Based on the Governor of Alabama’s public statements regarding the Act, it appears that Alabama could in fact opt-out of the expansion. That decision would have direct implications for healthcare providers in Alabama, and we summarize the primary effects in this article.

The Kaiser Foundation estimates that, should Alabama opt-in to the Medicaid expansion, approximately 240,000 previously uninsured persons—or sixty percent (60%) of its uninsured population—would immediately become eligible to enroll in Medicaid. Should Alabama opt-out, a substantial percentage of these people, including those that do not buy insurance at an “exchange” that is also mandated by the Act, would remain uninsured. Thus, Alabama hospitals would continue to be obligated to treat a potentially significant number of uninsured persons.  Based on the recent Supreme Court decision, Alabama hospitals should, however, continue to receive Medicaid reimbursement at levels consistent with its past performance should the state opt-out. The recent Supreme Court decision did not change those components of the Medicaid system.

Opting-out of the Medicaid expansion will not, however, preserve the status quo as other key provisions of the Act will go into effect. Although additional regulations must be promulgated and the actual effect of these provisions cannot currently be predicted, one of the primary purposes of the Act was to reduce Medicaid costs through revisions to the reimbursement scheme.  Specifically, the Act was passed in response to, among other factors, the annual Medicare Trust Report warnings that predate and run coincident with the Bush administration through the Obama administration. Those warnings indicate that the Medicare program will, in the next few years, be insolvent without massive tax increases and/or cost cutting.  Cost cutting measures, such as penalties for patient readmissions and lower Medicare reimbursement rates for certain services, will occur as the Act continues to be implemented. These measures may, in certain circumstances, be offset by improved quality indicators and, of course, an increase in the number of insured patients seeking services. However, should Alabama opt-out of the Medicaid expansion, Alabama’s hospitals could see reimbursement reductions without receiving the corresponding additional revenue from the expansion of Medicaid.

Complicating this analysis, Medicaid disproportionate share hospital (“DSH”) payments will, commencing in 2014, be reduced. Since DSH payments are intended to compensate hospitals that treat a disproportionate share of the uninsured, the Act – which envisioned near universal coverage – reduces payments for treatment of uninsured. These reductions are scheduled to go into effect irrespective of the various States’ participation in the Medicaid expansion. Although it’s currently unclear how these reductions will be allocated, it is likely that Alabama hospitals’ DSH payments will be reduced. According to the Kaiser Foundation, Alabama hospitals were allotted $307,827,500 for DSH payments in FY2011. This accounts for nearly 10% of all Medicaid spending in Alabama.

Additionally, even if Alabama were to opt-out of Medicaid, the Act incentivizes those who are currently eligible for Medicaid, but not enrolled, to enroll in the program. There are an estimated 100,000 persons in Alabama currently eligible for Medicaid who are not enrolled. Many of these people will enroll or purchase insurance through a health exchange if they are otherwise not exempt from the penalty. This increase in enrollment could increase the State’s Medicaid costs, but, again, without receiving the full extent of the corresponding increased revenue from the Medicaid expansion.

Finally, instead of participation in the Medicaid expansion, Alabama may attempt to revamp its current Medicaid program and seek a waiver from the Federal government for an entirely new Medicaid program in Alabama. As part of the legislative process leading up to the passage of the Act, the Federal government displayed a willingness to entertain entirely new structures for the Medicaid programs in various states. Alabama has not indicated that it will seek to revamp its Medicaid payment system but such revision, if implemented and approved by the Federal government, could impact the reimbursement—positively or negatively—to which Alabama hospitals have historically been entitled. It is impossible to identify at this juncture what the impact would be as no new plans for a restructuring of the Alabama Medicaid system have been promulgated or presented to CMS for review and approval.

It is time for individual Alabama hospitals to gear up their respective strategic planning offices in order to determine whether their patient populations and, as a result, the anticipated income streams afforded these hospitals would be benefitted or harmed by the Medicaid expansion.  This calculation will be difficult and will, for those entities currently enjoying extra reimbursement by virtue of DSH status, be complicated. When the objective data for Alabama hospitals can be aggregated, then it will be time for legislative and executive activity in the crucial decision whether to adopt or not the Medicaid expansions contained in the Act or, alternatively, to seek a Medicaid waiver fine-tuned for the needs of Alabama’s citizenry and health care institutions. 

Dan Silverboard and Alan Windham are health care attorneys with Balch & Bingham, LLP.  Dan may be reached at 404-962-3586. Alan may be reached in 601-965-8178.

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