Peninsula hospitals measure impact of state reimbursement rate freeze

With Alaska Medicaid cut by $51.9 million in this year’s state budget, Kenai Peninsula Medicaid providers are seeing the first financial effects of the underfunded program in the elimination of annual increases to their Medicaid reimbursement rates.

Medicaid reimbursements to providers normally increase 1.6 to 2.6 percent each year to compensate for inflation. According to a notice of emergency regulations signed by state Health and Social Services Commissioner Valerie Davidson, this year’s reimbursements will have no increase. This measure is intended to lower the program’s spending without eliminating services to users.

Bruce Richards, Government and External Affairs Manager for Soldotna’s Central Peninsula Hospital, said he had done “some preliminary math” on the rate freeze and estimated CPH will lose about $120,000 that it would have received with a rate increase. At CPH’s long-term care facility Heritage Place, Richards estimated a loss of $140,000.

Central Peninsula Hospital receives a $3,762 reimbursement per day for each of its Medicaid users, whom Richards said make up about 15 percent of CPH’s patients, including out-patients and in-patients who receive longer-term care. Last year the hospital was reimbursed for 1,651 patient-days for a total of $6.2 million in Medicaid payments, a number resulting from the 1.5 percent rate increase the Medicaid program gave in 2014. Although this year’s reimbursement rate remains static, Richards said he did not anticipate a drastic impact to the hospital’s finances.

“I don’t think we’re going to have to cut,” Richards said. “It’s one of those things where the state’s in a terrible situation, and they’re tightening their belts, and that’s causing some belt-tightening for the rest of us. This isn’t the worst thing that can happen.”

Homer’s South Peninsula Hospital will not be affected by the rate freeze at all, because this year it is going through a process to redetermine its base rate of Medicaid reimbursement — a “rebasing” that occurs every four years and is based on the hospital’s cost reports, according to Derotha Ferraro, South Peninsula Hospital’s director of public relations.

“If the rate freeze continues, or if by chance we hadn’t been in a rebasing year, we would lose about $280,000 annually,” Ferraro said.

The Soldotna-based Peninsula Community Health Services, a Medicaid-accepting behavioral health provider, declined to comment for this article.

Richards described the rate freeze as “one of the easier ways for the state to reduce their budget.” Statewide, eliminating the inflationary increase is expected to save $8 million from the state general fund. However, Richards said if the rate remains frozen for several years, it could create difficulty for CPH.

“This is one way to (cut state Medicaid spending), but this certainly isn’t the way to do it in the future, long-term,” Richards said. “We’d rather see some sort of utilization reforms and Medicaid reforms that are going to help slow down the cost of Medicaid, as opposed to somebody just turning the dial.”

Although Medicaid administrators in the Alaska Department of Health and Social Services are planning such reforms, further cuts are likely to happen before they take place.

“While the Medicaid program anticipates reducing some of its expenditures through reform and other actions, it cannot absorb the full general fund reduction and maintain Medicaid services at current levels,” Commissioner Davidson wrote in the emergency regulation notice.

The state has identified other potential cuts that could eliminate $20 million of Medicaid spending.

“I don’t know what they are,” Richards said of the potential cuts. “We expect there’ll be more things coming down the pike that will impact us, so we’ll have to wait and see how that all goes.”


Reach Ben Boettger at

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