Hospitals could soften the blow of Medicaid retroactive coverage changes if they choose – Healthcare Blog

Brian Stanley

Patients waiting to enroll in Medicaid face larger bills, while Congress touts the cost savings. Hospitals need to choose their side.

Medicaid covers most short- and long-term health care costs for low-income, elderly, and/or disabled Americans. So far, the program only pays for care received in the three months before someone applies for Medicaid, as long as the person is eligible at the time. This grace period has long been a safety net for people who get sick before enrolling in Medicaid.

In a quiet change in the Big Beautiful Act, lawmakers shortened that window by one to two months, depending on the state.

Now, for adults enrolled in Medicaid expansion, retroactive coverage stops one month before enrollment. For traditional Medicaid enrollees, that's two months.

The Congressional Budget Office estimates the change will “save” the government billions of dollars over the next decade. But these “savings” do not mean reduced illness or improved care. Rather, they are unpaid bills and charges that are passed downstream to patients, nursing homes and other parts of the health care system.

These changes can affect any of us.

Any health event can trigger a chain of care — hospitalization, rehabilitation, then long-term placement in a nursing home — that can easily last longer than 30 or 60 days. Under the new rules, early care will be beyond Medicaid coverage: The cost of the first month or two is now entirely borne by the patient or facility.

Still, the change would be particularly harmful for dual-eligible beneficiaries. Americans with Medicare and eligible for Medicaid, such as the elderly or disabled, are at particular risk.

It happens all the time: A person has health insurance and then experiences an illness or injury that reduces their assets. They then become eligible for Medicaid in addition to remaining enrolled in Medicare. For these Americans, the shift to “the beautiful big bill” means they face hefty bills while they wait for Medicaid enrollment to be completed.

We know that these people, and indeed all Americans, suffer when retroactive coverage is eliminated.

For example, some states that had attempted to narrow the eligibility window on their own had to change course, for the obvious reason that care is expensive, and narrowing the eligibility window would only exacerbate the problem for newly dual-eligible individuals and their loved ones.

Despite this pessimism, hospitals still have opportunities to address many of the hazards discussed in this article. While they can't eliminate the eligibility problems created by Congress, they can decide who pays the costs. As a spoiler, it should be the 340B drug pricing plan.

The 340B program allows eligible hospitals to purchase outpatient drugs at a significant discount and keep the difference when full price is reimbursed. Therefore, if an eligible hospital purchases a drug that costs $30 to produce but the drug normally costs $100, the hospital will be reimbursed for the full $100, netting $70.

These revenues, which amount to billions of dollars nationwide, are intended to expand scarce resources and support care for low-income patients. But it wasn't always this way.

The savings used by hospitals that qualify for the 340B program vary widely. Some use it to expand clinics or community projects, while others simply absorb it as income.

New limits on Medicaid lookback periods create a clear opportunity to invest $340B where there is undeniable need. 340B-eligible hospitals are federally funded safety net institutions that already serve many Medicaid and low-income Medicare populations. Repurposing a portion of 340B profits to pay for patient care outside of the new 30 or 60-day window would turn abstract patient “savings” into real protection.

Hospitals can implement this in several ways.

For example, they could establish a network-wide fund to absorb the uncovered portion of care for patients waiting to be enrolled in Medicaid. Social workers, clinicians and nonprofits that help patients and their families transition to Medicaid or long-term care may be the arbiters of the program, similar to the gatekeepers they often are for fuel or housing assistance funding. Alternatively, hospitals could pool all 340B funds at the end of the year and use a portion of them to cover patient costs incurred as a result of the shrinking window.

Repurposing 340B funds is a straightforward and easy-to-do method to avoid medical debt for otherwise eligible patients. For hospitals, the move would show clear community benefits at a time when they face increasing scrutiny for providing too little charity care. Likewise, this move will relieve hospital staff from having to deal with this change with their families, reducing the burden on staff and patients.

In the future, Congress could consider amending the 340B rule to require hospitals to set aside a portion of the funds for this purpose. Otherwise, hospitals may have no incentive to repurpose those funds. This may not be realistic in this Congress, but it may gain traction in the future.

While this idea wouldn't close all the gaps left by the new eligibility rules, using even a portion of 340B revenue to pay for retroactive care would ensure that patients aren't penalized for how long they've been sick.

Brian Stanley is a senior policy analyst at Boston University School of Public Health