Health Care

Hospital officials don’t want to pay for Medicaid expansion

October 28, 2021

Ray Carter

Oklahoma hospitals were among the most prominent supporters of State Question 802, which expanded the state’s Medicaid program to include many able-bodied adults starting July 2021.

But now, only months after the expansion took effect, hospital officials say they don’t want to pay the Supplemental Hospital Offset Payment Program (SHOPP) fee that partially covers the state cost of expansion, and instead urged state lawmakers to divert other tax collections away from other uses to subsidize hospitals.

“In the discussions we’ve had out here with many of you over the past two years, a lot has changed, and we always came to talking with you—in Medicaid-expansion terms—to say hospitals would like to be the payer of last resort,” said Patti Davis, president of the Oklahoma Hospital Association.

“Our whole purpose in asking for this was to say, ‘What can we do to help reduce that SHOPP assessment?’” said Jimmy Durant, director of government affairs for SSM St. Anthony.

Hospital officials made their pitch during a recent study conducted by members of the Senate Appropriations Committee.

Under the Medicaid expansion authorized by the federal Affordable Care Act, better known as “Obamacare,” the federal government matches $9 for every $1 in state tax funding provided to cover expansion.

Advocates of expansion, which included hospitals, argued the state cost was negligible and that “free” federal money would more than offset any state expense.

Hospital officials also lobbied the Oklahoma Legislature to enact the SHOPP fee in 2011. The fee, assessed on nearly 70 hospitals’ revenue, is used to generate federal matching funds and boost hospitals’ Medicaid payments.

The Oklahoma Hospital Association supported creation of the SHOPP fee in 2011, and even declared that the SHOPP fee would “diminish the need for cost shifting” and that, because of the federal matching funds generated by the fee, SHOPP would “actually increase the income to hospitals.”

To cover the state cost of Medicaid expansion imposed by SQ 802, the SHOPP fee is scheduled to increase. The SHOPP fee rate is capped at a maximum of 4 percent and is currently 2.5 percent.

Figures presented by the Oklahoma Hospital Association showed that Medicaid expansion will dump $1.3 billion into the coffers of health providers this year, but officials claimed that hospitals will nonetheless struggle to pay an additional $37 million for the half-point increase in the SHOPP fee rate scheduled to take effect in 2022.

Davis noted 68 hospitals will be paying higher SHOPP fees in the years ahead to partially fund the state government cost of Medicaid expansion.

“That’s $37 million for the first year. The next year that would double. And then the next year, it would be one-and-a-half times,” Davis said. “So, you can see why we’re interested in having this conversation.”

Durant said SSM officials anticipate paying $24 million to $25 million more in SHOPP fees over the next three years combined.

However, SSM hospitals are on pace to reap $36 million during that time via reduced write-offs because of Medicaid expansion, according to figures presented during the study. Durant said SSM’s three hospitals, which represent only a small share of all hospitals statewide, are seeing $1 million per month less in write-offs under expansion.

“Since expansion, have hospitals seen a benefit? And the answer to that, for our system, is absolutely,” Durant said. “We have seen less no-pay, write-offs.”

Hospital requests to offload their share of Medicaid-expansion costs come even as hospitals are seeing a huge inflow from federal COVID-bailout funding. Federal funding has provided certain hospitals between $50,000 and $77,000 per COVID-19 admission in the past year-and-a-half.

Davis conceded that Oklahoma hospitals “have received a lot of federal funding” for COVID expenses, but said “it has not been equal” so that “everyone was held harmless and no one has losses.”

“There’s a misnomer among the public that COVID, because hospitals are so full, that this has been a boon for hospitals,” Davis said. “Let me just say, first and foremost, COVID has been very hard on our members.”

She said some hospitals had “high COVID costs” and are now “in tough spots” financially despite the Medicaid expansion payments and federal COVID funding.

Durant said SSM requested the legislative study because SSM officials want state sales taxes collected on marijuana sales to be directed to cover the cost of Medicaid expansion instead of SHOPP fees.

In addition to the 7-percent excise tax on marijuana, which was part of the ballot measure that legalized the drug in Oklahoma, state government also collects sales tax on marijuana sales. Durant said much of the tax money generated by “medical” marijuana sales is not going to medical entities.

“Right now, the way it’s broken out, some of the money goes to the Education Reform Revolving Fund, teachers’ retirement, tourism-promotion fund,” Durant said. “If we’re going to address health care in the state of Oklahoma, and we’re going to have a tax on ‘medical’ marijuana, shouldn’t we use that money more for medical purposes than for maybe some of these other purposes?”

Durant said the state sales tax on marijuana would produce $35 million annually and that half of that amount could be used to replace hospital SHOPP fees. Senate staff indicated state sales-tax collections on marijuana may run as high as $42.5 million.

However, one lawmaker questioned whether the hospitals’ proposal would be popular with voters.

“Is your view that the designations that the people voted on — that specifically focused on common education — was solely for what was later interpreted as excise tax?” said Sen. Julia Kirt, D-Oklahoma City. “Because I sure know that when I was out meeting voters, they were very concerned about those funds going towards common education.”

The hospitals’ proposal also contrasts with promises those entities made when advocating for Medicaid expansion.

In a 2018 column, Davis declared, “The notion that expanding health care coverage would take money away from other areas, such as education, simply isn’t true.”

Ads for the “Yes on 802” campaign also promised that Medicaid expansion would result in a “more financially secure rural health care system” and “save rural hospitals.” But one rural lawmaker indicated the reality of Medicaid expansion has not lived up to the hype.

“After we redistrict, I’ll have almost 25 percent of the total state’s area. I’ve got more hospitals in my district than anyone,” said Sen. Casey Murdock, R-Felt. “And they’re all struggling.”