The Patient Protection and Affordable Care Act, also known as national health reform, or, perhaps derisively as ‘Obamacare’, will change the way hospitals are paid. Since hospitals are major employers in the Central Valley and are drivers of local economies, the question is what exactly will the new law mean? The short answer is no one really knows precisely.
Cyrus Dah, CFO, Dameron Hospital
“Uncertainty is the current correct answer,” said Cyrus Dah, Chief Financial Officer at Dameron Hospital in Stockton. “The whole health care reform is in question.”
The one certainty, according to Mr. Dah, is a reduction in reimbursement for hospitals. The federal government feels that because they are adding 35 million to the rolls of the insured that this is going to mitigate bad debt and charity care.
“Uninsured will become insurable, and will fall under health care exchanges where the reimbursement will be equal to MediCal or worse,” Mr. Dah said. “We currently receive only 60 to 70 percent of our costs for a MediCal patient.”
“What do we do to prepare?” Mr. Dah asked. “Every hospital in every way possible will have to lower costs. That is individual to each hospital. In the grand scheme of things I don’t think this is going to be good for our country.”
California Hospital Association
For a wider perspective, the Business Journal contacted the California Hospital Association. One of its missions is to understand the new health reform and to inform its 430 member hospitals. It also lobbies in Sacramento and Washington, D.C., for modifications in laws that adversely affect hospitals.
“There are a number of elements in the health reform package,” said Jan Emerson, Vice President of External Affairs for the California Hospital Association. “It is mostly an insurance reform law. It expands coverage. For example, more people will be eligible for Medicaid and denial by reason of pre-existing conditions won’t be allowed.”
Nationally, it still leaves about 23 million people uncovered and without insurance.
“We hoped it would cover 97 percent, but this bill covers about 92 percent and 95 percent of legal residents.”
It leaves the undocumented uncovered.
“The reality is that we have millions in the United States and 3 million in California. Hospitals will still bear the brunt of that care without reimbursement,” Ms. Emerson said. “No matter your feelings about immigration laws and their reform, we must take care of these sick people and we must pass the cost along and that will mean higher fees to paying customers. This probably means insurance rates will go up.”
Medicare and MediCal underfunding
Reform doesn’t address underfunding of Medicare and Medicaid, called MediCal in California. Hospitals lose $8 billion per year covering Medicare and Medicaid shortfalls. They simply don’t cover the cost of the bills. Last year Medicare lost $4.56 billion and MediCal lost $3.8 billion.
“Medicare and MediCal don’t pay 100 percent of our cost,” Ms. Emerson said. “These numbers are publicly reported. We go in twice a year and apply what is known as a cost- to-charge ratio. Basically, California is three-times cost.”
The loss figures are the actual cost of providing the service and do not include profit. The figures are reported to the Office of Statewide Health Planning and Development. This is the same department that oversees the seismic mandate set out in SB1953 almost a dozen years ago.
There is another factor in reducing hospital reimbursement.
“Health reform as structured currently will cause California hospitals to lose $14.8 B in Medicare payment updates over ten years,” Emerson said. “It starts April of this year. Every year to adjust for inflation the feds do a ‘market basket update’. That is going to be decreased every year. The decrease will be .25 percentage points this year.”
Another Medicare and Medicaid cut is called ‘disproportionate care payments’. Hospitals that treat higher percentages of uninsured, like California, will see reductions. Medicaid cuts will total $1.3 B over ten years.
The idea is that as more people get coverage under the new federal legislation, supplemental demand will lessen. The problem with that theory is that the enrollment targets will still be in the range of 20 million uninsured.
Hope and Change
“Our plan at CHA, in conjunction with the American Hospital Association, is to get some of these provisions in the law overturned in the next two or three years,” Ms. Emerson said. “There is time to get changes since the law will take affect over the next few years.”
In total, as the law stands, there is a $17 to $18 billion shortfall to hospitals over the next ten years.
According to Ms. Emerson, health care costs will continue to rise. Premium increases from insurance companies will be inevitable to cover the cost shifting, which occurs when unpaid costs are added to the expenses of those who can pay.
“No one likes this, but it’s reality,” Ms Emerson said. “This has been going on for years.”
Hospitals are committed to lowering costs of health care throughout the American system. Some elements of the reform are designed to reduce the actual cost of health care. For example financial penalties for excess readmissions.
“Our hospitals are working very actively at managing care of patients,” Ms. Emerson said. “Some are potentially preventable. Others are out of our control when the patient is not complying with post-hospitalization instructions. Are they seeing specialists? Are in-home care support services being provided? But for those things we can control, in concert with doctors, we are looking at bringing down readmissions.”
Most of the bills in Sacramento are dealing with insurance modes. The big one is setting up a health exchange, which needs to go into effect by 2014.
