In AL, Some Hospitals Thrive on Medicare

This article appears in the March 2012 issue of HealthLeaders magazine.

Some hospitals and health systems nationwide have informally staked their long-term viability on being profitable on rates that are equal to Medicare's reimbursement rates. Some have even taken to calling the drive to meet regulatory requirements the Medicare Profitability Project.

How to get to that point is the problem. Not so in Alabama, where in many cases, Medicare is Baptist Health System's best payer, says Alan Bradford, chief human resources officer for the four-hospital system based in Birmingham.

"We have had to learn how to thrive on Medicare rates," he says. "My opinion is that's where everyone will end up someday. It's strongly conveyed through our organization that we have to be profitable on Medicare rates, and we've worked hard on achieving the cost structure and efficiencies that allow us to do that."

It's a smart strategy, says Paul Keckley, executive director of the Deloitte Center for Health Solutions, who presents a compelling scenario in which profitability under Medicare rates will be essential.

"What if, in 2016, the health insurance exchanges are operating and inflation is exceeding 6% a year? We envision large numbers of employers will consider exiting the business of providing traditional health benefits."

Keckley and his team are running with that assumption. They are predicting that by the end of the decade, about 65 million people will lose their traditional employer healthcare coverage.

If that happens, "the impact on the hospitals will be profound," he says.

Some number of that group will be uninsured. Another smaller group will be eligible for Medicaid, but the majority will end up in exchanges, he says.

"If states get slammed with large numbers of exchange enrollees, the exchanges will likely pay providers less," he says. "Our overly simplistic conclusion is that hospitals ought to be able to operate at Medicare rates or lower because you can't factor in a cross-subsidy in the future."

This article appears in the March 2012 issue of HealthLeaders magazine.