Financial future of hospitals on the line


    Whatever decision the U.S. Supreme Court makes on the constitutionality of the Patient Protection and Affordable Care Act passed by Congress in 2010, the ruling, or possible rulings, is very likely to have a profound effect on hospitals. So might the upcoming November election, which could change the makeup of Congress and the occupancy in the White House.

    The current uncertainty surrounding the future of the act, which doesn’t become fully effective until 2014, makes it somewhat difficult to determine what the actual impact for area hospitals will be in two years. So Metro Hospital CEO Mike Faas could only give the Business Journal his impressions based on what it is today. And today, he sees the act as more of a payment reform than a health care reform, due to lower projected Medicare payments.

    “Starting in 2013, we’re going to get paid differently and we’re going to get paid less. What we don’t have is health care reform. Health care reform includes all the upside for us providers — everybody that does stuff to take care of people — and that all the uninsured are insured,” said Faas, also the CEO of Pennant Health Alliance, which has nine hospitals, including three in Grand Rapids, under its umbrella. “That’s where everybody got excited.”

    Faas didn’t rule out that much of the good stuff for providers could still happen. But today’s reality tells him that payment reform is what the market really has.

    “Right now, there’s no balancing act to that. For many financially fragile physician practices and for hospitals, it’s why you’re seeing consolidations and collaborations pick up in numbers versus going down,” he said.

    One concern Faas shared is that the act promises reimbursement if a provider creates an electronic system of medical records, which is supposed to reduce medical costs. He said that switch is fine for those providers that can afford to make the changeover. “But what if you’re just a small two-person practice that can’t afford that, or you feel fine with the paper records and you’ve always done that, or you’re close to retirement? So we’re dealing with lots of questions at a lot of levels,” he said.

    “Those practices are the ones that are getting acquired. And those hospitals that are already financially distressed and are getting this extra burden are saying, ‘Maybe we should let somebody buy us.’’’

    Faas said the message Pennant has spread is, instead of putting a hospital on the market, a provider should attempt to enhance its quality by joining the alliance.

    He noted that system reform wasn’t the reason Pennant was formed.

    “But it is preparing us for that right now because it’s allowing us to have some flexibility. There is just more flexibility in size, in skill sets and in dollars. And that’s what we’ve been able to craft, even with just a handful of us in it,” he said.

    A key element in the act for providers — and for insurers — is one for which the court set aside an entire session to hear oral arguments: the constitutionality of the law’s requirement that everyone buys a health insurance policy.

    That ruling is vital for hospitals because, according to the Obama administration brief, uninsured Americans consumed $116 billion of medical services in 2008 and didn’t pay for $73 billion of that care. Hospitals have written off those lost charges as charity care, and they have upped their prices for businesses and for consumers that have coverage to subsidize that loss.

    The individual mandate, with its federal subsidies, is supposed to bring providers more payments for services rendered, dramatically reduce their amounts of charity care, and lower prices for patients with insurance. At least, that’s the economic theory behind the mandate. Those who can afford a policy but don’t buy one will have to pay a tax — some call it a penalty — of about $700 a year.

    Faas said the idea of everyone being insured is good because that goal begins to remove what he called a cross-subsidy for medical costs.

    “There was always this ‘tax’ to private payers and to industry through their health care insurance coverage where they paid more because we didn’t get paid by lots of people. That really is a leveling of that, and I think that is good because what it does is it clears the water,” he said.

    “We know health care is broke. We can’t stay on the track we’re on. We’re the most expensive — either number one or number two every year on a cost-per-individual basis — and yet we’re somewhere around the 40th to 45th healthiest nation in the world. There is a disconnect between what we’re spending and what we’re getting.”

    Faas felt the original purpose behind the health care reform law was laudable. But he said the manner in which it is to be implemented and the regulations that are attached to the act “almost takes the good” out of the legislation and is the reason it is has been legally challenged so often and for multiple reasons.

    Instead of creating a national policy, Faas said the concept should have been piloted first by having a few states experiment with the act’s rules to get a better feel for how the reform would play out across the nation. Then, if changes were needed, he said, they could have been made. But that ship may have left the port.

    “The part of everybody being covered is a good thing. But the way it’s been crafted is a tragedy. They’ve taken a good concept and given it to a bureaucracy in Washington,” he said. “There they’ve taken a simple thing, crafted a thousand pages out of it, then terrorized everybody to follow the rules that none of us can fully understand.”

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