For-profit health systems see Medicaid supplemental payment increase in second quarter

Most of the nation’s major for-profit hospital systems posted gains in second-quarter results released last month, boosted by an increase in supplemental payments from state governments.

Although the profitable The health systems — Tenet Healthcare, HCA Healthcare and Universal Health Services — attributed their second-quarter results in part to increased patient volume and demand for outpatient care, the systems also noted that they received a revenue boost from state Medicaid supplemental payments, additional funds that help cover the shortfall between Medicaid reimbursement rates and the actual cost of care.

Health systems reported supplemental payment revenue ranging from $30 million to $125 million in the second quarter.

Thanks to the payments, HCA, Tenet and UHS now expect to see increased revenue in 2024. Community Health Systems was an outlier in the quarter. The system, which posted a net loss of $13 million, revised up its full-year forecast for earnings before interest, taxes, depreciation and amortization. However, it said supplemental payments played no role in that revision.

Medicaid supplemental payment amounts have been a source of contention for years between providers and the CMS, which approves the payments annually. Medicaid co-payments may include disproportionate share hospital payments, upper payment limit payments, and state-mandated payments.

In 2022, the most recent year for which national data is available, Medicaid Spent $262.6 billion on hospital carewhich accounts for 33% of total Medicaid spending. Last year, HCA and UHS alone took home $3.9 billion and $840 million in total state supplemental payments, respectively, according to TD Cowen analyst Gary Taylor.

Still, health system executives argue that funding has not been enough to cover their costs.

During HCA’s latest earnings call, CFO Mike Marks called Medicaid patients the system’s “most challenging payer.” Aside from uninsured patients, the federal program has reimbursed providers “significantly” less than their fair share for care. It’s a claim other executives, including Tenet Chief Financial Officer Sun Park, echoed on their own calls.

This quarter, however, executives said they received an increase in supplemental funding.

HCA entered 2024 expecting provider taxes associated with supplemental payments to cause a hurdle of approximately $100 million to $200 million.. The system now expects payments to be a similarly sized tailwind this year.

According to executives, the health system’s largest Medicaid supplemental programs are in Texas and Florida. The system earned $125 million compared to the previous year related to payments from its Nevada and Florida markets, according to Marks. The Florida program is relatively new, having only started in the fourth quarter of 2023.

Tenet, which operates in six markets with Medicaid supplemental payment programs, saw revenue from Medicaid payments increase for the second consecutive quarter. This quarter, the health system recorded a $30 million pre-tax income gain related to its Texas market. During the first quarter, Tenet recorded similar gains from Michigan payments, which helped the company raise its first-quarter EBITDA guidance.

At UHS, Chief Financial Officer Steve Filton said increases in acute hospital EBITDA and patient revenue were driven in part by incremental Nevada Medicaid supplemental payments.

For some, including executives at University of Applied Sciences and Tenet, supplemental payment revenue was expected to increase this quarter.

During the company’s first quarter earnings conference call, Tenet CEO Saum Sutaria He said the health system has been engaging stakeholders to improve reimbursement rates for the state. Health insurance complementary programs for years.

“This doesn’t come out of nowhere, so to speak, in the sense that there’s been a lot of effort put in across multiple stakeholders,” the CEO said during the first-quarter conference call.

UHS’s Filton confirmed one analyst’s reading that the supplemental payments were performing better than analysts had modeled a year earlier, calling them a “significant opportunity” for financial recovery.

Providers have also been watching the impact of a new rule finalized by CMS in April.