Saturday, April 24, 2010

The ink was barely dry

The ink on the new healthcare legislation was barely dry before, it seemed, the trade press was full of new information about its impact.

Quoting a report from Moody's, HealthLeaders Media said last week that "healthcare reform is a long-term net negative for the not-for-profit hospital sector because it will effectively reduce revenues to hospitals." The report, as referenced, is Long-term Credit Challenges of Healthcare Reform Outweigh Benefits for Not-for-Profit Hospitals.

A posting on the website of health care financial executives, hfma, said the "reform legislation will squeeze savings out of Medicare and increase regulatory oversight for private insurers, resulting in more difficult negotiations with commercial and managed care payers. Many not-for-profit hospitals will struggle. . . "

Two weeks ago an article in the New England Journal of Medicine took an ominous look at the untenable growth of federal debt in the light of health care reform. In "The Specter of Financial Armageddon -- Health Care and Federal Debt in the United States," NEJM said, "Growth in health care spending in one of the primary contributors to increases in (federal) debt over the long run, so the long-term strategy must involve slowing the growth."

The ratio of debt to gross domestic product (GDP) was 53% in the US last year. "Economies can bear substantial debt . . ." according to the NEJM authors, "but there is a limit to how high debt can rise and still be financed without causing serious economic harm." The debt-to-GDP limit set by the European Union is 60%, although some European countries exceed that and some experts apparently claim that a 90% ratio is OK. The authors report the trend of federal income and expense suggests the US will blow past a 90% debt-to-GDP ratio by 2020. "[O]ur structural debt places us on a path of debt growth that is unsustainable," they say, "largely because of health care programs."

Last week HANYS, New York's hospital association, predicted the impact of health care reform over a ten-year period for each hospital in the state. It's a stark picture. The health care reform legislation is expected to reduce New York's hospital revenues by $13.5 billion over the period.

There are 26 hospitals in the Central New York region, including four in Syracuse. The total impact in Central New York, according to HANYS, will be a negative $910 million. That affects 26 hospitals at an average $34.7 million reduction each (again, over ten years). If anything, this may be understated since the combined impact of the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act will be phased over a number of years.

Because of healthcare reform, Community General is expected to receive $36.3 million less, according to the HANYS model. The total reduction for the four non-federal Syracuse hospitals is estimated at $425.1 million.

HANYS has not estimated the increased revenues hospitals would receive because more patients are expected to have health insurance as a result of health care reform. There is, as yet, no forecast of that additional revenue, but it is hard to believe it could offset the magnitude of lost revenue -- or even come close.

The health care reform legislation has many parts, and its impact will be felt in many ways over the coming years. This much seems pretty clear: the legislation will be transformative.


Mitch said...

I guess I have to be the one to disagree with this assessment that all is going to be negative and hurtful.

There are some major truths as it pertains to health care and hospitals right now when considering revenues.

One, most hospitals are capturing revenue illegitimately. I'm not saying they're not capturing services they're providing legally. I'm saying that they're not capturing all the charges they should be capturing properly, and that their pricing is, well, somewhat invalid. I'm not going to get into details, but as a CDM consultant I have a lot of experience with this.

Two, there seems to be all this concern about revenue but not as much about cash. I'm sure you know your bad debt figures; so do patient accounting people. At a meeting I was at a few weeks ago, we were discussing this topic, and patient accounting people like that more people will have insurance coverage under this bill because it means more claims will be paid than what gets paid right now because so many people are self pay. Hospitals are going to end up sending fewer dollars to collection because cash should increase since more people will have insurance coverage.

Truthfully, I know the health care bill isn't perfect; far from it. There are lots of things I hope are worked out before its implemented. But some of the numbers these associations are throwing out seem made up in my opinion; that is, unless they really believe that pacemakers in Orange County really are worth $100,000 while in CNY they might be worth $20,000 for the same thing.

td39 said...

I know this is an old post. I was searching for "self pay hospitals" on Google. Didn't find much, but did find your blog. My question is why are there no self pay hospitals out there? I am a low income, self pay, member of a healthcare co-op, ineligible for health insurance and could not afford it even if I did.

To me, a self-pay hospital provides good service at a reasonable price, not skewed by insurance company pricing. It may include wards rather than private rooms, in buildings that do not look like palaces. Aren't there a good number of people out there willing to pay for needed health care that can't afford to pay the inflated insurance-based pricing in facilities that are unnecessarily opulent?

No offense intended. This is an honest question.

Tom Quinn said...

To td39 -

I have often wondered what market forces would do to health care quality and price. With respect to health care services, "the market" mostly refers to health insurers, i.e., to the intermediaries who "purchase" health care for their beneficiaries. The market for health insurance is employers. In most cases, the beneficiaries themselves do not pay for the care they receive -- except in the case of deductibles and co-pays which are thought to bring a bit of free market-like decision-making to the health care purchase decision.

There are many reasons why this market-by-indirection does not work particularly well.

The short answer is that, no, there is no effective self-pay market for hospital care. Health savings accounts (HSAs) are about as close as we get.