In June, Pennsylvania Gov. Ed Rendell called on Senate Republican leaders to strike a deal on expanding health insurance for the uninsured before the end of the budget season, but was rejected. Now, Rendell—armed with new figures on the uninsured, and buoyed by the presidential election of universal-healthcare advocate Barack Obama—has asked the Senate to return to the Capitol to take action on his healthcare proposal before the end of the year.
Following New York Gov. David A. Paterson's comments that he would most likely ask for deep cuts in money for Medicaid, and might even try to renegotiate labor contracts, hospital advocacy groups pushed back forcefully. Hospital groups, which said they were still trying to manage the effects of the reductions approved by the Legislature in August, said they would resist further cuts unless there was a sense of shared sacrifice. "We will fight in an animated and energetic way if somehow healthcare is being targeted, because lives are at stake here," said Kenneth E. Raske, president of the Greater New York Hospital Association. "If everybody's pitching in, then we'll try to pitch in."
Everyone is feeling the pinch of the ailing economy, as the stock market continues its freefall, the government bails out financial institutions, and the credit market remains frozen. This dreary financial picture is made worse by the fact that the government is tightening reimbursement regulations and seemingly trying to take back the money it has already paid hospitals.
What can hospitals do to weather this financial storm?
The obvious answer is anything that will improve the bottom line. That means cutting costs and growing revenue. According to the accounting firm Deloitte & Touche, LLP, for hospitals, it takes $11,700,000 in new revenue to have the same impact as $100,000 reduction in operating costs.
Given this fact, the first place that hospitals can look to trim costs is in supplies, which represent 20% to 40% of their expenses. Another benefit to reducing supply costs is that reducing supply expenses doesn’t typically involve laying off employees.
Many hospitals are already working with group purchasing organizations to leverage purchasing power and cut costs on commodity items. However, in order to continue to find savings, hospitals need to work with their physicians to reduce costs on medical devices. Physicians can also help with negotiation efforts, as well as utilization issues.
Of course, hospitals can simultaneously implement strategies to improve their top line. One thing hospitals can do is improve patient documentation and record the right information about the severity of the illness and underlying complications that patients may have, which can have a direct impact on Medicare reimbursement.
For example, 60-bed Beauregard Memorial Hospital in DeRidder, LA, has been able to use a quality documentation tool to improve the accuracy of its documentation. As a result, the hospital was able to increase revenue by $247,000 in four months, and it estimates that reimbursement will increase by $600,000 in FY 2008.
While the financial landscape is uncertain, there are steps hospitals can take to increase their bottom line.
Many times, these steps save money, improve the quality of care the hospitals offer, and preserve employee jobs. That’s good news—for a change.
Scott Downing is executive vice president of supply chain management at VHA Inc. He may be reached at sdowning@vha.com.
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If you can momentarily turn off the noise about the financial crisis gripping this country, perhaps you can hear whispers from hospital senior leaders about community benefit. Not two weeks ago, we heard again from Sen. Charles Grassley that he's not stepping back on his crusade for greater transparency among hospitals and the amount of community benefit they do (or do not) provide their communities in return for the tax benefits they get. As things usually do in the world of politics and business, how you measure that comes down to money.
This past summer, I was part of the audience at a particularly animated discussion on these matters at the Healthcare Financial Management Association's Annual National Institute in Las Vegas.
It was fun to be the fly on the wall in that room, so to speak. One CFO whom I will not name stood up during the Q&A portion of the seminar and declared that the hospital itself is a community benefit—essentially because it's there. "The feds are missing the point," he exclaimed. "Many things the hospital offers simply wouldn't be there otherwise."
You can't make this stuff up. No one called him out on this statement. Not even me, but I was thinking to myself, "sorry bud, but that's not good enough."
By his logic, I thought, we could call a lot of things community benefits that really aren't. Wal-Mart could be considered a community benefit, and thus, should be exempt from taxation as well.
See if you agree with my reasoning here.
Wal-Mart brings low prices on a huge variety of consumer goods to a community—prices that would be much higher if Wal-Mart hadn't located there. If it wasn't for Wal-Mart, all those mom-and-pop stores downtown with high overhead and high prices would still be the only game in town. Therefore, they're providing a community benefit and deserve a tax break. Many companies, in fact, have successfully lobbied for local tax breaks by this twisted logic. But those are granted on an individual basis, and most thinking people carry a healthy dose of skepticism when looking at them. Kind of like those economic impact studies that people lobbying for a variety of preferential tax treatments trot out regularly—one of my pet peeves.
The fact that these tax breaks are given does not mean that the argument for giving them is not as ludicrous as that CFO's argument was at HFMA.
My Wal-Mart analogy is an imperfect one, but it serves to illuminate the differences between some hospitals' holier-than-thou attitude when it comes to taxation and others who want greater transparency from them, such as Sen. Grassley and other members of Congress from both parties. Perhaps a majority of hospitals do provide care that wouldn't be there if they weren't in the community. Free or substantially discounted healthcare is one benefit that in my mind, does deserve a tax break. But I don't understand the resistance to a uniform standard of reporting and accounting that benefit. Currently, we have no way of knowing for sure.
What do you think? What are the holes in my argument? I'd love to hear from you senior healthcare leaders, so write me and tell me your story.
Philip Betbeze is finance editor with HealthLeaders magazine. He can be reached at pbetbeze@healthleadersmedia.com.Note: You can sign up to receive HealthLeaders Media Finance, a free weekly e-newsletter that reports on the top quality issues facing healthcare leaders.
President-elect Barack Obama's plan to extend healthcare to uninsured Americans will provide a boon to hospitals and medical centers, according to Moody's Investors Service. "Moody's estimates that the annual cost of the plan could be on the order of $100 billion to $200 billion, inclusive of participant contributions, on top of current annual government spending of about $800 billion," the rating agency said in a report. "The expected spending could positively affect the top-line growth of many healthcare providers."
The AARP has announced it would voluntarily suspend sales of a type of health insurance plan critics say leaves policyholders vulnerable to tens of thousands of dollars in costs. Suspension of sales will occur "as soon as possible" and last until AARP completes an independent review of the plans their marketing efforts, the group said.