The president of the Arkansas Hospital Association told legislators Monday that it's difficult for him to see how the state could save money by adopting a Medicaid payment system suggested by a consultant.
The state Medicaid program already pays hospitals less than what it costs them to treat patients, association President Bo Ryall said.
"If the goal is to reduce those hospital payments, we're certainly concerned," Ryall said.
Ryall spoke during a meeting of the Health Reform Legislative Task Force's Diagnosis Related Group Subcommittee.
The subcommittee was formed by the task force to study a recommendation by task force consultant The Stephen Group of Manchester, N.H., that the state consider paying hospitals on the basis of Medicaid recipients' diagnoses.
Currently, most Arkansas hospitals are paid a fixed amount of $850 per day for inpatient services.
The hospitals also receive additional supplemental payments each year based on the number of Medicaid patients they treat.
Exceptions are UAMS Medical Center, Arkansas Children's Hospital, and "critical access hospitals" with 25 or fewer beds. Instead of being paid a fixed rate, those hospitals are reimbursed for their costs.
For most outpatient services, hospitals are paid the amount billed or 64 percent of the fee schedule published by Arkansas Blue Cross and Blue Shield in October 1990, whichever is less, according to the hospital association.
According to a study commissioned by the association, the 44 acute care hospitals in the state that are paid fixed rates spent $488 million treating Medicaid recipients in 2013 but were paid only about $379 million.
Marcy Doderer, chief executive of Arkansas Children's Hospital, said paying according to diagnosis promotes efficiency but not necessarily higher quality.
She said the state's patient-centered medical home program is "much more effective" at improving efficiency and quality.
Under that program, Medicaid provides upfront payments to doctors, who agree to take steps to coordinate patient care, and awards bonuses to those who keep patients' overall health care costs low.
Another state program pays bonuses to hospitals and other providers whose average costs of providing certain "episodes of care" are low, and penalties for those whose costs are considered excessive.
Arkansas could adopt the diagnosis-related group payment method while continuing with other cost-containment efforts, consultants with The Stephen Group have said.
Most states have adopted some form of diagnosis-related payment schedule for their Medicaid programs, according to the firm.
State Rep. Joe Farrer, chairman of the subcommittee, said The Stephen Group will prepare a report examining the potential financial impact of such a payment method on the Medicaid program and on Arkansas hospitals, and submit it to the task force.
"The task force is open to anything that would help this Medicaid population," Farrer, R-Austin, said. "If that's part of the solution, we're definitely going to look at it."
The Legislature created the task force earlier this year to explore changes to the state's Medicaid program. That includes the private option, which uses Medicaid funds to buy coverage on the health insurance exchange for low-income Arkansans.
The state does not set the rates that insurance companies offering private-option plans pay to hospitals and other providers.
Most private insurance companies already pay hospitals using a system based on diagnosis-related groups, according to The Stephen Group.
The task force is expected to make its recommendations next month.
Metro on 11/18/2015