Report Title:

Medicaid Hospital and Long Term Care Reimbursements; Appropriations



Establishes reimbursement guidelines and provides appropriations for medicaid hospital and long term care reimbursements.  (SD1)



S.B. NO.



S.D. 1
















     SECTION 1.  Hawaii's health care system consists of a myriad of services that must be coordinated and integrated in order to ensure access to quality care at the appropriate level for all of Hawaii's residents.  A single user of health care often accesses different providers that deliver different products and services, and may transition from one level of care to another over a period of time.

     Acute care hospitals deliver care to the most seriously ill patients.  As such, the cost of hospital care is very high due to high staffing costs, the high costs of technology that permeates hospitals in the form of equipment and supplies, and the high costs of medication, regulatory and quality requirements.  Patients who receive care at hospitals and recover enough of their health so that they no longer require hospitalization, but are still in need of services, should be transferred out of the hospital to a provider that can appropriately and safely care for their needs.  Such a transfer supports an improved quality of life for the patient and sustains the integrity of the acute care system by creating availability for others who may require hospitalization.  This balanced flow of patient movement matches the appropriate provider to the needs of the patient.  In doing so, it better manages the financing of health care.

     The determination of an appropriate level of care is based on the patient's condition and input from a multi-disciplinary care team.  The provision of long term care, either in a facility or in a home and community based setting, is far less costly than hospital care.

     Unfortunately, due to unique and unusual circumstances, Hawaii has a shortage of beds in nursing facilities relative to its population.  Most of Hawaii's long term care facilities, including skilled nursing facilities, assisted living facilities, adult residential care homes, and foster family homes, are full nearly all the time.  Placement in long term care is especially difficult when a patient has a medically complex condition that demands resources which are not available at many long term care facilities in Hawaii.  As a result, many acute care hospital patients who are ready for long term care cannot be discharged and must wait in the acute care hospital bed until space becomes available.

     The shortage of long term care beds is an undesirable situation from three perspectives.  First, the quality of life of the patient is diminished.  Second, a patient in an acute care hospital who is waitlisted for long term care occupies a bed that may be needed by someone else with an acute illness or injury.  Lastly, hospital care is very expensive, so the waitlisted patient contributes to higher costs in an acute care hospital.

     Hawaii's medicaid program can be modified to facilitate the flow of patients from acute care hospitals to long term care facilities.  When a medicaid-eligible patient is treated by an acute care hospital, medicaid pays a rate for hospital care.  The payment is based upon the level of care needed by the patient.  When the patient is well enough to be transferred to long term care, the medicaid payment is reduced to a rate that is twenty to thirty per cent of the actual cost of acute care hospitalization.  If the hospital is not able to transfer the patient to long term care, the hospital must bear the financial burden of the reduced medicaid payments.  In addition, the inability to transfer a patient who is deemed ready for discharge by a physician means that the waitlisted patient utilizes an acute care bed that may be needed by other, more acutely ill patients.  Thus, there is an opportunity cost to the hospital and the patients.

     At any particular time, a total of about two hundred patients in Hawaii's hospitals are waiting to be transferred to long term care.  Patients with certain conditions have been on the waitlist for weeks, months, or even years.  The total loss to hospitals due to waitlisted patients was estimated to be at least $80,000,000 in 2006.

     A significant part of that loss is due to underpayment by medicaid.  The underpayment is unfair to acute care hospitals because medicaid is, in effect, a public-private partnership.  The public sector provides the funding, and the private sector provides the services.  As a result of the underpayment, acute care hospitals and long term care facilities are weakened financially, and the stability of Hawaii's entire health care system is diminished.

     In the past, acute care hospitals were able to absorb medicaid losses since payments from commercial and other payers helped to offset the under funded costs of care for medicaid patients.  Over time, the cost of healthcare has increased at a faster rate than increases in payments from all payers.  In addition, significant enhancements in medical technology over the past several years have placed a greater expectation for acute care hospitals to invest in medical equipment and information technology.  As a result, acute care hospitals are no longer able to cover the underpaid cost of caring for medicaid patients and adequately invest in medical technology.

The result is that many acute care hospitals are on the verge of financial failure.  For example, Kahuku hospital would have ceased operations due to bankruptcy if it were not annexed by the Hawaii health systems corporation, which is subsidized by state government.  One of the major reasons given for Kahuku hospital's financial troubles was underpayment by medicaid.  The Hawaii health systems corporation itself is seeking an emergency appropriation largely because of losses due to underpayment by medicaid.  All hospitals in Hawaii face the same problem.

Acute care hospitals must be supported financially so that they can continue to care for our acutely ill while longer term solutions to the waitlisted patient problem are being developed.  As described more fully in the Waitlist Task Force report to the 2008 legislature, pursuant to Senate Concurrent Resolution No. 198 (2007), this is one piece of the problem.  The multi-faceted waitlist problem is being addressed from a number of angles, both legislatively and non-legislatively.

     In addition, medicaid payments for long term care must be addressed, with payments for individuals with medically complex conditions, such as bariatric patients and severely obese patients, needing immediate attention.  These payments should be cost-based since the current system of acuity-based reimbursement does not effectively address these types of patients.

     Furthermore, medicaid managed care (QUEST expanded) is projected to begin in November 2008.  Long term care providers will need to negotiate rates with managed care plans.  Historical patterns in other states where managed care entered the market resulted in long term care facility closures due to low payments for long term care.  The 2008 medicaid reimbursement rates for long term care facilities in Hawaii, as established by medicaid on January 1, 2008, should be established as the base rate for all future negotiations with managed care companies.  These rates should be the lowest allowable to long term care providers in future negotiations under QUEST expanded.  This assurance will maintain Hawaii's current level of nursing home providers as well as be an incentive for interested entrepreneurs to expand current operations or consider building additional long term care beds in Hawaii in response to the demand for post acute care.

     The purpose of this Act is to provide fair compensation to acute care hospitals for the service they provide to medicaid patients who have been treated for acute illnesses and injuries and who have recovered sufficiently so that they should be transferred to long term care, but for whom long term care is not available.  In addition, this Act provides fair compensation to long term care facilities for patients in acute hospitals with medically complex conditions when their level of care changes from acute to long term care.  This Act also ensures that when Quest expanded is implemented, long term care facilities will receive medicaid payments that are at least equal to the rates in effect immediately prior to the implementation of Quest expanded.

     SECTION 2.  Medicaid reimbursements.  (a)  Medicaid reimbursements to hospitals for patients who are waitlisted for long term care shall be equal to the acute medical services payment rate.

     (b)  Medicaid reimbursements to long term care facilities for patients with medically complex conditions who are in acute care hospitals and whose level of care has been changed from acute to long term care shall be based on actual costs to the long term care facility.

     (c)  Reimbursements received by long term care facilities under QUEST expanded shall be no less than those received under medicaid immediately prior to the implementation of QUEST expanded.

     SECTION 3.  There is appropriated out of the general revenues of the State of Hawaii the sum of $           or so much thereof as may be necessary for fiscal year 2008-2009 for increased medicaid reimbursements to hospitals, for patients who are waitlisted for long term care, that are equivalent to the acute medical services payment rate.

     The sum appropriated shall be expended by the department of health for the purposes of this Act.

     SECTION 4.  There is appropriated out of the general revenues of the State of Hawaii the sum of $           or so much thereof as may be necessary for fiscal year 2008-2009 for medicaid payments to nursing facilities based on the actual costs of long term care for patients with medically complex conditions who were waitlisted in acute hospitals for long term care.

     The sum appropriated shall be expended by the department of health for the purposes of this Act.

     SECTION 5.  This Act shall take effect on July 1, 2008.