The nation’s largest behavioral health providers are bracing for states to resume Medicaid redeterminations.
While the true impact is unknown, analysts questioned behavioral health providers Acadia Healthcare Co. (Nasdaq: ACHC) and Universal Health Services (NYSE: UHS) about what the companies expect and will do in the face of potentially millions of Americans losing their health care coverage.
“We’re certainly ready from an operational perspective at our hospitals to do everything that we can do to make sure that patients who lose their Medicaid coverage do everything possible to requalify for commercial exchanges or any other coverage that might be available in a particular market,” Steve Filton, UHS’ CFO, said on the company’s first quarter earnings call.
Medicaid makes up a significant portion of revenue for both companies.
Last year, Medicaid accounted for 39% of UHS’ behavioral health revenue. Medicaid is the largest source of revenue for the behavioral health division, according to its 2022 financial report. Medicaid accounts for 27% of UHS’ total revenue.
For Acadia Healthcare, Medicaid accounted for 51% of revenue in 2022, according to its latest annual financial report.
The federal government allowed states to provide continuous Medicaid enrollment in exchange for additional funding to ensure access to care during the pandemic. This led to a ballooning of total Medicaid enrollment across the states.
Since February 2020, enrollment in Medicaid has increased 32% to about 93 million people as of January, according to the latest federal data available. Medicaid is the single largest payer of all behavioral health services in the U.S.
Continuous enrollment was previously tied to the public health emergency declaration enacted by the Trump administration. The Consolidated Appropriations Act of 2023, the most recent omnibus funding bill, ended the continuous enrollment: March 31, 2023. Since then, all states have taken the first steps to start redeterminations, according to Kaiser Family Foundation (KFF) polling.
Nearly all states (43) expect the process to complete all redeterminations to take 12 to 14 months from when they begin, KFF found.
In August 2021, the federal government estimated that 15.5 million people would lose Medicaid coverage. Other estimates place that number higher. The Urban Institute estimates that as many as 18 million would lose coverage, and KFF came out with a similar estimate.
UHS assumes that the redetermination process will have a “modestly negative” impact on the company’s finances in the second half of 2023. The company’s financial guidance for the year accounts for losses of coverage and a slight shift in its payer mix.
“Nobody really has a very clear and precise view of how redeterminations are going to affect either the behavioral or the acute business,” Filton said.
Filton said the impact depends on many variables — the rate at which the state completes redeterminations, the share of ex-Medicaid members getting commercial or ACA exchange plans and how fast patients establish coverage.
During both companies’ Q1 earnings calls, analysts asked if Medicaid redeterminations may shift more members onto commercial health plans. Commercial plans typically come with better reimbursement rates. But this won’t have a significant impact on Acadia Healthcare.
David Duckworth, CFO for Acadia Healthcare, said on the company’s latest earnings call that the company doesn’t see much variation between commercial and Medicaid plan rates compared to other segments of health care.
“I don’t think that payer mix shift will provide a significant benefit, although we could see a benefit from that in certain markets,” Duckworth said. “We do think that what we had built into our initial guidance for the second half of the year … still holds.”
Acadia Healthcare CEO Chris Hunter said there are several advantages that Acadia will lean on to mitigate any impacts from Medicaid redeterminations.
He expects that children on Medicaid won’t see as much coverage churn as adults. Acadia Healthcare’s residential treatment center business primarily treats children and accounts for 11% of the company’s total revenue.
For its specialty facility business (22% of revenue), Hunter expects patients who lose Medicaid coverage to get support from state agencies outside of Medicaid to ensure coverage for addiction treatment. He also pointed to similar non-Medicaid support programs for opioid use disorder (OUD) treatment. Over 50% of Acadia Healthcare’s outpatient OUD clinics are in states with such programs.
On top of leaning on state programs, the company started raising awareness among patients about Medicaid redeterminations about a year ago. It created and distributed digital materials about ensuring coverage and launched a hotline to support patients needing help navigating coverage options.
“We hope with the actions we’re taking, as well as some of these protections in place across our service lines, that the volume risk that we had previously identified will really be mitigated,” Duckworth said.
Acadia Healthcare is also in the process of renegotiating several payer contracts with managed care organizations. While he didn’t offer specifics, Hunter expressed confidence that the company could extract higher rates which may further offset lost revenue due to redetermination.
“We continued to engage very deliberately in all of our rates strategies throughout Q1,” Hunter said. “We continue to have a very positive view on our ability to achieve these rates. But we’re still in the early stage of activities in many of these states.”