What's happening in Washington with healthcare reform is laughable in the world of business. Well, laughable may not be apropos as so many people's livelihoods and well-being are at stake. Still, it would be preposterous for a company to inform its top employees that they are receiving a 21% pay cut, not because they are doing a lousy job, but because the bean counters used the wrong formula to calculate their salaries. It wouldn't happen. That company would be the laughing stock on Wall Street.
Instead the accountants would fix the formula that was used, perhaps explain the situation to the employees as a "loss" and find another way to make up the difference. Yet, it seems the government cannot follow the same basic guidelines that any first year accountant would apply: when your numbers don't work because the formula you're using is wrong and outdated, fix the formula, and then address how to correct the loss (and do it the first year, not seven years later).
This brings me to last week's episode of the Medicare saga, in which bill S. 1776 (Medicare Physician Fairness Act of 2009) was swiftly introduced by Sen. Debbie Stabenow (D-MI) in the hopes that it would waylay the 21% Medicare reimbursement cuts scheduled to take effect next year for physicians.
Everyone agrees that doctors are doing a great job getting people well, but they just don't all agree if it's fair to pay them the right amount to cover the cost of doing the work. In fact they think they should get paid less than they did last year. Nevertheless, the bill failed. Not to fret the reimbursement cuts are still in limbo. Why? S. 1776 was just the annual mad-dash to block the reimbursement cuts from taking place, but it's not the only bill in the works that could stop the cuts, and it was really just muddying the waters.
Look for politicians to spend the next couple of weeks debating three bills that will likely have a far greater impact on hospital bottom lines, and healthcare overall. I caution you not to get distracted by any of the other bills on this matter. At this stage many of them lack the teeth and clout to go far. For now the most pressing pieces that will impact hospital administrators and boards are:
- S.1796—the Baucus Bill, formally called America's Healthy Future Act of 2009
- H.R. 3200—the Tri-Committee Bill (sometimes called the Kennedy-Dodd Bill), formally called the Affordable Healthcare Choices Act
- S. 1679—the Affordable Health Choices Act, which was approved by Senate Health, Education, Labor and Pensions Committee's (HELP) on July 15.
The Senate reconciliation process is ongoing among select members of the Finance and the Health, Education, Labor and Pensions Committees and they are reviewing these bills behind closed doors in an attempt to create what I like to call the "healthcare hybrid." Expect to see the fruits of their labor over the next couple of weeks. It's hard to say what intoxicating blend might result from this review, but historically speaking it's likely that a 21% reimbursement cut for next year won't take place (though that doesn't mean a smaller cut won't take effect). Plus you should anticipate a heady dose of health insurance coverage changes—translation, your payer contracts will be adjusted eventually and probably not in your favor.
So while you're waiting to see what the outcome is, it's best to check your numbers, start with your patient mix. For most hospitals that breaks down to
- 50% Medicare
- 35% Payer Contracts
- 5% Medicaid
- 5% Charity/Bad Debt
- 5% Miscellaneous (varies by hospital)
If you haven't already pondered the possible outcomes of these bills, then it's time to run some numbers. Consider how each bill may affect your overall operating margin, start by looking at the following:
- Calculate the effect a 21% cut in Medicare reimbursements will have on your bottom line. Also look at a 5% and 10% cut in reimbursements, as those numbers are being bandied about by politicians. To get an idea how to approach this, the American Association of Family Practitioners has put together an excellent reference tool.
- Analyze your contracted payer reimbursements; assume the same cuts above are taking affect. However, keep in mind that currently payer negotiated rates are generally 130-150% that of the Medicare rate. No one knows if those percentages will change if insurance companies need to try to make up potential losses from healthcare reform so adjust for a 110-120% rate.
- Review your Primary Care Physician staffing levels and compensation. All of these bills call for more unilateral healthcare coverage, which means you'll need more PCPs to cover an influx of patients.
- Consider alternative ways to offset the need to hire large numbers of PCPs to handle this influx of patients, such as utilizing more nurse practitioners.
- Find the hidden fat. You've been trimming expenses, but there is likely a bit more lard to cut from your budgets. Look to your staff, if you haven't done so already, to help you find it (they know their jobs may be on the line and they will be more than ready to help you find those problem areas).
In this economy it's sometimes hard take your eye off today to truly focus on tomorrow. But if you aren't considering the serious ramifications of the five and ten years effects of any of these bills on your hospital you will be grossly unprepared by what happens when reform takes place–and not unlike what's happening with healthcare reform in Washington, that's no laughing matter.
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