You remember the Greek myth about Scylla and Charybdis, the sea monsters who wreak havoc on ships along the Strait of Messina, the treacherous path that separates Sicily from mainland Italy?
These days, I'm hearing that cliché in discussions about the debt ceiling debacle, and its potentially horrific impact on healthcare. These monsters represent the threats healthcare executives are worrying about in their journey across the quality chasm.
One of the monsters – say Charybdis – is the whirlpool of reimbursement cuts these hospital chiefs can see clearly ahead – the 6% or $155 billion from Medicare reimbursement over the next 10 years they agreed to for healthcare reform. Hospitals and health systems are stuck with that one, and are preparing for it, or they should be by cutting excess and standardizing for quality.
Then there is Scylla, the six-headed sea monster, so far unclear and unknown, but who looks even more fierce and more real as the political debate becomes more shrill with each passing summer day. The two of them form an evil specter that awaits along that passage.
Do you deal with the devil you know and hope the one you don't goes away? Or do you wait to see how it all falls out in a few years and grapple with them both then?
An e-mail this week from Chris Van Gorder, president and CEO of Scripps Health in San Diego and Immediate Past Chairman of the American College of Healthcare Executives – who talks with a lot of folks who run hospitals around the country – explains the lurking threat:
"The debt ceiling challenge for our country has created a new and unexpected challenge for us," he wrote.
"Since Congress and the President could not resolve the debt ceiling issue, they came up with a temporary fix. Congress lifted the debt ceiling temporarily and decided to appoint a 12-member 'super committee,' charged with coming up with a plan to cut $1.5 trillion from the federal budget over 10 years."
"Here's the catch," he wrote. "If this super-committee can't come up with a plan by Nov. 23, a back-up plan or 'trigger' automatically kicks in" slicing another 2% from Medicare starting in 2013 in a process called "sequestration."
Van Gorder says that's another $50 billion per year less to hospitals and $11 billion per year less to physicians.
The so called super committee, is also known as the “Dirty Dozen” because many dread the task it must take on. It will likely impose greater cuts than Van Gorder is maneuvering to grapple with. And, he says, the cuts are likely to come sooner than expected.
"In a worst case, hospitals could close, or close some services and some physicians might decide they could no longer take care of Medicare patients," he wrote.
Van Gorder 's warning is scary. He did not even mention the other financial whirlpools in this precarious channel. These include, the additional penalties federal payers will impose for hospitals:
- That score lower on quality metrics such as patient experience
- That rank in the high quartile in readmission rates
- That have poorer speed of care in the emergency department
- With higher rates of hospital acquired conditions
Even hospital credit ratings may be downgraded, affecting their ability to borrow money if the going gets really rough.
"Hospital rating downgrades will likely increase in the short term unless expense reductions and productivity gains compensate for stagnant or weak revenue growth," said Lisa Goldstein, author of a report for Moody"s Investors Service. "While better-managed hospitals can stave off rating downgrades, smaller hospitals are coming under particular stress."
Van Gorder, like many other healthcare executives, is slicing avoidable costs everywhere possible in preparation for the cuts, eliminating variation that adds cost. But will it be enough?
"It will be very challenging for organizations who are just starting to deal with these challenges reactively right now," he warns.
Michael Regier, senior vice president of legal and corporate affairs, general counsel and compliance officer for VHA, a Dallas-based purchasing cooperative with 1,400 hospital members, echoed Van Gorder's concerns.
There are many more cuts to come in "unspecified productivity adjustments" down the road, Regier said.
"Think of this as a basket of payment, 10% of which will be gone in three years," he continued. Considering the behavior of the market (which impacts hospitals philanthropy and portfolios), the S&P's reaction and the needs to provide high quality patient care, hospitals may not be able to reduce costs enough to avoid a fiscal calamity," Regier said.
American Hospital Association executive vice president Richard Pollack, responding by email to a request for a comment, wrote that “It will be a full-court press to work with the committee to make our views known. Our hospitals are in every congressional district in the country. Our patients are Republicans and Democrats. We are very concerned about where this is going to go.”
Rulon Stacey, ACHE's current chairman and the CEO of Poudre Valley Health System in Fort Collins, CO, also weighed in during an interview this week. "For us as healthcare executives, what Congress does or doesn't do is irrelevant to what we do in our health system," he said.
"We know what we have to do in the next three to five years; we have to drive variation out and drive costs down while keeping quality high. We have to integrate and exchange information like we never have before.”
He added, "There seems to be a lot of dysfunction on Capitol Hill right now. And I can't wait for them to run my organization. We're preparing right now as if all that money is going to be cut. If not this year, it will be next year and if not 2013, it will be 2014."
One thing he couldn't resist mentioning is the need for Congress to look at Medicare itself to reduce costs.
"Medicare itself is hopelessly inefficient,” says Stacey. “So while we're down in the trenches figuring out every single way we could increase hospital quality and decrease costs, I would like some assurance from Congress they're going to do the same thing to Medicare. You could pick any hospital in the U.S. and see they are run far more efficiently than Medicare is run."
For example, he says to look at the Centers for Medicare & Medicaid Services' regulations. "We literally built a separate building to house all the people it takes to go through Medicare regulations,” he says. “They'll send us a notice that they overpaid us last month, and expect so many dollars back in 14 days or else we go to jail. They back it up with criminal threats. But if we identify an error they've made, it's years and years before we get paid. They hold a steel hand over us, but none over themselves."
I asked Van Gorder whether all this could impact hospital quality.
"It depends," he replied. "Most hospitals lose money taking care of Medicare and Medicaid patients," he continued, and this makes the problem worse.
Now, there are significant challenges in maintaining levels of Medicaid reimbursement in many states.
Federal and federal and state governments, according to a recent report from the Government Accountability Office , are much more aggressive about limiting the ability of the commercial insurance market to raise premiums, enacting laws that require prior review and approval. Federal funds are being made available to states to beef up their oversight to reject premium hikes.
That in turn reduces the ability of hospitals to cost-shift to the commercial insurance market, to offset reimbursement decreases from government payers.
Van Gorder didn't mention the cost-shifting strategies that may be imposed, but they are likely to include:
- Reducing certain Medicare or Medicaid covered services
- Raising eligibility criteria or age or adding more pay for performance incentives, all of which may mean greater pressure on hospitals
- Increasing the burden of charity care, if eligibility thresholds are raised more people will need care
The confluence of unknown monsters in the water could have the impact on the number of people hospitals can employ, Van Gorder says. Hospitals are already beginning to lay off workers to cut costs.
"Since more than 50% of a hospital or health systems cost is in labor, people will be impacted. At Scripps, we have a plan to deal with that ,as one of our corporate goals is to create a secure workplace for our dedicated employees but I suspect in many other healthcare organizations, employees will be impacted, as will patients. Of course that's a shame when we should be trying to create jobs as a country right now."
I've heard healthcare leaders talk about perfect storms before, about financial threats to the safety of their journey, "no money, no mission." But all this summertime political sound and fury is starting to look seriously scary for healthcare providers – and don't forget their patients – who could all be stranded in the end.