HOSPITALS FINANCIALLY CRUNCHED

Hospital reimbursements will be reduced to Medicare levels, bad debts will rise, hospitals will bundle payments, employ more general practitioners, and many close their doors or be acquired by bigger hospitals. To survive the hospital will require 95% occupancy. Unions will organize hospital healthcare workers, and hospitals will find it difficult to get money from banks.

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HOSPITALS FINANCIALLY CRUNCHED
 
Hospital reimbursements will be reduced to Medicare levels, bad debts will rise, hospitals will bundle payments, employ more general practitioners, and many close their doors or be acquired by bigger hospitals. To survive the hospital will require 95% occupancy. Unions will organize hospital healthcare workers, and hospitals will find it difficult to get money from banks.

Because of Medicaid and Medicare disproportionate share of hospital costs, reimbursements will be reduced.  They will be reimbursed at near Medicare rates over the next 3 to 5 years.

 Commercial health plans will lower their premiums to match government and co-op health care options and hence, payments to providers will be reduced. Health plans and the number of hospitals will decrease by more than 20%. They will need to also reduce operating expenses by a 20%.  They will be giving doctors incentives to encourage clinical effectiveness and cost.

Bad hospital debts will rise.  Even with Obama’s subsidies, laid off employees still will not be able to afford COBRA health benefits.  There will be fewer Medicare advantage providers as senior premiums rise and benefits are reduced.

Can your hospital maintain a positive operating margin if they're getting paid for their commercial insurance payments the same as the Medicare reimbursement payments?   With another 30 million uninsured getting health insurance at Medicare levels, hospitals will have to lower their costs to make up the difference with this increased volume.

Doctors will also feel the impact of recession.   General practitioners and specialists revenues have dropped dramatically.  This reform will be especially hard on specialists and sub-specialists.

Hospitals will pay specialists from their bundled Medicare payment.  Hospitals will hire more general practitioners and specialists to create some platform for better care coordination. When they look for employment by hospitals and large medical groups, doctors will look for safety in numbers, ease of practice, and more balanced lifestyles.

Hospitals and doctors will look to integrate into the Mayo clinic model that federal and healthcare plan guidelines will dictate. The payments will reward clinical and financial integration. Studies on bundled payments are now being done on cardiac and orthopedic procedures and will likely expand to other procedures.

THE MAYO STORY

Last year President Obama praised the Mayo Clinic as a great example of how a healthcare provider can get better outcomes at lower costs.  This month, Mayo Hospital made a decision to no longer accept Medicare and denies Medicare patients in one of its Arizona primary care clinics.   The hospital plans on dropping Medicare patients at other facilities in Arizona, Florida and Minnesota, which serve over 500,000 seniors.

The reason is that Mayo hospital lost $840 million last year treating Medicare patients, because of Medicare’ low reimbursement rates. It's lost $120 million at its four Arizona clinics last year, and could no longer shift the costs by charging private patients even more for Mayo’s medical services.

Is this an indicator of where other hospitals and doctors are heading?

Physicians get paid 30% less for Medicare than they do from private insurers.  Many doctors are dropping out of the Medicare program.   In New York and Washington, patients are struggling to find a doctor who will accept Medicare in specialties like neurology, oncology, and gynecology, By Obama-care pushing for another $500 billion cut in Medicare, this trend will certainly not reverse. Twenty percent of hospitals today are becoming unprofitable because of the hospitals accepting cuts in Medicare payments.

Mayo's doctors are salaried and work in teams, known as ACO'S (accountable care organizations).  The hospital prefers to receive a bundled payment for an episode of illness, rather than Medicare's practice of reimbursing for individual procedures. The hospital can't make up its true costs on increased volume.

The ACO model, which the White House is advocating, converts health care providers into managed care providers, as failed in the 1990s. They say that this new managed care will work better this time, because the providers are reducing costs now because of the governments pressure instead of insurance company pressures.

This Mayo model still hides the cost of care from individuals, and there is no incentive to reduce utilization. Mayo hospital can save on cost easier, because they have a more affluent population than have most hospitals.

COMMENTARY

Medicare payments are preventing even Mayo clinics from being successful. It looks like all of healthcare must operate like Medicare, if this reform is to be successful.  A few hospitals will have opportunities but many will have catastrophes. A number of hospitals will close during the next five years. There will be consolidations by hospitals to combine resources.

Those hospitals that cannot survive will be acquired, closed, or converted to hospice or nursing homes. To survive the hospital will have to generate enough patient volume, 95% occupancy, and reduce their overhead.

 Unions will continue to aggressively unionize hospital health care workers. Hospitals will then be pushed into mandated staffing ratios of nurses and allied professionals. Unions and federal government will pressure for more advanced nursing training, programs and increased recruitment.

It'll be harder for hospitals to get money from banks.  Hospitals must  focus on essential projects, critical information technology, buy equipment that generates revenue and services, and cut down their care processes. They will need to develop pay for performance programs,

Hospitals will have to invest in an appropriate IT resources.   To ensure high quality, efficient standard of care service they will need to buy for their doctors’ offices and their hospitals, clinical information systems, as CBOE, and EMR.

Quality reports will be required if hospitals wish to get full payment for their services.  Those hospitals that have bundled payments, P4P (pay for payment), and value-based purchasing will be winners.

Readmission, hospital acquired infections, and other negative things, will result in denied payments.  The public will be posted transparently about the hospital's quality and patient safety data.

Patients will be given more choices of fewer hospitals, and will make their choices on value, network accessibility of doctors, and perceptions of quality.   Hospitals will be forced to market their brand identity and demonstrate some quantifiable indicators of their value.







Sources WSJ 1.08.10,
Governance Institute, briefing January 2010, (Valentine and Masters, Camden group)