Hospitals Brace as Republicans Fight Over Medicaid

Photographer: Melissa Golden/Redux

The Maryland/DC AFL-CIO mobilized a rally and vigil outside the Social Security Administration offices calling on congress to stop cuts to Social Security, Medicare and Medicaid. Close

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Photographer: Melissa Golden/Redux

The Maryland/DC AFL-CIO mobilized a rally and vigil outside the Social Security Administration offices calling on congress to stop cuts to Social Security, Medicare and Medicaid.

Phil Ennen runs a rural hospital system in northwest Ohio that admits about 2,500 people a year, many of them poor or elderly. He’s got the only emergency cardiac catheterization lab between Toledo and Fort Wayne, Indiana.

Ennen estimates he’d be out $1.3 million a year and struggle to stay independent if business groups and Governor John Kasich can’t persuade fellow Republicans to expand Medicaid to cover more poor people under President Barack Obama’s Affordable Care Act.

“I don’t have any time to be political about this,” Ennen, 50, said in a telephone interview from Bryan. “I’m going to have people walking through our door needing care who should have a source of payment and won’t, and that’s frustrating.”

Ohio is among U.S. states where Tea Party Republicans have blocked Medicaid expansion, in some cases over the objections of other Republicans and business lobbies that have traditionally supported the party. Hospital leaders say the cost will be lost payments and jobs. The financial effect is evident: Facilities in states broadening the program are already enjoying lower borrowing costs.

The fight reflects an intensifying rift between business and the Tea Party over high-profile issues, said John Green, a University of Akron political-science professor. Besides Medicaid, they include efforts in states including Indiana and North Carolina to halt or delay Common Core education standards to prepare students for college or careers, the right to bring guns to work in Alabama and on immigration in several places.

Breaking Ranks

“Once upon a time, if the big economic interests said, ‘This is what we’re for,’ almost all Republicans would get in line,” Green said in a telephone interview. “The calculus is just a lot different today.”

Twenty-five states and the District of Columbia are proceeding with Medicaid expansion, including eight with Republican governors. Twenty-two aren’t and debate is continuing in New Hampshire, Ohio and Tennessee, according to the Kaiser Family Foundation, a nonprofit group that studies health in Menlo Park, California.

State Lines

In Ohio, a presidential battleground that Obama won twice, Republicans control all statewide offices and the legislature. Its lawmakers have blocked a push to expand Medicaid by Kasich, the state Chamber of Commerce and groups including the anti-abortion organization Ohio Right to Life.

A coalition of business groups is collecting signatures to force a referendum on the question next year if lawmakers won’t act, and Kasich is considering ways to open the program without a vote by the full legislature.

If all states participated in the Medicaid expansion, hospitals would see a $12.5 billion spending boost in 2014, according to an analysis by Bloomberg Government. About $7.8 billion, or 63 percent, won’t be spent in the 25 states that have so far decided not to expand. The increased spending in Ohio would be $458.4 million, the analysis said.

Ohio hospitals will lose $7.4 billion during the next decade from reduced reimbursements if the state doesn’t expand Medicaid, said Mike Abrams, president of the Ohio Hospital Association. Hospitals that are the largest employers in 78 of Ohio’s 88 counties may fire employees or close, he said.

Moral Case

Ennen’s system employs 750 people with net revenue of $80 million a year. He complains about the possibility of curtailing services while hospitals across the state line 20 miles (31 kilometers) north don’t, because Michigan is broadening Medicaid.

Kasich, 61, a first-term governor and former congressman and Fox Television host who opposed Obama’s health-care law, has argued that Medicaid expansion makes sense.

Ohio would recapture about $13 billion in tax dollars over seven years and hospitals would benefit, he has said. The governor has also said that covering an additional 275,000 people -- especially those needing care for mental health or drug addiction -- is moral issue. They are, he said, “the least among us.”

“We can deal with our federal budget deficit despite the fact that we’re doing something on Medicaid,” Kasich, a U.S. House Budget Committee chairman in the 1990s when the federal budget was balanced, told reporters in Columbus on Sept 16. “It can be done.”

Covering Action

The governor is trying to appeal to independents for his re-election in 2014, while business groups and the “hospital-industrial complex” are exaggerating to get “free money,” said Matt Mayer, president of Opportunity Ohio, a Columbus group that promotes free markets.

“It doesn’t solve the business problem, which is how do we make sure that our vulnerable populations who truly need medical care and access thereto that’s affordable, get it?” Mayer said by phone. He called hospitals’ threats “a scare tactic,” and said states opposing expansion are saving the nation billions of dollars.

Even so, investors in the $3.7 trillion municipal-debt market are already penalizing bonds from hospitals in states that aren’t expanding Medicaid compared with those in states that are.

Sweet Deal

Securities sold for Ohio’s Akron Children’s Hospital that mature in 2038 traded Sept. 13 at an average yield that was 0.85 percentage point more than benchmark AAA munis, data compiled by Bloomberg show. The penalty on the debt, rated A+ by Standard & Poor’s, has widened by 15 percent since July 31, the data show.

During the same period, the spread on bonds for Sparrow Health System in Michigan, which voted to expand Medicaid, increased just 2 percent, the data show. The securities are due in 2036 and share the same S&P rating as the Ohio debt.

Rising yield premiums -- the amount investors demand to hold the bonds -- reflect higher costs Ohio health systems are set to face when they next offer debt. For a hospital that issues $100 million and repays the loan over 30 years, the difference between paying a 5 percent interest rate and one that’s 0.25 percentage point higher represents an extra $7.5 million in debt service.

“There should be some benefit to hospitals in states that are going forward with Medicaid expansion,” said Lisa Martin, an analyst who covers municipal health-care issuers for New York-based Moody’s Investors Service.

Home Front

Republican leaders who cater too much to business are out of step with the rank and file, said Whitney Neal of FreedomWorks, a Washington-based group connected with the Tea Party movement.

“You’re seeing the guys that care about their constituents versus the guys that care about the people who they’re beholden to, the special interest groups,” Neal said in a telephone interview.

Supporting issues such as Medicaid expansion could draw a primary opponent for Republican lawmakers in conservative districts, Green said. The ability of party leaders to influence policy also has waned as social media and technology connected conservatives and gave them a platform, said Kevin Madden, a Republican strategist in Washington who advised Mitt Romney’s 2012 presidential campaign.

“Technology has really empowered a lot of grassroots voices within the party,” Madden said in a telephone interview. “As a result, I think that they’ve gained a much greater market share of influence in these debates in states and in Washington.”

To contact the reporters on this story: Mark Niquette in Columbus at mniquette@bloomberg.net and Brian Chappatta in New York at bchappatta1@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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