The Buckeye Medicaid Boom

The way Lori Smith remembers it, she and her husband Patrick really didn’t have much of a choice, and she didn’t really care anymore what people thought. Patrick was in a bed at MetroHealth, his leg recently amputated, the latest in five years of surgeries, and she had $850,000 or so in medical bills stacked up at home. She was also getting sick of eating peanut butter sandwiches to save money.

The furniture had been sold and the wedding rings too, and neither she nor her husband were working, he with heart problems and his leg (stemming from a staph infection) and she with lupus and other ailments. They both had worked at a hospital — and lost their jobs for a few reasons — and had been uninsured since 2010. (They don’t want to talk about the hospital they worked for, as there are legal claims still being adjudicated.)

So as time went by, they were in what hospitals call the “self-pay” category of patients, which means the hospital isn’t really thrilled with you being around, because the self-pay people usually don’t. Lori tried to patch together some charity care and get qualified for disability, but that stuff was always floating through the system without definitive answers, and the prescription medications were now costing about $4,000 a month. They had a little income, thanks to her daughter’s job, but didn’t quite hit Medicaid level, and they couldn’t afford what she and Patrick needed in care either.

And she remembered thinking how no one was talking about moving Patrick out of the hospital bed and letting him lie in the street, but at times it felt like that.

“We’d been working our whole lives and we needed help and it wasn’t a handout like people say, but I felt like people thought we wanted care for free,” she says now. “It was a vicious cycle. Because we’d be getting another hospital bill that we knew in no shape or form we’d be able to pay.”

But while Patrick was recovering from that latest surgery, the hospital counselors came in and told Lori about a new plan MetroHealth was adopting called Care Plus. By cobbling together about $30 million in Cuyahoga County public money, and getting about twice that from the federal government in matching funds, MetroHealth was going to offer Medicaid to about 30,000 people who made between 100 and 133 percent of the poverty line cut-off. The program was started in 2013, and it was seen as a precursor to a future plan to do a Medicaid expansion statewide as part of the Affordable Care Act. In fact, the program was designed to come to an end just as Ohio considered signing up for its own Medicaid expansion, which it did, starting in January 2014.

So Lori signed up in the spring of 2013 and they have now been moved into national Medicaid expansion based on the MetroHealth model. She and her husband have been covered for their care since, which is good for any number of reasons, least of which because Patrick was back in the hospital recently for his heart problems.

Health care analysts, think-tank policy wonks and insurance executives all watched the MetroHealth experience in 2013 to see if signing up more people for Medicaid was a good idea, especially as the Medicaid expansion that states were being encouraged to adopt was moving into the legislative decision phase. What everyone was wondering was this: Would signing people up for Medicaid get them out of going to the expensive emergency room for basic treatment? And would more people see primary care physicians for treatment that perhaps would help prevent bigger problems down the line, as diseases often worsen over time without proper routine attention?

Here’s what MetroHealth found in getting 30,000 people out of self-pay and into government-pay: Emergency room visits dropped by 60 percent, while primary care visits increased by 50 percent. The money the hospital had saved was about $450,000 more per month than they had projected. And surveys of the patients found they were in better health than they had been a year earlier.

It reinforced a basic tenet in health care financial dynamics. Going to an emergency room for a non-life threatening condition costs the hospital about $5,000 per visit. Going to a doctor’s office to get treated for the same non-life threatening condition costs about $120. And people with health care coverage tend to go to the doctor’s office more than the emergency room because, well, the doctor will see them without a down payment and they don’t have to wait around for several hours (probably).

One other major point that the MetroHealth experiment proved: A business and patient care model that finds ways to keep people out of the hospital is much better at caring for them in the hospital. This works whether a person is on Medicaid or has private insurance. Get them in treatment prior to serious emergency care, and the costs go down significantly. It also holds down costs for the entire populace: Estimates put the tab at about $1,000 a year that is passed on to the insured by the non-insured who show up to emergency rooms and can’t, or don’t, pay.

Dr. James Misak, associate director of family medicine for MetroHealth, said the basic notion for access to care is a way to cut costs, pure and simple. “A person with diabetes without access to care might have renal failure which could lead to needed dialysis or amputation of a leg,” he says. “Those are costly implications from a lack of care that can be avoided. Access to insurance leads to access to care which leads to a healthier population which over time costs less to care for.”

This was a big change in thinking for the medical community, one that had been percolating for some time but got forced to the front burner by the Affordable Care Act. The old model said the real money was to be made by getting patients into the hospital and doing all sorts of tests and treatments and surgeries. “Fee for service” is the name used for that model, because the more services the patient gets the more fees the hospital gets. The new model — in part because of changes with Obamacare — says the better money now is made by keeping people out of the hospital. The new model fuses incentives into the program that makes it more profitable if their patients stay healthy and get fewer services.

Nowhere is that change of thinking more apparent than at the Cleveland Clinic, an institution once called “the Clinical Factory” by one author. The local hospital system — one routinely recognized as among the best in the world in a number of specialties, one that made heart bypass surgery a run-of-the-mill procedure, one led by a surgeon who has done more than 22,000 heart operations in his career — is now figuring out that maybe finding ways to avoid some of those assembly line heart operations is better for the patient and the bottom line.

For the Cleveland Clinic and other health care systems in states that have approved Medicaid expansion, there are many reasons to change that way of ingrained thinking. Most think the changes that Obamacare has brought involve changes in the way we pay for health care. But it is also very much about how the health care is delivered, and there are many reasons hospitals are embracing those changes. In the case of the Cleveland Clinic, there are about 300 million of them.

This week, the Supreme Court of the United States heard arguments on a case that might upend the whole Obamacare revolution. Many think the case, which might pull government subsidies on the private Obamacare insurance exchanges of many states, is flimsy and bound to be overruled sometime in June by the high court. At this point, there is speculation on all sides of the political spectrum, and we’ll leave that for them to debate over the next few months.

What is going on though, and of perhaps more import in the long run, is the debate in many states about Ohio’s expansion of Medicaid. Since January of last year, Ohioans can qualify for Medicaid coverage if they make up to 138 percent of the poverty line as an individual, or $16,200 a year (a family of four qualifies with annual income up to $32,499).

But Ohio has to re-up the expansion during this legislative session — which ends June 30, if action is not taken — or the roughly 451,000 that qualified and signed up under the expansion would lose their government paid-for coverage.

At this point, 29 states have gone ahead with the extension and others are considering it in various forms (and many states considering it take great pains to keep the word “Medicaid” out of the discussion, for example, “Healthy Utah” and “Insure Tennessee”). The federal government currently pays 100 percent of the coverage; states will be responsible for 10 percent of the cost by 2020.

In 2013, as many states were deciding if they wanted to move to the expansion of Medicaid, the arguments for and against were grounded in the basic liberal versus conservative extremism rhetoric that has become the norm for this and most other political debates. The lefties contended that this expansion was needed because the poor needed more government help in getting essential health care, and that small rural hospitals might close because free emergency room care for the uninsured would put these small hospitals out of business. In short, we have a moral obligation to help the poor regardless of cost.

The extreme right was against any expansion because: 1) It was a part of Obamacare, 2) It was an entitlement that promoted laziness and was diametrically against the American ethic of self-reliance, 3) Paying for these people’s health care would bankrupt the country, and 4) It was part of Obamacare.

The discussion behind the scenes in state capitals has changed this year. Executives of large hospitals are working to show governors and legislators that the numbers are too big to turn down. Not that they aren’t concerned about patient care, but the reason for expanding Medicaid is no longer being thought of in terms of how to help the rural poor. It is more along the lines of looking at hospitals in other states getting big bucks, especially in Ohio, and thinking they should get part of the pie too.

What is happening is that governors are seeing the big economic bump and solving a health care gap with lower income constituents that comes with Medicaid expansion, but conservative state legislators are reluctant, especially when extreme party politics come into play. Tennessee’s plan, with the backing of Republican Gov. Bill Haslam and the giant Hospitals Corporation of America based in Nashville, still got waylaid in committee a few weeks ago. Haslam said he plans to bring it back with a few changes.

“I think there were certain people that just couldn’t quite get comfortable with the policy, and they had a lot of questions about, ‘We don’t trust the federal government, regardless of what you say,’ and that was a hard hurdle to get over,” Haslam said in a recent interview with The Tennessean. “For other people it was just, you know, ‘I’m just afraid that this is Obamacare.’ As much as we tried to show the difference of why this was not, some people just couldn’t get past that hurdle.”

Rea Hederman, executive vice president of the Buckeye Institute, a Columbus-based free market economic think tank, has insisted that the problem with Medicaid expansion is that more people are signing up than projected, and therefore there is more added cost. “Remember that all government spending ultimately results in taxation. If Ohio continues Medicaid expansion, that means higher taxes on citizens of Ohio to pay for Medicaid expansion at the federal and state level,” Hederman told Heartlander magazine recently.

But in Ohio, and in the other 28 states that have passed Medicaid (five other states are in play; 19 are definitely not), once the door is opened it is very hard to close. “We’re not talking about expansion anymore. We’re talking about reauthorization,” Ohio House Speaker and Republican legislator Cliff Rosenberger said at a recent press conference. “It’s here. Now it’s, ‘What are the plans put forward to sustain it? How do we make it more of an ability to lift people up?'”

A recently released study by the PWC Health Research Institute looked at five major health care systems that had hospitals in states with Medicaid expansion and also in states without. They found that “in states that have expanded Medicaid, an influx of newly insured patients has helped reverse long-running hospital trends such as declining admissions and a rise in uncompensated care. Given the emerging picture of health system haves and have-nots, it is understandable why many hospital executives continue to urge state lawmakers to expand Medicaid where they haven’t already.”

The Medicaid expansion increased the numbers in states with it by 9.2 million new enrollees (about 25 percent). In the states without the expansion, the increase was just 1.5 million (about 7 percent).

The dollar amounts flowing from Washington into state coffers are staggering. The Robert Wood Johnson Foundation and Urban Institute found the 24 states without Medicaid expansion (the number of states that didn’t have it last year when the study was done) would give up about $423 billion in federal Medicaid dollars through 2022. Those health systems could also lose about $167 billion in enhanced Medicaid payments used to offset reductions in federal reimbursement.

A recent study by economic research group Fitch Ratings found that health care jobs increased by 30 percent in states with Medicaid expansion versus in states without.

So while the Republican party headquarters in Washington is putting out the talking points that states are all trying to get away from this Medicaid expansion — and that all will be rejecting it eventually — they aren’t paying attention to what is happening with the hospital executives. These executives are card carrying Republicans, mostly, but from the practical business wing of the party, and they can see the problems in passing up billions of dollars in a business that is going through huge changes. Plus, they now have a year’s worth of data on Medicaid expansion, and they are making sure the governors of those states see them.

“The financial data so far is quite clear,” says Ceci Connolly, executive director of the PWC Health Research Institute. “Health systems operating in Medicaid expansion states have seen much better financials than their sister hospitals in states without the expansion. It has been our experience that governors tend to be very practical leaders and we hear that they are sitting down with health care executives in their states and seriously looking at their financial information and how this affects the economics of their state.”

The Cleveland Clinic released their financial numbers from the first nine months of 2014 (through Sept. 30) and the numbers indicate, quite simply, that the bottom line gets better with more people insured through Medicaid. The reason these numbers are significant is that the Cleveland Clinic — ranked as the second highest-grossing nonprofit hospital in the United States — is among the first to release public financial data from 2014, after the Medicaid expansion in Ohio. One cautionary note is that the report released in November is listed as “Interim Unaudited Consolidated Financial Statements,” which means the final 2014 numbers might be slightly different.

The first big number is the increase in Medicaid billings by the Cleveland Clinic, which does 72 percent of its business in Ohio. In 2013, according to their financial statements, the system billed $239 million in Medicaid care. In 2014 that number, projected to include the entire 12 months, rises to $347 million. That amounts to roughly $100 million in extra billings thanks to Medicaid expansion in Ohio.

They also reported that charitable care was down by 25 percent in 2014 over 2013. That works out to a savings of about $43 million. (This is charity care that the Cleveland Clinic classifies as philanthropic and is unbilled.)

But the biggest increase in revenues comes from the reduced number of self-payers and collecting what those self-payers owe. In 2013, self-payers or uninsured were billed $467 million. Of that, $312 million (67 percent) was written off by the Clinic. The projected number for self-payers and uninsured in 2014 declined to $212 million, and if the same 67 percent write off is applied, the hospital’s uncollected bills come to $142 million. That’s a $170 million difference between 2013 and 2014.

So when you add up the increase in Medicaid billing, the decline in charity care, and the savings from uninsured write offs, the Cleveland Clinic appears to have about $300 million in extra funds related to the Medicaid expansion. Now, we realize that numbers like this can be interpreted by the experts and accountants in a million ways, put in different pockets and pots and amortized in various ways that make little sense to almost everyone. We also realize that some of this money is a one-time-only upfront payment change, as the federal government’s plan is to drop payments to hospitals and physicians as Obamacare becomes more established. And this is a measurement of services, not an indication that the U.S government wrote the Cleveland Clinic a check for $300 million last year.

In short, some of these increases in Medicaid payments could be seen as front-loading by the government before the back-loaded cuts take effect. Also, in a business that pulls in more than $6 billion in revenues each year, $300 million is only about five percent of the kitty. But the financial report does indicate such funding is crucial given other circumstances, especially those afflicting Northeast Ohio: “The decline in the population of the Greater Cleveland area, as noted in the 2013 census, creates challenges among hospitals to attract patients,” the financial report warns.

Kristen Morris, the Cleveland Clinic’s chief government and community relations officer, says the hospital supports the Medicaid expansion and will do so in Columbus during the current legislative session. But the cash is not at the heart of its support.

“It’s a heckuva lot better than having these massive gaps of coverage throughout the system,” she says. “This is not some bonus payment by any stretch of the imagination. It is really a function of providing services needed at a much higher volume. We have invested in and expanded our primary care services. We are still basically on a one-to-one [dollar] ratio between Medicaid and uncompensated care. From a practical perspective, anecdotally, we are seeing absenteeism at work going down because people are getting care when they need it and not waiting until it gets so bad that they have no other alternative than to show up at a hospital [emergency room]. This is the most significant [employment policy] that I have seen in my entire career.”

Which is partly why the rest of the country is paying attention to Cleveland in this health care debate. “I think what happened with MetroHealth and what we are now seeing with large hospitals like the Cleveland Clinic is changing the debate somewhat,” says John Corlett, a former MetroHealth administrator who was the architect of the hospital’s Medicaid program and currently serves as the executive director for the Center for Community Solutions, a statewide nonprofit that advocates for social issues.

“People are seeing the benefits to care for patients, but they are also now seeing the economic benefits as well,” Corlett says. “The Cleveland Clinic is known throughout the world, and when their numbers show how this works, a lot more are paying attention.”

One of the other big factors is the demographics of Northeast Ohio: It has a slightly declining population (too many unused hospital beds and competition for patients), a population that is older than the national average (meaning more needed care per capita), and a relatively higher poverty and unemployment rate than the national average (which means a higher number on subsidized care). Those are the three major parts of health care reform that have the most volatility when determining funding and pay rate changes.

The other huge volatility is that the federal government plans to determine payment plans to determine value through Medicare and Medicaid. Medicare has started this process by paying less for a hospital readmission that the amount paid for the first admission. But they are also implementing 33 quality care assessments in some public payment plans for hospitals, including making sure a smoking patient gets counseled on quitting and measuring how the patient rates his or her doctor.

No one really knows how these measures will be applied and who will judge, but the horse is out of the barn on this one. Over time, one of the major changes brought about by the Affordable Care Act will be that the amount of money paid out for health care will be more about the end game than the process.

The old model was paying out X dollars for an X-Ray, and Y dollars for heart surgery and Z dollars for an MRI. The new model will mean that a hospital might get less money if a patient racks up big treatment for lung cancer and the health care organization didn’t work hard enough getting him to quit smoking. Or perhaps the hospital might get bonus payments for diabetes patients who control their weight and blood sugar levels through good preventive care. Or a doctor who makes sure that breast or colorectal cancer screenings are done might get rewarded.

And that’s where the difficulty is for health care organizations. Everyone agrees that preventive care that keeps patients away from surgeries and long hospital stays is less costly and better for the patients. But who is going to measure the value of that, and how? No one knows the particulars, but everyone knows that the changes are coming soon and may be tough to implement.

Dr. Eric Topol is the director of the Scripps Translational Science Institute in California and a noted cardiologist and geneticist. He was a heart specialist at the Cleveland Clinic for 15 years (he left in 2006) and was chair of the cardiovascular medicine department at the hospital. He is the author of the recently published book The Patient Will See You Now, and believes that hospitals as we know them will be obsolete in the near future.

His reasoning is very simple: About one-third of health care spending (about $850 billion a year) takes place at hospitals. America has too many beds, and much of the monitoring currently done at hospitals can be done at home through moveable technology devices and home visits by healthcare workers.

“We will still have hospitals with critical post-op care and intensive care units,” Topol says. “The regular hospital room is not going to be necessary as monitoring station when that can be done at home with better and more comfortable care at a fraction of the cost.”

He also advocates getting everyone the technology to monitor their own health and data in ways that would allow them to consult with their doctor rather than take orders. There are now programs and adaptors that allow smart phones to monitor heart rate and brain waves and lung function. Topol demonstrated this amazing technology on the Colbert Report two years ago, leading Stephen Colbert to joke that shared data might cause him to get “20 percent off on caskets” notifications if his blood pressure registered high on his smart phone.

But Topol’s message is clear: Health care organizations have had an “ingrained paternalism” in their treatment of patients, meaning they pretty much disregard the opinion of the patient in the health care decision making process. Topol believes that medicine needs to be more democratized, with patients having access to data through technology, participating in collecting the data themselves, and thereby becoming more informed on what is (or is not) happening to them.

“To truly qualify as democratized,” he writes in his book, “this has to be capable of spreading among common people, not just the elite or affluent.”

And this is where the changes in new health care are particularly interesting for a giant 40,000-employee hospital system like the Cleveland Clinic. The clinic is a group practice, which means it is owned by the doctors and not accountable to a private company or medical school. When it was founded in 1919, surgeons had cut their teeth in WWI and technology was changing at a very fast pace. In effect, the doctors who founded the Cleveland Clinic were the stars of the industry, not interested in doing much teaching or research and not interested very much in being the doctor who did house calls.

Over time, the Cleveland Clinic became the center of specialty care, especially in innovative heart procedures like angioplasty and coronary bypass. And that’s why the emirs and kings and monarchs of far off places like Saudi Arabia and Jordan and Bhutan and Kuwait traveled to Cleveland to get fixed up. Even famous Clevelanders like Don King, he of the numbers-racket royalty, were treated at the famed main campus on Carnegie Avenue, as well as your favorite local Cleveland athletes.

But the Cleveland Clinic always had a reputation for caring more for foreign royalty than for the people who lived a few blocks way. It’s not that they didn’t do charity care or take care of any Medicaid patients who might slip their way, it was just that cases in those demos didn’t pop out as extra important in the bypass factory. Most of this is ancient history now — in the 1980s the Cleveland Clinic moved further along in its commitment to charity care and being more a part of the city it calls home.

In his book, Specialty Care in the Era of Managed Care, Dr. John A. Kastor, a professor of cardiology at the University of Maryland school of medicine, writes about the relationship the Cleveland Clinic has had with its poor neighbors through the years. “Although originally built in a posh area of the community, the [Cleveland] Clinic had, for several decades, found itself among a minority population, many of whom were poor, if not destitute,” Dr. Kastor wrote.

“They were not particularly welcome at the [Cleveland] Clinic and received most of their care at nearby community hospitals or at Metro[Health],” Dr. Kastor continued. “Two ways to discourage the attendance of such patients was to have neither an emergency department or public clinics … To many, the Cleveland Clinic looked like an elitist organization unconcerned with the medical needs of the local population.”

The Medicaid expansion has changed that somewhat. The Cleveland Clinic now sees there is value in selling Kias as well as BMWs. And their new slogan sort of sums up these changes in the health care marketplace: “Cleveland Clinic: Center for Functional Medicine.”

And that means the Cleveland Clinic has increased charity cases, though things are not quite as easy as at other hospitals. “Just looking back on the past four or five years, before the Medicaid expansion, we still had the ability to refer patients to the Clinic,” says Danny Williams, executive director of the Free Clinic. “But it was just so much easier to refer them to Metro[Health]. At the Cleveland Clinic, each department had a distinct and separate charity unit, and we would have to go through multiple approaches to qualify for charity care. It was a daunting process to go through a system like that.”

As for the emergency room and its hidden nature, I have my own story. In the late ’80s, I helped open the Cleveland Clinic’s high-end restaurant, Classics, and worked as a waiter there. In many ways, Classics was the epitome of the opulent image the hospital was looking to embody back then. The emirs and monarchs and their entourages needed a fancy place to eat, and the Cleveland Clinic obliged with expensive meals served on Lenox china and Waterford crystal. Many of those plates and glassware left the property nightly via the loading dock.

But I digress. I was cleaning knives in the restaurant one Friday night and I cut my hand pretty badly, needing a few stitches. I asked where the emergency room was and no one knew. Even the security guards weren’t sure. Eventually I was told where to go, but even then I had a hard time finding it. The door was behind a concrete wall, near a dumpster, with a very small “emergency” light. Inside was an old Indian doctor with a stooped back. He was sitting in a chair watching TV.

There were five beds inside, all empty: Midnight on a Friday night in Cleveland and no one was in the emergency room at the biggest hospital in the city. The old doctor stitched me up, and I was able to make last call at the Euclid Tavern. I think I was in the self-pay category back then, which means I probably didn’t.

In a recent Time magazine article by Steve Brill, Dr. Delos “Toby” Cosgrove, CEO of the hospital and the man with 22,000-plus heart surgeries on his resume, said the Cleveland Clinic had applied for an insurance license. “The first thing we can agree on about the health care system in the United States is that it is not a system at all,” Cosgrove told Brill. “It’s just a collection of disparate providers. So, yes, we are consolidating.”

For the Clinic, that means moving more resources into primary care physicians and less of the specialty/fee-for-service model that has been so prevalent, and perhaps one day controlling everything from the womb to the tomb, including the insurance company you pay to help ease those travel burdens.

Like Dr. Topol, it appears Dr. Cosgrove doesn’t think hospital bed care is a good future investment, as he tells Brill that even though the number of beds has declined significantly in recent years, hospitals are operating at only 65 percent occupancy.

As far as how the Cleveland Clinic surveys the landscape and makes changes, it appears they are in a better position than most. Having a great heart surgery department may not be as important as it once was, but it is still a prime attention grabber and cash cow to a certain extent. And it is easier to acquire primary care practices through purchase than it is to build a heart bypass surgery service from scratch.

“We’re seeing large health care systems buying up primary care practices,” says Cathy Levine, executive director for UHCAN Ohio, a patient advocacy group. “The Medicaid expansion has really changed the economics of health care for hospitals. The numbers of people showing up at the emergency room with health crises and neglected health conditions has declined. Uninsured people have turned into paying patients. The hospitals see this and they are going to demand the Medicaid expansion to continue in Ohio and to be set up in every state.”

Gov. Kasich will likely get the expansion through again, but with some concessions. One might be an assessment of a small monthly fee for Medicaid recipients who are childless and with earnings between 100 and 138 percent of the poverty level. The monthly premium would be in the $20 range (similar to what is paid on the Affordable Care Act marketplace exchanges with a subsidy at similar income levels) and could likely affect around 100,000 Ohioans. Part of the reason Kasich is floating this is that he doesn’t want to be perceived as a complete Obamacare supporter should he desire to change jobs in 2016.

“There are a lot of things we have to work out,” says Tim Maglione, senior director of government relations for the Ohio State Medical Association, which represents the state’s 20,000 doctors. “One is how to charge for different services. For example, does a doctor get paid less if he sees a patient via [camera technology] than in his office? And we have to find a way to make sure payments are equal, not one rate for Medicare and another for Medicaid and still another for private insurers.

“But doctors are interested in promoting health care for our patients, and they want to keep you from being sick instead of treating you after you get sick,” he continues. “And we think Kasich is very forward thinking in the ways he has brought about the Medicaid expansion and included pay systems that are performance related. In a way, Ohio is more forward as to how this is being implemented than anywhere else in the country.”

This article appears in Mar 4-10, 2015.