by George Bischalaney
President & CEO, Eden Medical Center
National health care reform is now apparently right around the corner. After years of discussion, and more recently, weeks of debate in the House of Representatives, legislative action is now in the hands of the Senate. If enacted, it will be the most significant health care legislation in decades.
As a provider, it is both welcomed and feared. Welcomed in that it will help bring insurance to millions of people for whom it is now out of reach. In making this possible, it creates the possibility of opening doors for routine health care services that should help prevent late diagnosis of disease, which becomes problematic and costly to treat. From our perspective as a hospital provider, better access should redirect many people who use our emergency departments as their primary care providers.
But change comes with a cost. The mind-numbing price tag of reform is expected to be offset by future savings. In the short term, it will require shifting payments currently dedicated to the Medicare program.
Most hospital providers do not make a profit in caring for Medicare patients overall. There is no doubt that we need to drive inefficiencies out of the health care system in order to help address this issue. But that alone may not do it. When costs are rising at a rate of 4-8 percent per year and reimbursement is 3 percent or less, we are constantly falling behind. There are many reasons for escalating costs. Consider the constant introduction of new drugs, high tech and high-cost diagnostic and therapeutic equipment, and of course labor. Health care is a service business and 60% of hospital costs can be tied to salaries and benefits. The cost escalation of these items alone will keep us chasing the elusive break-even point. And once there, if achieved, there is still ongoing capital investment that is necessary to maintain the capabilities expected of community hospitals.
The final package is likely still months away. Even then, it will take time to analyze and truly understand the effects, positive and negative, of this landmark movement. We hope that the final outcome will have the proper balance, consider as much as possible all the consequences, and result in a healthier and more stable provider system.
I welcome your feedback.
Economic Survey Shows 64% of Hospitals
Cannot Secure Funds for Seismic Compliance Mandate
The nation’s ongoing credit crisis and deteriorating revenues, caused in large part by governmental underfunding, is jeopardizing the ability of California’s hospitals to comply with state-mandated deadlines for seismic retrofitting, according to an updated economic impact report released today by the California Hospital Association (CHA).
The report, which is based on a survey of hospital chief financial officers (CFOs) conducted in April 2009, shows that 64 percent of hospitals report that they will not be able to access the capital necessary to comply with the state’s 2013/2015 seismic deadlines. More than a quarter of hospitals statewide (28 percent) have seen their interest expenses increase during the first quarter of 2009, while many other hospitals have been frozen out of the credit market entirely. As a result, hospitals throughout California are faced with limited access to capital and increased costs of borrowing. These dual challenges come at a time when hospitals are facing an unfunded mandate for seismic improvements estimated to cost up to $110 billion without financing charges.
“This report makes clear that revisiting the current timelines for the seismic mandate is essential,” said CHA President and CEO C. Duane Dauner. “The faltering economy is forcing all segments of our society to make difficult decisions. For many community hospitals, these decisions come down to whether or not they will be able to ensure that patients have access to care 24 hours a day, seven days a week.”
Under current state law, the state could force hospital buildings that are not in compliance with the seismic standards by January 1, 2013 (or January 1, 2015, if an extension has been granted) to close their doors to patient care. An estimated 900 acute-care hospital buildings, out of a total of 2,700 structures, face closure if they cannot meet the 2013/2015 deadlines.
In order for hospitals to access affordable capital for projects such as those related to the seismic mandate, creditors and rating agencies evaluate a hospital’s balance sheet and its demonstrated financial stability. Creditors also look for sustained operating results, specifically operating income of greater than 3 percent. In aggregate, California hospitals reported operating margins of less than 1 percent for each of the last three years, with margins in 2007 and 2008 in the red, according to the CHA report.
Among the factors impacting operating margins is a significant increase in the number of uninsured patients seeking care in hospital emergency rooms. According to the CHA report, more than 57 percent of hospitals have seen a rise in the number of uninsured patients during the first quarter of 2009, most likely as a result of rising unemployment and the loss of job-based health coverage. This is a 22 percent increase since CHA released its first economic impact report in January. Additionally, more than half of California’s hospitals are reporting a decrease in inpatient admissions and elective procedures.
In 2008, the costs of uncompensated care provided by California hospitals totaled $11.3 billion. Of that amount, Medicare payment shortfalls accounted for nearly $3.7 billion, while Medi-Cal underpaid hospitals to the tune of $4.1 billion. An additional $2.1 billion in 2008 losses are attributable to bad debt and charity care.
“California hospitals are not unique to the negative impacts of the economic recession,” Dauner noted. “The unfunded seismic mandate, however, places an extraordinary burden on our community hospitals at a time when they can least afford it.”
Access the full copy of the special report, called California Hospitals and the Economy — Ongoing Credit Crisis Jeopardizes Seismic Compliance Mandate.
George Bischalaney, President and CEO, Eden Medical Center
By George Bischalaney, President & CEO, Eden Medical Center
Last week, the Obama Administration kicked off its efforts to address one the President’s stated priorities, health care reform. What does that mean, and what will be the result? I wish I really knew.
According to the President’s advisers—and Obama himself during the campaign—there is a need to extend health care coverage to millions of uninsured people across the country, while reducing cost and improving quality. Truly admirable goals with which very few could disagree.
Early discussion of President Obama’s plan calls for creating a savings of $634 billion over the next ten years to help fund reform. A recent article referred to this as a “down payment” on the overall expected costs. About half of this amount is targeted to come from reduced payments to Medicare and Medicaid (known as Medi-Cal in California) providers. On the surface, this is a disquieting concept.
Not too long ago, Eden Medical Center was recognized as one of lowest cost hospital providers in California. It should be no surprise that our costs have risen over the past few years. We have invested heavily in new equipment, both in medical technology and information technology, in order to continue to bring state-of-the-art services to our communities, and to provide our physicians and clinical staff the best tools to diagnose and treat our patients.
Last year, our labor settlement with registered nurses resulted in a three-year agreement that will give the nurses a 20% wage increase over the term of the agreement in addition to improved benefits. This kept our wages comparable to other local hospitals.
One of the benefits Eden Medical Center employees enjoy is a fully paid health plan for themselves and their families. Last year, the average cost was approximately $22,000 per year for an employee and family.
Despite these costs, Eden remains one of the lowest cost providers when compared to peer groups throughout the State. But as can be imagined, it is difficult to contain costs in our environment, especially when 60% of our costs are employee-related expenses. We are, after all, a service industry that is people- and technologically-driven.
The early announcements about health care reform create some concern. To expect to realize the savings needed to fund the plan through reduced payments to health care providers is very troubling.
Physicians are increasingly affected by efforts to reduce reimbursement. Many physicians talk of extending their days, working longer hours, much of which is devoted to the increasing amount of paperwork demanded from them. At the same time, we as patients expect them to remain current in the knowledge of new drugs and treatments in order to serve us to the best of their ability. This is resulting in a shrinking primary care base at a time when our population is aging. How does the plan for reform intend to address this?
Government payers of healthcare services for hospitals—the Federal Government for Medicare, and the State for Medi-Cal—are not paying the full cost of care at the present time. For each patient that is covered by Medicare or Medi-Cal, the cost to care for that patient exceeds current reimbursement. Further reductions will increase the gap that is, out of necessity, made up by insured patients—those lucky enough to have coverage through their employers. This is a cycle that needs to be broken if we are to have true health care reform.
The problems with our health care system are very complex. Reducing payments in an attempt to reduce costs will not yield the full reforms that are needed. I can only hope that this is not another piecemeal approach to change. A broader view of the systemic issues is needed. With the President’s staff talking about implementing reforms by the end of this year, it is questionable as to whether or not this will actually occur.
As always, your questions and comments are welcome. We will respond as quickly as possible.
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