Oklahoma lawmakers have revealed detailed plans for funding Medicaid expansion that include raising fees on hospitals, frustrating health care officials who worry about financial instability as the state transitions to privatized Medicaid.
The Oklahoma Health Care Authority, which administers Medicaid, estimates the state will receive more than $1 billion in additional federal health care funding because of the pandemic. No new state funding is needed to cover expansion for at least the next two years, but lawmakers are still moving ahead with a plan to increase hospital fees.
Some Republicans, many who were displeased by hospitals that supported voter-mandated Medicaid expansion, believe the increased fees should start before the federal funds are used up, according to interviews and public debates. House and Senate Republicans say the state shouldn’t rely on one-time funds to pay for an ongoing expense, and any fees not needed to pay for expansion can be put into a savings account or used to cover unexpected costs.
Faced with a switch to privatized Medicaid this fall, hospitals had pushed for the state to only use federal dollars to fund the first years of expansion. They had hoped increased hospital fees would come later so providers could settle into the new privatized system and financially recover from the pandemic.
The Supplemental Hospital Offset Payment Program (SHOPP) is a fee certain hospitals in Oklahoma pay so the state can draw down extra federal matching funds, according to Health Care Authority rules.
Many hospitals in the state are required to pay SHOPP fees unless they fall under certain exemptions. The fees are a way to draw down additional matching federal health care dollars, which are then used to cover more of the hospitals’ costs from caring for Medicaid patients. The SHOPP program is beneficial for hospital finances, but privatization changes how money would make it back to hospitals.
With managed care, the SHOPP money will flow through and depend on reports from for-profit insurance companies tasked with managing the state’s Medicaid program. The insurance companies could charge additional handling fees, which means less money for the hospitals.
And if a hospital chooses not to contract with any one of the four medical managed care companies, that hospital won’t receive supplemental payments for the portion of Medicaid patients that have insurance through that particular company.
“The hospitals are more at risk under this program by a longshot,” said Patti Davis, president of the Oklahoma Hospital Association.
In an interview with The Frontier, Davis said hospitals in the state believed they had a previous deal with Gov. Kevin Stitt for hospitals to voluntarily pay more SHOPP fees in exchange for a commitment that Oklahoma would not privatize Medicaid.
“We are not opposed to doing our part as a hospital,” Davis said. “But we believed last year that we had an agreement with the governor that hospitals would voluntarily increase the percentage of SHOPP to cover the Medicaid expansion costs for the state… in exchange for no managed care. But instead, what we are getting is a managed care proposal and then still being asked to pay for expansion.”
Carly Atchison, spokesperson for the governor, said such an agreement was never made.
Stitt was opposed to Medicaid expansion being written into the state’s constitution, which the Hospital Association supported through State Question 802.
“That was a sticking point for the governor,” she said.
House Republicans narrowly approved Senate Bill 1045 to increase the hospital fees starting next January, and Stitt signed the bill this week.
Senate Pro Tem Greg Treat, R-Oklahoma City, recognized that the situation facing hospitals has become more uncertain because of privatization, but he said SHOPP is still the way forward.
“The very people around the state who pushed the hardest to get Medicaid expansion and who will benefit the most off of Medicaid expansion are the hospitals, and so SHOPP has to be part of that conversation,” Treat said in late April.
Paying for expansion
An estimated 200,000 low-income Oklahoman will gain access to health insurance when the state expands Medicaid on July 1. The federal government will cover most of the costs of expansion.
Still, state lawmakers worried for months how they would fund the $164 million state share that starts this fiscal year. The final agreement on how to fund expansion was announced with two weeks left of the 2021 legislative session.
At the beginning of the coronavirus pandemic, the federal government boosted its contribution to state Medicaid funding by 6.2 percent through the end of the public health emergency. The increase will provide an estimated $629 million to Oklahoma’s Medicaid programs, according to the Health Care Authority.
Then, in a bid to incentivize more states to expand Medicaid, the federal government also approved a provision of the American Rescue Plan in March that will cover another 5 percent of costs for traditional Medicaid patients for two years. Oklahoma will begin receiving these additional federal dollars in July, once expansion is implemented.
In total, the state will receive an estimated $1.1 billion in enhanced federal health care funding, according to numbers provided by OHCA.
Lawmakers plan to use a large chunk of that money to cover expansion costs, but the Legislature also wanted to establish the funding stream that would be in place when those federal dollars ran out.
“I don’t care how big of a pot of money is, you don’t take an ongoing expense and use one-time money to pay for it,” Chairman of the Senate Appropriations Committee Roger Thompson, R-Okemah, told The Frontier.
Currently, hospitals pay SHOPP fees at a rate of 2.5 percent of their net hospital patient revenue. Lawmakers approved raising that rate to 3 percent starting January 2022, and by 2024, the rate will sit at 4 percent.
The first year, the increased SHOPP rate will bring in an additional $37 million, said Rep. Kyle Hilbert, R-Bristow.
Excess SHOPP revenue can be put into a savings account in case future federal funding declines or the cost of expansion is more than anticipated, Hilbert said.
The state will also be saving roughly $40 million on mental health care and the Insure Oklahoma program that will now be covered by Medicaid expansion, Thompson said.
And in the future, under the privatized model, it’s also possible that the four private insurance companies tasked with managing the state’s Medicaid program will have to pay an insurance tax.
Why increased SHOPP payments are controversial
In early discussions last year about funding Medicaid expansion, hospitals embraced an increased SHOPP fee.
Expansion means more people will have insurance, and that means hospitals serving new Medicaid patients have the opportunity for higher financial returns through SHOPP.
But hospitals agreed to voluntarily pay increased fees when privatization wasn’t on the table, Davis said.
Now, privatization will likely happen soon after expansion, bringing a slew of unknown financial consequences for health care providers, many of which already struggle to stay afloat, particularly in rural Oklahoma.
“I think a lot of this conversation about managed care, the SHOPP fee, it’s all been shaped by the hospitals finally saying, ‘we’ve got to do expansion. We can’t hold on any longer,’” said House Minority Leader Emily Virgin, D-Norman. “And so I think there has been sort of a punitive attitude towards hospitals.”
When asked by another senator if lowered hospitalizations and privatized Medicaid would impact SHOPP payments and hospital finances, Sen. Frank Simpson, R-Springer, said yes. Simpson explained the bill raising hospital fees on the Senate floor.
“That could be a possibility, and it’s one of the things we should prepare for,” Simpson said, adding that he believes it’s another reason the state should start increasing SHOPP fees now and saving the extra dollars.
Details on exactly how managed care will impact the SHOPP program or improve health outcomes have been scarce, and providers worry needed treatments will be denied so insurance companies can make money. If hospitalization rates decline, so does hospital revenue.
Hundreds of doctors and health care lobbyists have gathered at the state Capitol in recent weeks to petition lawmakers to stop privatization. The group Health Care Holdup, backed by providers in the state, has written opinion pieces and put out videos arguing that Oklahomans would face lowered access to services under a managed care model, but these objections ultimately proved futile.
Rep. Marcus McEntire, R-Duncan, introduced a bill this session to stop privatization that the House of Representatives approved with a veto-proof majority. But the Senate did not take up his version of the bill and eventually changed the wording to instead just add “guardrails” to a privatized system.
Those guardrails, which include network standards and requirements for providing timely care, became law without Stitt’s signature this week. Stitt said he was concerned the bill would cause costs to rise and make it more difficult to improve health standards.
“I don’t blame (hospitals) for pushing,” McEntire said. “They’re being forced into a privatized model where the hospitals are fearful that their rates are going to be cut, they’re worried about reimbursements, all of that. So you put a 4 percent SHOPP rate on them on top of that, and it’s almost an insult to injury.”
These concerns have been heard, Thompson said, but they weren’t enough to sway lawmakers who prioritized agreeing on a long-term funding stream for expansion this year.
“I’m very sensitive to the Hospital Association… but yet, I’ve got to pay for an ongoing expense,” Thompson said.