Annual Conference Day 2: Medicaid, AI take center stage in presentations

On the list of concerns for hospital and health system CFOs, looming cuts to Medicaid payments are at or near the top, according to a panel discussion Monday afternoon at HFMA’s Annual Conference in Denver.

Cuts to projected Medicaid spending, as drafted in the budget reconciliation bill now being discussed among congressional Republicans, would have adverse effects on many hospitals and could be especially drastic for rural facilities, CFOs said during a discussion moderated by Norman Mosrie, 2024-25 chair of HFMA’s Principles & Practices Board.

Proposed limits on Medicaid state-directed payments would hit “the lifeblood of a number of our facilities,” said Nick Barcellona, CFO with WVU Medicine.

Given that Medicaid payments already fail to cover the cost of care, Barcellona said, “What’s going to happen is if you cut state-directed payment programs for smaller facilities that don’t have cash flow, they’re going to close. For larger facilities, what are they going to do? They’re going to try to figure out how to stop caring for Medicaid patients.”

Gove County Hospital, a critical access hospital in Kansas, has less exposure to Medicaid cuts because it operates in a non-expansion state. But that means less revenue currently, and the facility is navigating issues such as workforce shortages, rising costs for certified registered nurse anesthetists in particular, and a struggle to maintain obstetric services, said Rob LaPierre, CFO.

In response to possible policy shifts, the CFO panelists said they are advocating with their representatives in Congress, strengthening their balance sheets and shoring up cash-flow planning, educating board members and fellow C-suite members, and engaging in strategic scenario planning that considers severe outcomes such as service-line and workforce cuts.

Setting AI on the right path

Constructive steps in technology implementation include forming a steering committee to promote good governance, said Susan Nelson, executive vice president and CFO with MedStar Health.

AI implementation may be a case where many people say they’re doing it, but not that many actually are, Barcellona said. And the ones that are doing it aren’t necessarily doing it well, he said.

Nonetheless, he said, “I think you have to embrace it. It’s an arms race between the payers and the providers. You have to embrace AI and leverage that technology to keep up.”

While AI’s place in the revenue cycle has been touted for some years now, Barcellona added that CPAs should prepare for the technology’s impact on accounting.

“We’re going to feed it our statements, it’s going to spit out five [pertinent] questions,” he said. “It’s going to do frontline analytics, and people are going to be afraid of that. You have to get your team, communicate, be transparent, have that structure, and you have to embrace it. And it doesn’t mean jobs are going to go away. It maybe means jobs are going to look a little different. Hopefully jobs are going to be more rewarding, and you’re going to leverage it as a tool to make all of us have better outcomes.”

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Kiran Batheja moves into the Chair position

During Monday’s general session, Kiran Batheja was formally installed as the Chair of HFMA’s Board of Directors for FY25-26. Batheja succeeds Marc Scher, who served in the role for FY24-25.

Batheja, director of patient registration and financial counseling at University Hospital in Newark, N.J., discussed his Lead Now theme for his Chair year and how healthcare finance professionals can apply the mantra in their jobs.

“We are facing a convergence of transformative forces: the acceleration of changing technology, shifting consumer expectations, artificial intelligence, capital constraints, workforce shortages and political and policy uncertainty,” Batheja said. “While most of these challenges aren’t new, the urgency has never been greater. The pressure on bottom lines is growing. And today’s healthcare finance leaders must not only adapt and expand their skill set, they must innovate, lead and deliver sustainable solutions.

“The concept of Lead Now is much more than two simple words. It is a mindset rooted in specific guiding principles that have shaped me as a professional, [an] individual, a committed HFMA member and an active member of my local community.”

For much more on Batheja’s background and plans for his Chair year, and details of the core principles in the Lead Now theme, see the cover story in the June-July issue of hfm Magazine.

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Healthcare policy trends have rarely been more consequential — or difficult to discern

Long-term policy forecasting is tricky at a time when either Congress or the White House flips with seemingly every election cycle, Andrew Donahue, director of healthcare finance policy with HFMA, said during a presentation Monday.

The pace of technological change could be contributing to the political instability.

“We may be at a point where technology seems to be exceeding our historical ability to adapt,” Donahue said. “It’s just a thesis, a way of considering what is [happening] in our economy and our politics and our communities. It might be a case of we’re just kind of dizzy and this rate of technological change is exceeding our ability.”

That blowback favored Republicans in the 2024 election, giving them a chance to implement substantial policy changes. Healthcare issues including Medicaid are a means to the party’s ultimate goal of securing President Donald Trump’s tax cuts for the long term and incorporating favored policies on border defense and energy.

Increased constraints

The areas of Medicaid where retrenchment policies are being debated in Congress, Donahue said, include work requirements, rules around initial eligibility and redeterminations, provider taxes and state-directed payments.

Provider taxes have emerged as arguably the key flash point, with the House narrowly passing a bill that would freeze them at their current rates. The Senate Finance Committee went further with its proposal to reduce the allowable rate from 6% to 3.5% over five years.

That approach does not have universal support among Republicans in either chamber, with some saying it would overwhelm rural hospitals.

“And that’s true,” Donahue said. “All our CFOs in the room know how cash-flow-intensive we [as hospitals] are and how thin our margins are. Rural hospitals are no different. It’s worse [for them]. And so taking this out when they rely so much on Medicaid just to keep their facilities open right now is devastating.”

Supporters of the tax rollback in the Senate may have to yield as the legislative process plays out. The Republican Governance Group, a bloc of moderates in the House, is unlikely to give ground on the issue, Donahue said.

“Moderates [in Congress] typically fold, but this is a winning issue for them,” he said.

Looking ahead

Republicans have hoped to complete the bill in time for Trump to sign by July 4, but that might not be possible. But a hard deadline likely looms in August, in the form of the debt ceiling.

After the massive task of passing the reconciliation bill is completed, Republicans will look to further put their stamp on healthcare policy in the form of a 26% proposed cut to the HHS budget, especially the National Institutes of Health. In addition to reducing spending, the GOP wants to further its preferred approach of shifting more responsibility to state and local governments and reducing federal involvement in healthcare, Donahue said.

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Medicaid ‘bull run’ over for hospitals: S&P

Proposed and regulatory policy changes for Medicaid mean the program is no longer a financial boon to hospitals and health systems, according to one rating agency.

“It’s the end of the Medicaid bull run,” Patrick Zagar, a director for S&P Global Ratings, said Monday during a presentation at HFMA’s Annual Conference.

Specifically, congressional proposals and CMS rule changes targeting state-directed payments (SDPs) will whittle their “exponential growth for some providers and states.”

Medicaid SDPs, which primarily benefit hospitals, have surged both in their number and total spending, according to the Medicaid and CHIP Payment and Access Commission (MACPAC). In 2024, the cumulative spending on federally approved SDPs was projected to reach $110 billion, up from $69 billion in February 2023, according to MACPAC.

Budget reconciliation bills under consideration by Congress would target SDP spending in different ways:

• The House-passed bill would cap rates for future SDPs at 100% in Medicaid expansion states and 110% in non-expansion states.
• The Senate version of the bill would establish those caps for both new and existing SDPs.

The Trump administration’s targeting of SDPs includes a May 12 proposed rule from CMS that would create new limits on how states use provider taxes to finance their share of Medicaid.

CMS has begun reapproving SDPs, which require annual reapprovals, in recent months after providers noted approvals were paused in the first months of the Trump administration.

The ratings impact

As competing legislative proposals advance and recede in Congress, Zagar noted that his agency is not changing any hospital ratings. However, the likelihood that Congress will pass some type of major Medicaid change has reduced the number of ratings upgrades it has awarded various hospitals.

The entities S&P expects the Medicaid legislative changes to most affect include:   

• Safety net providers and/or those with high Medicaid and supplemental funding receipts
• All providers indirectly if safety-net providers are made insolvent
• Critical access hospitals or regional referral centers if not exempted

— Rich Daly, HFMA senior editor

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Other issues involving state-directed payments

While the potential impact of the reconciliation bill on Medicaid state-directed payments (SDPs) has generated attention in healthcare circles, other concerns are less familiar.

In a presentation Monday, two subject matter experts with LS Point and an executive with the for-profit health system Universal Health Services noted that even without the reconciliation bill, key regulatory changes loom for SDPs. For example, CMS will require SDPs to be included in base capitation rates starting in 2028-29, eliminating separate payment terms.

That has a downside for providers.

“The protection that a lot of you providers are used to where you say, ‘Great, I paid my tax or my [intergovernmental transfer] to get a $100 payment. The plan isn’t eating off of that.’ That’s no more,” said Jaret Kanarak, partner with LS Point. “And now that becomes at-risk.”

Even without any such changes, the boost from 2024 regulations that set the average commercial rate (ACR) as the limit for SDPs may not be uniform. One reason is the lack of consensus on which data sources can be used in determining the ACR in each state.

“[CMS] threw out some ideas, said [they] haven’t made a decision, but pick a state and then pick another state and they won’t use the same data source,” Kanarak said. “And that means that what you think the commercial rates are is already variable, but which data source you use can cause huge swings.”

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What AI has in store for society

The exponential progress of AI is bringing about vast societal change that can be summed up as creating an era of unmetered intelligence. In a world with unimaginable computer processing power, humans will have no need to compete on the basis of brilliance, Zack Kass a futurist and formerly head of the go-to market at OpenAI, explained during Monday’s keynote talk.

The concept of unmetered intelligence will bring reason for both foreboding and optimism as it takes effect over the next decade, Kass said.

Negative implications include the notion of an idiocracy, meaning rigorous study will be less necessary and less common. Kass also foresees the threat of dehumanization, which already can be seen in members of younger generations who come across as withdrawn and antisocial in an age of smartphones and social media.

Advanced AI also will give rise to greater numbers of bad actors, including those who will have the wherewithal to cause significant harm despite limited resources.

Another big concern is widespread job displacement, which may not pose as much of a threat economically as one might think, given AI’s potential to create greater abundance. The issue, rather, would be with how affected individuals and groups (e.g., unions) cope with the loss.

“We have to start acknowledging the importance of extricating our identity and our purpose from our work,” Kass said. “That is something that we must do. And I don’t say this because it’s easy. I say it because it’s true.”

A better world

Despite the significant risks, Kass said AI will be a net positive for society.

An obvious benefit will be a vast expansion of human potential, including in the areas of scientific discovery and medical advances. As just one example, AI recently spurred the discovery of the first new antibiotic in 60 years, Kass noted.

“The question is not will we be 100% more productive in 10 years, but could we be 1,000% more productive?” he said. Looking further ahead, eventual cures for cancer and neurogenerative disease might happen not in a high-powered research lab but rather in someone’s garage.

Kass also foresees substantially improved affordability, although that may be hard to believe in this era of lingering inflation. Costs can be expected to plummet even in areas such as healthcare, education and housing.

But in healthcare, among other industries, bureaucratic and regulatory issues pose clear obstacles to the technological benefits.

“One of my challenges to this room and to every room is that we have to start putting pressure on the policymakers to allow this technology to actually do the things that it can promise to do,” Kass said. “That is a great promise of AI that we actually hold the key to.”

The gift of time

Perhaps the most fundamental game-changing benefit of AI will be an increase in time — both in life span and in the alternatives to working.

But to make constructive use of a relative bounty of free time, people will have to wean themselves off their addiction to devices.

“Please think about a world where you are asked: What do you want to do today? … Where you default to something besides looking at your device,” Kass said. “I am desperate to create this world because we are going to arrive at something pretty soon that is remarkable where we have a lot more choice. And if we don’t free ourselves from device addiction, it could get worse before it gets better.”