Healthcare Reform Puts a Squeeze on Revenue Cycle
Despite the prospect of millions of newly insured patients, many hospital and health system finance executives are not expecting healthcare reform to be a boon to their organizations' bottom lines.
This article appears in the June issue of HealthLeaders magazine.
The Patient Protection and Affordable Care Act is designed, in part, to provide more patients with health insurance through expanded Medicaid eligibility and the introduction of government-run health insurance exchanges that will allow low-income individuals to purchase medical coverage at a subsidized rate.
The goals include improving access to care for this segment of the population and reducing the amount of uncompensated care provided by the nation's hospitals. While this sounds good on paper, many hospital finance administrators are not convinced that the PPACA will benefit providers and are instead bracing to take a hit to the revenue cycle.
Tim Nguyen, corporate controller at Palomar Health, a San Diego–based system with 690 licensed acute care hospital beds and $2.5 billion in gross annual revenue, says there is a catch-22 built into the healthcare legislation that will ultimately hurt providers.
"With the Affordable Care Act coming out, more people are going to qualify to go to the exchanges. In the past, most of that would have been bad debt, and we would have to write it off and that hurts [us]. So, yes, this could potentially reduce our bad debt. But here's the catch: The exchanges will have different tiers with different deductibles and copays," he says.
California's health exchanges will have four tiers when the program goes live in January 2014, Nguyen explains: platinum (where the patient pays 10% of total healthcare expenses); gold (20%); silver (30%); and bronze (40%).
"These patients will still be responsible to pay, and they probably don't make that much money and are likely to choose the silver or bronze tier to keep the premiums low. … That will increase our bad debt even though they have insurance."
Additionally, the federal government will subsidize insurance purchased through the exchanges with consumer tax credits—something Nguyen says will be bad for providers. "They are going to reduce reimbursements to pay for the program. What they did on the front end, they will take back on the back end. When you put all these things together, you come out negative," he says.