The Bottom Line of Health Policy

HealthLeaders magazine, September 13, 2009

The healthcare industry has suffered huge financial losses in the past year due to the recession and a confluence of other factors. According to some reports, as many as 50% of the nation's hospitals will show losses in 2009. Amidst all of this, leaders in Washington are drafting legislation that may change the entire healthcare infrastructure. HealthLeaders recently met with industry leaders to discuss key legislation and conversations they are following that will have a direct financial impact on hospitals.

Panelist Profiles

Wil Davis
chairman,
Ontario Systems, Muncie, IN

Patty Huettl
chief financial officer,
HSHS Wisconsin, Western Division, Eau Claire, WI

Michael Gough
senior vice president and chief financial officer,
Norton Healthcare, Louisville, KY

Michelle Ponte
senior editor/finance,
HealthLeaders Media, Brentwood, TN
moderator

Rick Gundling
vice president, healthcare financial practices,
Healthcare Financial Management Association,
Washington, DC

Sponsored by: Ontario Systems
www.ontariosystems.com

Roundtable Highlights

HEALTHLEADERS: It's been a challenging year for hospitals with the decline of the capital markets and high investment losses. Also, 2009 has been a year of unprecedented legislative action, with the President and Congress promising major healthcare reform that could significantly change how hospitals do business. With so much change afoot, what are the key healthcare discussions in Washington that you are following?

RICK GUNDLING: The largest discussions are around coverage of the uninsured. Everybody agrees that broad coverage is something that the country should move toward, but now that the details on various policy proposals are starting to come out, our "Kumbaya" period is ending. Now, people are pausing and saying, "OK, what does this actually mean to me?" We're going to see much more disagreement and much more scaling down of some of the grandiose plans that were initially talked about. The economic reality is we're doing this all at once in a very turbulent economic time.

HEALTHLEADERS: It makes sense that as we start to see those details, people will start to have a serious debate.

MICHAEL GOUGH: We're living the real-life example, right now, of what some of the issues would be. If we go into some kind of federal plan where public or private insurance companies are now being run by the government and it's paid at the Medicare rates, we've got an issue because we only make money on managed care contracts. Most providers lose money on Medicaid and Medicare. The motherhood and apple pie of this is, "let's get the uninsured insured," but the questions are how does that work and how do you pay for it?

HEALTHLEADERS: So, Patty, is coverage and access the main conversation you are following in Washington?

PATTY HUETTL: We are watching it all. But it hasn't been definitive enough to really act on. We're doing business as usual, but at the same time the system is broken, so I spend a lot of time looking at care integration and quality and things that will really make a difference.

GUNDLING: What we do know is there's going to be less money going in, so getting your costs under control is what you do and then you start to make those strategic decisions on how do we become that high-value provider that's going to be successful no matter what health reform looks like.

HEALTHLEADERS: Wil, you talk to providers across the country. What are they worried about with regard to policy?

WIL DAVIS: Universally, people recognize that the payment system is broken. The most complex business model on the planet may be how you actually get reimbursed for the services you provide in a hospital. There have been incremental changes in the last 10 years, but even with incrementalism, we've had unintended consequences. What we're talking about now is really a start-from-scratch look at how we revamp the whole payment system. The people that we talk to are asking, "how in the world can we afford this, as a country?" And so they are generally supportive that we need to fix this problem, but the details, which are just now starting to be discussed in real terms, are scaring people.

GOUGH: One thing that I have intuitively known but am now learning from real conversations we've had and by living through our recent contract negotiations with Anthem is the general population of people who are insured don't truly understand that a significant portion of their premium cost goes to subsidizing the federal programs that aren't making money as well as to the uninsured. If hospital systems got paid from every class of patient like they do their managed care contract, we'd have 40% margins and everything would be great. Right now we try to scratch out a meager two cents of every dollar on margin. A lot of people don't understand how it's going to change the way we do business if all of a sudden 100% of our payers pay us something that is 90% of cost.

HEALTHLEADERS: While reimbursement is a serious concern, one piece of good news this year came in the form of the stimulus package. How are hospitals taking advantage of this injection of funds?

HUETTL: Our system is mostly looking at IT and the electronic medical record and ways to do care integration so that you can tie together physicians, providers, and healthcare organizations. The idea is that no matter where a patient is seen, data is available, and we eliminate unnecessary duplication of services. Also, we are looking at funds for telemedicine in rural areas.

GUNDLING: In the short term, our members are interested in figuring out how to get that IT funding. We're incentivizing hospitals to put in electronic medical records. But the question is what are the real care practice changes that will happen with more EMRs in place? And so, while the economic stimulus package is helping hospitals buy these systems, they're also thinking about what the next step is after that.

DAVIS: The EMR is that golden key that ties everybody together, particularly the way hospitals work together with physicians. The demographics of physicians coming out of medical school are changing. They desire more of a work-life balance. They are also dealing with a payment system that makes it difficult for them to be reimbursed for the level of work, responsibility, and care they provide. On top of that, they are challenged to use technology and keep it up to date. So hopefully, the stimulus will give them a reason to do the technology piece.

HEALTHLEADERS: While there has been a lot of focus this year on what is happening in Washington, what about state legislation? What concerns you most?

GOUGH: We follow it very closely and actually hired a full-time governmental affairs position this past year, whereas before it was a function of one of our senior VPs. We found that we need someone who can monitor what's going on and have relationships with our legislators. We pay very close attention to the Medicaid budget as well as legislation pertaining to certificate of need since we are a certificate-of-need state.

HUETTL: We're mostly watching Medicaid issues. The state of Wisconsin has put in the Wisconsin Hospital Assessment this year, which is a hospital tax designed to move more Medicaid money from the federal government back to the state. But we've had some experience with the nursing homes in the state being allocated funds that later were diverted to other areas. It's easy for that to happen with so many other worthwhile needs such as education. Also, our budget bill that just passed has a huge deficit, and legislators got rid of it by putting in $118 million in Medicaid cuts. In the end, these Medicaid cuts will be slightly more than what we will get in additional funding from the tax.

DAVIS: The concern out there is that while one government giveth, another government taketh away. At the end of the day, it becomes a zero-sum game, because almost all of the states are under budgetary pressure right now and looking under every nook and cranny. They saw it as a windfall that the federal government was going to come in behind them and prop up Medicaid.