to form policy around this issue,” Virgin said, “and certainly a responsibility to fund it, because the funding mechanism is not in the constitutional question.”