by James A. Bacon

The Virginia Hospital & Healthcare Association has joined the Virginia College of Emergency physicians in suing the state Medicaid program over emergency budget cuts that they claim will cost them $55 million in reduced Medicaid payments, reports the Richmond Times-Dispatch.

The cuts will create hardship for hospitals already struggling with increased costs and decreased revenue relating to the COVID-19 epidemic, the VHHA says. Virginia hospitals claim to have suffered a net loss of $1 billion from March through June, even after federal aid from the Provider Relief Fund is taken into account. Losses for the year could exceed $3 billion.

I’m almost tempted to sympathize with the hospitals over a plight not of their making…. until I remember that Virginia’s hospitals led the charge for Medicaid expansion in 2018. And that, before the epidemic, Virginia’s biggest tax-exempt “nonprofit” healthcare systems earned profit margins far in excess of the 3.0% considered adequate for financially healthy hospitals, some of which they devoted to buying up doctors’ practices, starting their own insurance companies, and otherwise shoring up their vertically integrated monopolies.

The hospitals forgot a critical lesson: Politicians have no loyalty but to themselves. What the General Assembly giveth, the General Assembly can taketh away — and usually will in times of financial stress. Virginia’s hospitals fought for a bigger government role in healthcare, and they got it… good and hard.

The General Assembly enacted budget cuts to Medicaid reimbursements for providers during the April reconvened session as part of the state’s response to the COVID-19 budgetary emergency, which was expected to hammer state revenues. The budget directs Medicaid to reduce payments for emergency room services deemed later to be unnecessary and cut payments by half when Medicaid patients are readmitted to the hospital within 30 days if the return is later deemed to be preventable.

The state had already applied similar provisions to six managed-care insurance companies that oversee 90% of Virginia’s 1.6 million Medicaid recipients. “This is just making the hospitals accountable as well,” said Sen. George Barker, D-Fairfax.

“Pandemic or not — these policies are fundamentally flawed, constitutionally invalid, and a violation of federal law and regulations,” said VHHA spokesman Julian Walker. “The devotion to patients shared by Virginia doctors and hospitals compels us to stand against policies such as these that treat Medicaid beneficiaries as second class citizens when it comes to their health care.”

Walker is right: Low Medicaid reimbursements do force hospitals and physicians to treat Medicaid patients as second-class citizens. What he overlooks is that when Medicaid expenditures have grown as rapidly as they have — gobbling up discretionary revenues and crowding out spending on K-12 education, higher ed, and public safety — politicians periodically come under tremendous pressure to slash spending. And following the famous dictum of bank robber Willie Sutton, they go where the money is, which means hospitals and doctors. 

Virginia’s hospitals could have adopted a different strategy over the past decade:  pursuing public policies that increased competition, empowered consumers, promoted innovation in healthcare delivery, boosted labor productivity, drove down costs, and improved outcomes, in sum, making healthcare more accessible by making it more affordable. But they didn’t. They have exercised their political clout to block competition, protect their turf and maximize government revenue.

This is what happens when you become wards of the state.