How would changes to Medicaid impact Memorial Regional Health in Craig?

Sasha Nelson
The Memorial Hospital in Craig
Lauren Blair

— It’s too soon to fully understand the impact of proposed health care reforms on rural hospitals, however federal and state changes proposed to Medicaid reimbursement could be devastating to Memorial Regional Health.

“Nobody knows (the impact of federal reforms),” said Memorial Regional Health CEO Andy Daniels. “There are bigger concerns with the governor’s proposal for Medicaid in Colorado. Drastic cuts and changes to the hospital provider fee — those things are potentially more detrimental than what’s happening in D.C.”

The Craig Daily Press asked local and state experts to weigh in on the future of rural health care in America to better gauge the impact on Memorial Regional Health, which includes both the hospital and medical clinic.

We started by learning more about how community hospitals receive revenue, how changes would impact bottom lines and the steps our local hospital is taking to grow despite the uncertainty.

What is the ‘payer mix’ and how does it impact the bottom line?

The table shows Memorial Regional Health’s MRH payer mix — the combination of all types of insurances customers use to obtain medical services — over the past three years. Revenues from Medicare and Medicaid have increased and revenues from other sources such as commercial insurances have decreased and that means MRH is collecting less from customers.

Memorial Regional Health (MRH) lost $1.4 million in 2016, but could have ended the year with an estimated $2.2 to $2.7 million profit if the 2015 payer mix had been applied, said Denise Arola, MRH vice president of finance and Chief Financial Officer.

The payer mix includes customers with Medicare, Medicaid, Blue Cross, other commercial insurance, workers’ compensation, Colorado Indigent Care Program and private pay — people without insurance who pay for services.

Since the introduction of the Affordable Care Act, the types of payers or “payer mix” has shifted at MRH with a greater percent of revenues originating from Medicare and Medicaid, Daniels said. In 2015, both commercial insurance and private payers made up a bigger portion of revenues than they did in 2016.

“The Affordable Care Act actually refers to two separate pieces of legislation — the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 — that together expand Medicaid coverage to millions of low-income Americans and makes numerous improvements to both Medicaid and the Children’s Health Insurance Program,” according to

Because federal and state reimbursement of Medicare and Medicaid do not pay the full cost of treatment, the costs of care shift from patient to government to provider and this has had a big impact on the bottom line.

How are hospitals and clinics classified and why does that matter?

There are two main types of hospitals — critical access hospitals and prospective payment system hospitals — and three types of medical clinics — free-standing, provider-based and rural health care clinics.

Such classifications determine how health care facilities are reimbursed from Medicare and Medicaid, Daniels said.

The Memorial Hospital and TMH Clinic, both encompassed by MRH, have different classifications.

The Memorial Hospital is classified as a critical access hospital. On Jan. 1, TMH Clinic switched from a free-standing facility to a provider-based facility.

TMH Clinic could have saved $1 million last year had it been classified as a provider-based facility, Daniels said.

Even with the new designation, MRH still absorbs costs for Medicare and Medicaid.

“TMH (Medical Clinic) gets about 40 cents on the dollar,” Daniels said, which does not cover their costs to provide care.

“Our goal is to get our costs,” he said.

Ideally, Daniels would like the clinic to have the rural health care clinic designation, allowing it to receive full cost reimbursement for Medicaid and Medicare. MHR is working toward becoming a rural health care clinic.

Why does the distance between a hospital and a medical clinic matter?

In order to qualify for provider-based facility or rural health care clinic classification and reap greater reimbursement from Medicare and Medicaid, MRH must also adhere to rules governing their proximity to other hospitals.

Critical access hospitals that operate an off-campus, provider-based facility, such as TMH Medical Clinic, must be more than a 35-mile drive from another hospital, according to the operating manual for the Centers for Medicare and Medicaid.

That’s not the case if a facility is on-campus. However, to be considered on-campus a medical clinic must be “located within 250 yards of the main buildings,” according to the operating manual.

These rules influenced the decisions to locate a new medical clinic on Hospital Loop Road, Daniels said.

What changes are proposed at the state level and why are they concerning to rural health care?

Colorado assesses all hospitals and clinics with a provider fee. Daniels calls it a “tax.”

This fee sits in the state’s general fund until matched by federal dollars.

“While waiting for the federal match, it’s considered tax revenue because it goes into the general fund,” said Michelle Mills, CEO for the Colorado Rural Health Center, Colorado’s nonprofit state office of rural health.

Money from the total pool — state and federal Medicaid dollars — flows back to hospitals and clinics when they seek reimbursement from the state for patients using Medicaid.

The system has allowed Colorado to expand Medicaid and the Child Health Plan Plus to cover more of the state’s most vulnerable patients.

However, as hospitals grow, so do provider fee contributions.

Colorado’s Taxpayer Bill of Rights (TABOR) caps the amount of growth in the general fund, forcing the government to balance it by cutting other line items. This forces health care to compete against other essential services such as education and transportation.

The governor proposed to reduce the total provider fee to $150 million, but that means that Colorado would receive less than 100 percent of the federal match, Daniels said.

The proposal and loss of full federal match further threatens rural hospital bottom lines.

What changes could the state make to better support rural health care?

In a show of support for rural health care, the Colorado General Assembly passed House Resolution 17-1016 “Protecting Rural Hospitals Day.”

“They (the legislators) are 100-percent in support of rural health care, but there is no agreement on how to fix it,” Daniels said.

The Colorado Rural Health Center and members, including MRH, think there are immediate solutions: remove the hospital provider fee from the general fund into an enterprise fund or change the TABOR calculations, Mills said.

Either solution would reduce the impact of hospital growth on other essential services such as education and transportation.

“We support adjusting how the TABOR cap is calculated so that it more accurately represents the economic status of Coloradans and provides a general fund that is more flexible to our needs,” Mills said.

Recently, a bill proposing a change to the TABOR cap calculation failed to pass and a bill that would place the provider fee into an enterprise fund was tabled in committee to allow for a compromise bill.

“People should let their representatives know they support putting the hospital provider fee in a enterprise fund and support rural hospitals,” Daniels said.

What changes has MRH made to improve the bottom line and how would growth happen?

Despite the political uncertainty, MRH plans to grow its facilities and services in the coming years.

“When costs are fixed, you are never going to cut your way to economic prosperity, you are going to have to grow your way to prosperity,” Daniels said.

MRH started implementing a number of changes that, if successful, could see a reversal of recent losses. Changes include:

• Loan refinancing estimated to save $100,000 per month or about $1.2 million per year.

• The reclassification of the medical clinic from a provider-based clinic to a rural health care clinic to achieve cost reimbursement from Medicaid.

They also hope the results of the financial feasibility study will guide further changes to ultimately help the organization grow by:

• Replacing the crumbling medical clinic with a new facility connected to the hospital on Hospital Loop Road, thus avoiding future decreases in reimbursement resulting from any changes to the 250-yard or 35-mile rules.

• Expanding to keep dollars spent on medical services local.

“That is why a lot of goals are growth-focused. It doesn’t mean we are going to get them all, but we are going to try,” Daniels said.

Contact Sasha Nelson at 970-875-1794 or or follow her on Twitter @CDP_Education.

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