If their lobbying group is truly representative of its membership, hospitals are very unhappy with a hospital inpatient and long-term care prospective payment system proposed rule for fiscal 2011 that would cut average inpatient payments by 0.1%. Unhappy, but not desperate.
A tenth of a percent cut doesn't sound like much, but the American Hospital Association says if the proposed rule is allowed to stand as is, billions of dollars would be taken out of the system just as hospitals are grappling with sweeping changes and payment reductions contained in the new health reform legislation.
Besides, says the AHA, the estimate does not include the 0.25% mandated market basket cut that was included in the healthcare reform legislation signed into law last month. When that cut is put into place, average payments will decrease by 0.35%—compared to fiscal 2010 payments. So now we're up to a little more than three-tenths of a percent cut for 2011. I won't argue that 0.35% isn't real money for hospitals operating on a 1%-5% annual margin—if they're lucky. If they're not lucky—or good—many hospitals, including those that are incurring annual losses already, will have to reduce the amount of care they're able to provide to patients.
Let's be honest. With apologies to the AHA, I thought cost reduction (through quality improvement) for healthcare services and supplies was exactly the point of the health reform law. The idea was to streamline, but not to cut patient care.
At least that was the stated goal, but the real goal appeared to be to cover more of the uninsured. What level of coverage, and at what reimbursement rate, was the underlying issue that none of your elected politicians would touch with a 10-foot pole in the agonizing run-up to the law's final passage, and during the interminable negotiating process, I never heard much about future reimbursement from the associations of industries that would be affected under reform.
Look, no one likes to be told by their main payer that they'll get a cut in reimbursement, no matter how small, for the services they provide, especially at a time when prices for supplies, salaries, and energy, among other necessities for hospitals, aren't falling. Similarly, the biggest payer out there can be something of a bully.
Hospitals, like many other healthcare service providers, are caught in a pretty strong trap. They can't consider a draconian response of their own by cutting government out as a payer for a variety of reasons. Or can they? I would argue that many, especially in the long term, can at least consider it.
Many large academic medical centers are probably not able to consider this "nuclear option." They operate teaching programs that are big money-losers but that are necessary to bring along clinicians of the future. They're already constrained, through capital investments whose cost is fixed, to treat a certain volume of patients. And besides, even if they lose money on government patients, commercial patients have picked up the slack—at least up to now. But community hospitals, as well as big chains that don't operate AMCs, may be a different story, although they share the volume challenge. Certainly they can't consider cutting out government in the short term, but can they in the long term? I'd argue that some can.
Physician offices, in drips and drabs, are already doing it. The bottom line is as a hospital or health system leader, you have the power—and the responsibility—to keep your organization running as smoothly and as profitably as is reasonably possible, while still maintaining your mission to care for patients in the community. But that doesn't mean you have to deal with a payer that doesn't pay its weight.
Sure government, through its size, can attempt to strong-arm the entire industry. But until now, hospitals have been crying poverty and lobbying their representatives to pull CMS back on some of its proposed payment cuts. That's been pretty successful, but the nuclear option is to figure out a way to get out of the government's clutches.
Frankly, I don't see a lot of that happening. The cuts are something you'd rather not have to deal with as a leader, but the alternative is extremely risky. Still, I would expect that some hospital leaders might read the tea leaves and if they're operating a community hospital or network of community hospitals that's less dependent on government payers, that they would look for ways to exit that system long-term. That might mean they wouldn't be nonprofit anymore, but we are looking at bold strokes.
My point is that if the proposed cuts are truly as destructive as some would have you believe, there are options. It's just that we're not anywhere close to having anyone realistically try them. Still, look at Europe. There are lots of hospitals that don't take government reimbursement. They're called private hospitals. I wouldn't be surprised to see them sprout up here if the reimbursement system gets a lot worse. But we're not anywhere near that point now.
So maybe for now, it's time for hospitals to just deal with it.
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Philip Betbeze is the senior leadership editor at HealthLeaders.