Moving forward or running in place: Kentucky health care leaders discuss revenues a year and half after Kentucky’s Kynect and Medicaid expansion

Originally published in the September 2015 edition of The Lane Report


Over a year and half after the launch of Kynect, Kentucky’s lauded health insurance exchange program, and the Medicaid expansion program, the Commonwealth is among the nation’s leaders in reducing its population of uninsured residents. Across the board, Kentucky hospitals are providing more services to more people which, one naturally assumes, leads to improved revenues.

Mike Rust, CEO of the Kentucky Hospital Association (KHA), echoed this assumption to an extent. “Many of the state’s health care systems are experiencing an overall improvement in their financial positions” in the last 18 months, he said. A good deal of credit for this improvement goes to the insurance mandates in the Patient Protection and Affordable Care Act (ACA). Performance varies among institutions, but from a broad perspective, revenues are up and, in some cases, “by a significant margin,” he said.

There are, however, exceptions to this news, added Elizabeth Cobb, KHA Vice President of Health Policy and a member of the board of directors for the Kentucky Rural Health Association (KRHA). Some rural hospitals are still struggling to keep their doors open despite increased numbers of payers and a related reduction in uncompensated care, she said.

Nevertheless, from a broad perspective, Kentucky is well ahead of its neighbor states in realizing many of the ACA’s early goals. Audrey Tayse Haynes, Secretary of the Cabinet for Health and Family Services (CHFS), takes great pride in the numerous reports that show Kentucky leads its region, and the nation in some measures, in reducing the numbers of the uninsured.

A report published in the first quarter of 2015 by The Foundation for a Healthy Kentucky showed that the numbers of uninsured nationally dropped to about 12.9 percent of the population in December 2014. In that same time period, Kentucky’s uninsured stood at an estimated 9.8 percent, a 10.4 percentage point drop in the uninsured from 2013, according to a Gallup-Healthways survey.

There are many more encouraging statistics from the last year and half, Haynes said. According to CHFS estimates, improvements in the number of uninsured people in the Commonwealth have introduced approximately $2.2 billion new dollars into the health care industry, $1 billion of which has been shared among the state’s hospitals.

“That’s money going directly into the health care system, not to the recipients” she pointed out. The ACA’s influence is also credited to the creation of approximately 11,900 new jobs in professional health care and social work sectors, Haynes said.

But a year and half is still a very short period of time. While on the surface Kentucky hospitals are doing better financially, a finer-tuned analysis of hospital revenues reveal some cracks in the program. Most notable is the major shift in payer-mix engendered by the Medicaid expansion program, which paints a different and much more complex portrait of the financial health of Kentucky’s systems.


Sheila Currans, CEO of Harrison Memorial Hospital in Cynthiana, and Carl Herde, Chief Financial Officer for the Baptist Health System acknowledge that Kentucky’s efforts to reduce the ranks of the uninsured has made positive strides, but the rapid increase in the state’s Medicaid rolls pose a new set of challenges to hospitals across Kentucky.

“When it’s said that revenues are up, it’s a relative term,” Herde said. “We are seeing more patients, doing more services, and, certainly, our charges are up. But we are also experiencing a significant shift in our payer mix. If you are caring for the same or more patients, but not getting the same as you used to get for services, it creates an operational challenge.”

Medicaid Expansion grows faster than expected

A critical variable in assessing hospital revenues is its payer mix, Currans explained. In the simplest terms, the payer mix is the comparative ratio of patients with commercial insurance coverage, Medicaid/Medicare or other forms of government reimbursement, and those few who still self-pay.

“The payer mix in our service area [the Harrison County region] is naturally going to be different from what hospitals in Louisville, Paducah, or other Kentucky communities may see. Payer mix is directly associated with community’s specific demographics,” she continued.

Since the expansion, Currans and Herde noted a significant shift in their respective health systems’ payer mix.

“Though our [HMH’s] population is mostly Medicare/Medicaid, we used to have a higher percentage of commercial insurance than we’ve seen lately. There has been a clear shift in our payer mix to more Medicaid patients,” Currans said. Taking into consideration that Medicaid reimburses between 70 – 80 percent of charges, the anticipated cuts affect revenues even if total patient volume is up.

The KHA has noted an inverse relationship between the steep reduction in Kentucky’s uninsured in the last year and a half and the increase in Medicaid rolls, said Cobb. The difference, she noted, has a larger impact on rural hospitals whose Medicaid/Medicare patient populations are proportionately larger than those in urban hospitals. While hospitals may be seeing more patients and performing more services, “it’s important to remember that Medicaid doesn’t cover 100 percent of the costs of care,” she said.

With regard to Baptist Health’s holdings, Herde said that he was not seeing much difference between its rural and urban hospitals. As an administrator tasked with oversight of Baptist’s “bottom line,” there was a slightly better margin with commercial insurance than with Medicaid.

“For a small percentage of our insured patients, we had a margin that we now don’t have,” Herde said.

The CHFS publishes a weekly tally of the total numbers of Medicaid recipients as reported from the six Managed Care Organizations (MCOs) contracted to manage the program. The report on August 17 listed numbers at just over 1.27 million, or about 25 percent of the Commonwealth’s total population, said Secretary Haynes. That total number includes about 500,000 children under age 18 and the state’s population of people with permanent disabilities.

The expansion welcomed about 310,000 individuals during the first enrollment period. Counts have fluctuated since, Haynes continued, but the average has been around 400,000 or less. In addition, the state estimates that another 110,000 have enrolled in commercial health plans through Kynect. About 75 percent of those were among the uninsured, she said.

“When the state began enrolling people into medical coverage, the Medicaid numbers did exceed our initial expectations, but the numbers have been stable since,” Haynes commented. The area of the state with the highest enrollment in both Medicaid and commercial insurance is eastern Kentucky, which had been an area noted for having the highest number of uninsured, she said.

There is speculation that the influx of Medicaid patients may include low income individuals and families who had formerly been covered by commercial insurance through an employer. That migration away from insurance coverage to Medicaid further skews payer mixes toward the government program. While there has been no study to substantiate the claim, the shift in payer mix has led Currans and Herde to make the assumption that the phenomenon has occurred.

“It seems as though we’re seeing more Medicaid patients in our service areas than have been converted from the ranks of the uninsured,” Herde said.

Bad Debt

In a KHA report to the CHFS earlier in 2015, uncompensated care, or provided care for which no payment is received, showed a dramatic decline in rate through 2014. The influence of Kynect and Medicaid expansion is credited for reducing those charges that are usually left hanging on the balance sheet.

“The KHA’s mission is to work with hospitals and the state to ensure that Kentuckians get access to the care and coverage they need to be a healthier population,” Rust commented. To a significant extent, the direction health care has taken in the last year represent positive steps toward realizing that mission. Although uncompensated care has reached new lows, the incidence of bad debt to hospitals is actually on the rise.

The intent of the ACA is to make quality health care more affordable to a greater number of people, said Rust, but despite improvements, there still is an issue of under-insured individuals. These are people who opt for cheaper health insurance plans that also come with high deductibles. The issue is mainly concerned with families with lower incomes that are just above the level at which they would qualify for Medicaid.

“In general, there are two type of folks who buy high deductible insurance plans with cheaper premiums: Young people who imagine they’re in good health and don’t need expensive health coverage and those persons who simply can’t afford to pay the premiums of a high end insurance plan,” Herde said. “If that person or family can’t afford high premiums, then they’re not going to able to afford the high deductible either.”

Acknowledging that the rise in patient liability is a challenge to address, Secretary Haynes argued that the issue is not insurmountable and it’s better than what hospitals were enduring before.

“It’s a lot better for both the patient and hospital to try and work out a payment plan to cover a $5,000 deductible than writing off debts of over $100,000 in cases of injury or a catastrophic illness,” Haynes responded.

Rust agreed. “At least a portion of that debt is getting paid.”

But there are still individuals who have, for a variety of reasons, not yet signed on to an insurance plan or taken advantage of Medicaid eligibility.

“In any given month of the last two years, about 2-3 percent of our patients are still essentially self-pay,” Currans said. “We try to offer assistance to get them signed up through the exchange, but patients have to be proactive and ask for that help. So we still have a lingering problem with charges we write off because of our commitment and obligation to provide high quality care,” Currans said.

These are concerns with which Currans and Herde regularly deal when analyzing their respective organizations’ balance sheets. But they do it with the understanding that delivering and sustaining a high level of health care quality is their primary mission.

Changing Strategies for the future and controlling ER overuse

Nobody argues that the system is or ever will be perfect. Aside from the debate over the shift in payer mix, all agreed that there is still ground to cover in reducing the overuse of Emergency Rooms during off-hours.

Among the strategies being tested to address that issue include development of advance triage units to assess, prioritize, and treat critical cases; Baptist Health has opened several medical clinics and urgent treatment centers providing off-hour care to address non-emergent complaints; HMH is considering the same sort of clinic to open adjacent to its ER. The KentuckyOne Health System has introduced yet another potential solution called Anywhere Care which puts patients in touch with a physician or physician extender by video chat or phone for treatment of common ailments.

Looking toward the time when federal coverage of Medicaid costs is passed down to the state, everyone is adopting a wait and see attitude. For Currans and Herde, they expect that hospitals will, as always, be asked to maintain high levels quality care while managing further reductions in reimbursement.

Managing the demands of quality health care delivery will always requires major expenditures, Herde said. Baptist is currently financing multi-million dollar expansions and renovations of several facilities, implementing an updated computer networking system, keeping up with federal mandates on Electronic Health Records (EHRs), and changing its billing systems to ICD-10 coding which directly impacts hospital revenues. And that list doesn’t even include the purchase and maintenance of the latest clinical technology nor the salaries and benefits of staff and employed physicians.

“Looking to our future, and those of other healthcare systems in the state, there are a lot of headwinds,” he said.

“But this is part of our job as administrators – to manage expenses and make the best use of our revenues to maintain and improve high standards of quality healthcare delivery. I’m proud to be associated with an organization that does this job well,” Herde said. In the last two years, he said Baptist cut about $40 million on supplies, maintenance agreements, contracted services and other operations to run more efficiently.

But hospitals are motivated by greater things than just revenues, Rust said. They’re first priority is providing even higher standards of quality health care than today.

“We’re seeing hospitals changing their care settings to be more proactive around wellness,” Cobb observed. Rust added that small and large hospitals are also getting benefits from partnering even closer with health departments to reduce re-admissions through follow-ups.

Haynes acknowledges that there are challenges ahead, but that the direction that Kentucky health care has taken in the last year and half amount to more positives than negatives for the patient and the provider. “Hospitals are using this time to analyze their service delivery and business models to take advantage of ACA’s emphasis on improving population health rather than reactively treating illness,” Haynes said.

Furthermore, she believes that the program is capable of sustaining itself in the long run. Furthermore, staying the course in long term will have eventually result in a healthier Kentucky population and an active economic engine moving the Commonwealth’s health care enterprises forward.

“I think the CHFS is playing an important part in fostering the type of market competition among the state’s health systems that promote invention and innovation,” she said. “By expanding coverage, we are creating a buyer’s market and introducing more transparency in health care delivery.”

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