California hospitals save millions under ACA, yet financial challenges still loom

California hospitals could save millions in cost reductions thanks to the Affordable Care Act’s insurance expansion, though those figures don’t tell the full financial story, according to the California Hospital Association.

Last week, the Obama administration projected that hospitals nationwide (PDF) will save $5.7 billion in uncompensated care costs. That expected savings come from fewer uninsured individuals unable to pay their bills, and more patients covered under the Medicaid expansion. The vast majority of those savings — $4.2 billion — will come in states that expanded Medicaid, the report found.

Using preliminary figures, California hospitals are on track to save about $220 million a year in uncompensated care costs (the terms refers to health care or services that aren’t reimbursed, typically because a patient lacks insurance). The estimate comes from Anne McLeod, senior vice president for health policy and innovation for the California Hospital Association, based on state data from Jan. 1 through March 31. 

In reality, the savings could be even more substantial since open enrollment was still ongoing during the period reviewed, with a final surge occurring after it concluded. Also, people who signed up for insurance during those three months might not have had the opportunity to use it yet.    

As part of her California analysis, McLeod compared the decrease in uninsured patients with the increase in patients on Medi-Cal, California’s Medicaid program. Statewide, hospitals are seeing fewer uninsured patients in inpatient settings and less demand for outpatient services such as laboratory tests or even emergency room visits, according to McLeod.  

The migration from uninsured to Medi-Cal was obvious from the numbers: “There’s almost a perfect one-to-one match,” she said.

So, will California’s hospitals be making more money under the ACA? Not exactly, McLeod cautioned.

Those savings need to be placed in the broader context of cuts, such as the slashes to hospitals’ disproportionate share hospital (DSH) costs under the ACA. The federal government has historically used DSH funds to help hospitals make up for uncompensated care and Medicaid shortfalls. The ACA includes cuts in that funding since the expectation is that uncompensated care will decrease.

Even with the ACA, there are still millions of uninsured people, including undocumented immigrants, who will continue to show up at California’s emergency rooms.

And the question for all hospitals remains: Will newly insured patients be able to shoulder their share of the cost of care? Even though more people are now insured, there are still plenty of patients with high-deductible plans who might struggle to pay their share of hospital bills.

To complicate things further, the hospitals reaping the financial rewards from the ACA’s insurance expansion might not be the same ones shouldering the worst of the cuts. McLeod said it’s too soon to tell exactly which hospitals or geographical regions could face a greater burden.  But reports such as this one are already projecting DSH cuts could threaten the future financial stability of safety-net hospitals.

So, why should California patients care about hospitals’ financial projections?

Those numbers could have a direct impact on what services are provided in their community, McLeod said. Hospitals often shift monies from more profitable areas to costlier endeavors they need to subsidize, such as neonatal intensive care units. Changes in funding could affect that delicate balance of services a hospital can afford to provide. The effect could be even more substantial in isolated geographic areas that have just one hospital offering those costlier services.

Even though any monetary numbers – nationwide and locally—are still so preliminary, they do reveal that the ACA is leading to significant shifts in how hospitals are funded.

“That report that came out was such a small sample and doesn’t tell the whole story,” McLeod said. “As we learn more, we need to track it.”

Photo by Ken Teegardin via Flickr.