How Will Florida’s Lawmakers Treat The Hospitals That Treat Floridians?

Medicaid in Florida may see yet another major policy change this year – and it could affect a hospital near you. That’s because Florida’s Agency for Health Care Administration (AHCA) has been drafting a plan to change the way hospitals are paid for the care they provide.

Under this proposed new system, which has been in the planning stages since last April and would take effect July 1 of this year, hospitals would be paid a flat rate for a given type of care rather than reimbursed for their costs.

This new approach relies on Diagnosis Related Group (DRG) guidelines, which suggest what the cost of a given procedure ought to be at hospitals that are well managed, cost conscious, and efficient.

Some of Florida’s hospitals have expressed concern over this change, arguing that it could result in a significant reduction in their Medicaid reimbursements, which are already only a fraction of what private insurance currently pays them for providing the same care.

In a recent presentation to the Senate Appropriations Subcommittee on Health and Human Services, Justin Senior, AHCA’s Deputy Secretary for Medicaid, defended the agency’s plan to convert to a DRG system of payments.

Currently, he noted, hospitals are paid based on their individual costs, and there are wide variations in the amounts paid for the same types of care. To gauge the impact of changing the system, AHCA hired consulting firm MGT of America, Inc. in partnership with Navigant.

Under the new system, hospitals throughout the state would be paid the same amount for providing the same procedures. The DRG bases these payments on the industry averages for specific types of care. The payments increase with the complexity of the procedure.

This DRG system is already widely used in other states and is similar to Medicare’s DRG rate schedule but with adjustments for pediatric care. In addition, certain sections of Florida’s DRG plan also required other types of adjustments, which AHCA has included.

For instance, hospitals serving rural areas are often the only access point for residents seeking care, so it’s imperative that the transition does not adversely affect their financial stability. Therefore, for those situations, payments under the DRG guidelines would be adjusted.

Likewise, the clientele of certain hospitals – especially in urban areas – includes a much larger portion of Medicaid patients than the industry average, so those hospitals may also receive payments that are higher than the DRG guidelines for a particular procedure.

AHCA’s Justin Senior told the senators that the agency recognizes the hospitals’ concerns. One of those concerns: When you’re dealing with a finite sum of money, any adjustment that results in some of the players receiving more means that others will receive less.

Moreover, critics of the change say the DRG system doesn’t sufficiently take into account regional variations in the cost of living. As a result, Miami-area hospitals would not be paid more than, say, Panhandle-area hospitals, despite the differences in the costs that they must cover.

So this conversion, while budget neutral for the state, would not necessarily be neutral in its impact on Florida’s hospitals. Some would receive more money while others would receive less. Medicaid currently accounts for 11 percent of a typical Florida hospital’s budget, so any changes in the Medicaid program are bound to have a substantial impact.

As a result, the Florida Hospital Association (FHA) has unsurprisingly characterized the DRG conversion as problematic, noting that most of the hospitals are currently underpaid by the Medicaid program and that this system may cut the funding even further.

Data on the DRG conversion were not released until December 21, and the hospitals say they haven’t have enough time to run models gauging its impact. They also complain that the tight timetable has effectively precluded them from competently preparing their input for operating under the new system, which includes a complex system of coding each procedure performed.

The FHA has asked for a delay in the transition to the system so that these issues can be addressed. AHCA, however, has argued against a transition period, which would normally be one to three years, and instead is pressing for the new system to be implemented this year.

After the prolonged back-and-forth discussion during the committee hearing, Sen. John Thrasher, R-St. Augustine, seemed to speak for many of his colleagues when he urged AHCA and the hospitals to negotiate.

“Rather than take up the time of this Legislature, and have us worry about who is right and wrong, you guys get in a room and work it out,” Thrasher advised. He added that neither of them would like the result if the Legislature made the decisions on these issues.