Hospital Bailout? It Could Happen

Philip Betbeze, March 26, 2010

I was surrounded by thousands of healthcare executives this week as we attended the American College of Healthcare Executives' Annual Congress. I've been to dozens of these shows over the years. Most of the time, they're coincidentally held when nothing much of substance is coming out of Congress healthcare-wise, which is to say, most of the time.

Not so this year. Not only did we witness from afar the most sweeping healthcare legislation passage since 1965, but we got to see it happen in real time.

I was amazed at how quickly some of the presenters and attendees were able to react to what portions of the bill meant to hospitals and health plans, but even they were at a loss for bold predictions. Slide decks were rearranged, added to and deleted from. But the picture for healthcare businesses, especially hospitals and health systems, seemed surprisingly clear, for a 2,309-page bill that probably very few people, if any, have read cover to cover.

If you didn't see my update earlier this week, check it out here. I think it's safe to say that many think hospitals and other healthcare providers will end up holding the bag, as it were, as they are closest to the end customer, patients, whose payers, increasingly, won't be able to foot the bill.

Coverage has been increased, but to what end? It's clear from the Massachusetts experiment with universal healthcare that hospitals have not done well because as paying patients have increased, reimbursement rates have shrunk. While the number of uninsured is smaller, to be sure, there aren't enough caregivers to treat them all, and when you add people to Medicaid rolls while simultaneously cutting Medicaid reimbursement, as has happened in that state, hospitals are worse off.

In fact, as I mentioned in my update, Boston Medical Center, which was breaking even financially before reform, is now losing $12 million a month.

When reform was implemented, Massachusetts had already much fewer uninsured than most states. So if you think reimbursements are lean now, wait until states have to pay for thousands, perhaps hundreds of thousands, of newly insured. Even with federal help to offset some of the budget hits that states will experience, revenue per unit of service will have to go down. States aren't exactly flush with tax dollars looking for a home.

So what's a strategic leader to do when faced with these long-term realities? I wish I knew.

Maybe we'll see a further rash of hospitals and health systems opting out of government-provided healthcare. I'd certainly consider it if I were operating a profit-making business—however, about 75%-80% of hospitals don't fit that portrait.

Opting out of the government payment system would eliminate about half the market of paying patients, but what good is payment if it doesn't cover your costs? We've seen physician offices doing just that already, although it's been mostly under the radar. We haven't seen many hospitals do it, but I think it's coming. There just isn't any free lunch, but Congress doesn't seem to have ever gotten that message.

Are we facing a race to the bottom among healthcare providers? Will it be survival of the fittest? It certainly looks that way. And you can be sure that as providers go bankrupt or consolidate heavily, Congress' won't take the blame, similar to the way they've been able to blame others for the failure of Fannie Mae and Freddie Mac, who were largely operating under the rules the politicians gave them.

They'll just bail out and hope nobody notices.

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Philip Betbeze

Philip Betbeze is the senior leadership editor at HealthLeaders Media.

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