Safety-net hospitals fear cuts as health law's repeal looms

PHILADELPHIA — Jason Colston Sr. went to the emergency room at Temple University Hospital last month with his calf swollen to twice its normal size. A bacterial infection had entered his bloodstream, requiring him to spend nine days at Temple, where patients are overwhelmingly poor.

Colston, 36, had no insurance through his job at a 7-Eleven, but it turned out he was eligible for Medicaid under the Affordable Care Act. Temple helped him enroll as soon as he was admitted, and Medicaid paid for his stay and continuing treatment.

Before the health law, the hospital had to absorb the cost of caring for many uninsured patients like Colston. Now, with President-elect Donald Trump and the Republican-controlled Congress vowing to dismantle the law, Temple and other hospitals serving the poor are bracing for harsh financial consequences that could have a serious effect on the care they provide.

Since the election, hospitals have been among the loudest voices against wholesale repeal of the health law. In a letter to Trump and congressional leaders this month, the two biggest hospital trade groups warned of "an unprecedented public health crisis" and said hospitals stood to lose $165 billion through 2026 if more than 20 million people lose the insurance they gained under the law. They predicted widespread layoffs, cuts in outpatient care and services for the mentally ill, and even hospital closings.

Here in Pennsylvania, where the health law has brightened the financial outlook of hospitals statewide, many are scrambling to assess how repeal would affect their bottom line and the patients they serve. The stakes are particularly high for safety-net hospitals like Temple, but even hospitals that are more prosperous face uncertainty after investing in new ways to deliver care under the law.

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Temple executives said their system could lose as much as $45 million a year if the law were entirely repealed, which would return it to the losses it posted for years before the health law took effect.

"We are the de facto community hospital in one of the poorest neighborhoods in the country," said Robert Lux, the senior vice president, treasurer and chief financial officer of Temple University Health System, which includes two general hospitals and a cancer center. "Any kind of change like this would not only push Temple University Hospital into financial extremis, it would do the same thing for our entire system."

Not far from Temple, Main Line Health, a nonprofit hospital system in the affluent Philadelphia suburbs, is far better positioned to weather the financial impact of repeal. While Temple has one of the poorest patient populations in the state — about half of its patients are on Medicaid — Main Line, which has an outpatient clinic in an upscale mall and another with a fitness center outfitted with filtered saltwater pools, has few Medicaid patients.

Still, even hospitals serving affluent populations have reason to be nervous about a future without the health law. Main Line has invested substantially in response to the law's push to base hospital pay on patient outcomes instead of the amount of medical services provided. Repealing the law would create uncertainty about the future of this new paradigm, which has forced hospitals to rethink how they deliver care.

"I'm dreading the unpredictability," said John J. Lynch III, Main Line's president and chief executive.

Overall, the health law has improved the financial outlook of Pennsylvania hospitals significantly, even though the state was a year late in expanding Medicaid. The former governor, Tom Corbett, a Republican, initially balked, and the program did not expand here until 2015. Still, hospital operating margins statewide increased to about 5.5 percent on average in 2015, from 4.25 percent in 2014, according to the Hospital and Healthsystem Association of Pennsylvania. The amount of care provided to patients who cannot pay dropped by 8.6 percent on average.

North Philadelphia, where Temple is based, is among the poorest neighborhoods in the nation. Many of its residents live in deep poverty, a census designation that means their income is less than half the federal poverty level of $24,300 for a family of four. That helps explain why Temple is so dependent on Medicaid revenue and why the stakes of repeal are high here.

Under the health law, hospitals that served a large number of poor and uninsured patients agreed to a series of funding cuts in exchange for getting far more patients with insurance coverage. Temple has lost about $11 million so far in these federal funds, known as disproportionate share payments, Lux said.

But like other hospitals in the 31 states that expanded Medicaid under the law, it has made up that revenue in part through the Medicaid expansion. It recorded about 13,000 more visits from patients with Medicaid coverage in 2015, the first year Pennsylvania expanded Medicaid eligibility, and at least as many this year. Still, Temple is barely turning a profit: It had operating income of $3.6 million in the fiscal year that ended June 30, despite revenue of $1.7 billion.

"You still have a pretty fragile enterprise," Lux said, noting that Medicaid pays hospitals and doctors far less than Medicare and private insurance. "Our current state of stability could be broken pretty quickly."

So, too, could Temple's efforts to connect its newly insured patients with preventive care instead of waiting until they show up in the emergency room with advanced, expensive illnesses. Dr. Robert McNamara, chairman of emergency medicine at the Lewis Katz School of Medicine at Temple University, said he had seen more than a few uninsured people arrive in the emergency room with kidney failure, needing costly dialysis for the rest of their lives because they had lived with high blood pressure for so long.

Main Line Health's financial picture is much stronger and will most likely remain so even if the health law is repealed and replaced with a program that leaves far fewer people insured. Main Line ended the 2016 fiscal year with $106.8 million in operating income and a 6.5 percent operating margin, compared with Temple's margin of 0.2 percent.

Still, Main Line has invested substantially in efforts to improve the care it provides its patients while lowering the cost, as the Affordable Care Act encourages. As with many hospitals across the country, these efforts — like preventing readmissions and focusing more heavily on primary care, especially for patients with chronic diseases — have caused the system's inpatient population to drop.

"As we decrease our volume, looking at providing care differently, that's financially impacting us," Lynch said.

He added that over time, the law's slowing of Medicare payment increases added up to "real money." The study commissioned by the hospital associations found that unless the annual increase in Medicare reimbursements is restored to what it was before the health law passed, hospitals will face additional losses of about $290 billion by 2026.

In the end, though, Main Line's far more robust revenue, because of its large number of commercially insured patients, all but guarantees it will not have to worry — for now — about cutting programs or plans. It is installing a new electronic records system and has spent $700 million renovating its hospitals over the past few years.

"If you don't have a strong payer mix or a healthy bottom line," Lynch said, "it's very difficult to do those things."

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One major question for Temple and other safety-net hospitals is whether states would restore supplemental funds or programs that defrayed the cost of caring for the uninsured before the health law took effect. Pennsylvania, for example, paid for emergency medical care for certain low-income people who did not qualify for Medicaid. This allowed Temple to be paid for their inpatient care but often not for the care they needed after being discharged.

"We don't know that that program would come back," Lux said, adding that the program used to pay for about $23 million a year worth of care provided at Temple University Hospital.

Colston, who was still returning daily to Temple for intravenous antibiotics a month after his discharge, would have qualified to have most of his inpatient costs met under the old state-financed program. Paul Fabian, who received a double lung transplant at Temple last year after getting a subsidized private insurance policy from the Affordable Care Act marketplace, would not have qualified at all. Fabian, who suffered from emphysema and chronic lung failure, said he sold his truck to afford his $262 monthly premiums.

"If you walk into the ER, they have to help you," Fabian, 61, said. "But if you have a condition like I had, what's the hospital's obligation?"

Temple officials said that without insurance, Fabian would have had to endure a two-year waiting period to qualify for Medicare coverage for his disability.

"We were finally in a situation where for most of our patients there was a coverage option," said Anita Colon, Temple's director of patient financial services, already speaking about the health law in the past tense. "Now there's just a total unknown about what will be left."