Hospital CEOs Decry Medicare, Defend Costs
They came expecting answers. How do hospitals intend to bend the cost curve since their industry absorbs 33 cents of every healthcare dollar? What kind of efficiencies can people expect? And, what’s being done to create a more transparent system?
But, by the end, very little new ground was broken despite challenging questions posed by Kerry Barnett, the moderator.
“There’s a strong expectation in the community that there’s going to be a lot more dollars coming into the healthcare system – close to a trillion – and significant new subsidies,” declared Barnett, executive vice president and chief legal officer at Regence BlueCross BlueShield of Oregon. “If that’s the case, how do these dollars ultimately flow through so they benefit the community and don’t go to the bottom line or decreased reimbursement rates?”
Tom Russell, president and CEO of Adventist Medical Center, didn’t hesitate to respond. The rub’s going to come, he said, from the low Medicare rates, which don’t cover healthcare costs. “It’s going to get worse, not better, and be a significant challenge.”
When it comes to creating a more transparent system, Dick Stenson, CEO of Tuality Healthcare, was in favor, assuming the entire industry moves in that direction. “More money,” he said, “needs to be spent on primary care and prevention if we’re going to make people healthier it has to move in that direction.”
How about all the hospital construction going on? Barnett probed. “Is it really necessary? Are the dollars going to the highest value facilities for the community?”
Hospitals follow the cycle of low interest rates, said Norman Gruber, CEO of Salem Hospital, who compared hospital construction to hotel expansion. “Most hospitals operate with a pretty slim margin but follow the economic cycle where capital is cheap and have the opportunity to take advantage of the market.” Because of new technology, hospitals need to be replaced every 35-40 years, he said.
There’s a much higher demand for hospital services, particularly total joint replacement which has soared by 30 percent, said Susan Mullaney, administrator of Kaiser Sunnyside Medical Center.
Changing the reimbursement system is critical, said David Underriner, chief executive of the Portland service area for Providence Health & Services. Instead of paying for particular episodes, hospital systems such as Providence are looking at a fixed budget – what’s known as bundled payments – that cover the continuum of care to avoid re-admissions. The question, he said, is “how do we reward a system that incentivizes for the right behavior? We have to align the payment model.”
Hospitals need to become cost, not revenue centers, said Gruber. “As long as we pay on a piecemeal basis, people will be motivated to do more because that’s how they get paid. “There has to be a 180 degree shift in how someone gets paid.”
Most executives foresee shortcomings with the reform measure. “The discussion was about insurance reform, not healthcare reform,” said Dr. Lori Morgan, chief administrative officer of Legacy Emanuel Medical Center, who said her system had a difficult time getting out the message about its extremely low infection rates, as reported last week at The Lund Report.
“I think we have to get a little leaner and more efficient,” but she offered no new ideas. I’d give the bill an incomplete,” she said.
The measure tackled insurance but didn’t deal with the structural side of healthcare. “If we insure more people and provide more services, we’ll bankrupt the country,” predicted Stenson.
There’s been no attempt to change the culture of healthcare and think strategically about the future, declared Joe Kortum, president and CEO of Southwest Washington Medical Center, who presumes our “healthcare system will be in the same mess as today.” His hospital, he said, has the biggest emergency department with 300 people flowing in daily, half of whom are uninsured.
“We’ve built this thing on sand, and have to think about healthcare as a we -- not a me. That will make the most meaningful impact on controlling cost,” he insisted.
The foundational element is weak, Mullaney said, requiring everyone to have insurance coverage by 2015 because people can opt out by paying a very low penalty -- $95.
Turning to a different topic, Russell encouraged legislators to take a hard look at the mental health problems plaguing the state. Right now, he said, people are just cycling through the emergency room and outpatient settings. “This drives a lot of other health issues; it’s an under current we have to address.”
The hospital CEOs were also asked about the potential of losing their non-profit tax status once everyone's under the tent, and they no longer provide charity care to the uninsured.
"Whether hospitals pay property and income tax is a moot point," Gruber pointed out. "Someone will pay for it," implying that hospitals would simply pass their tax burden onto society -- employers, insurers and patients.
Believe me, declared Russell, charity care will never go away even under the best of circumstances.There'll still be 10-12 million people uninsured. "The poor will always be with us."
Non-profit tax status should be conferred when the measured benefit of institutions such as hospitals and churches is greater than the taxes they'd have to pay, Stenson said.
"Having said that, all hospitals, in Oregon at least, publish an annual benefit to the community report that's an indicator of what they've done to fulfill this mission. So, it will be interesting to see if those charitable community works drop near to zero in coming years, and then it should be a subject for conversation."
Stenson spent 17 years working in Hawaii, and it hashad a Prepaid Health Care Act since 1973, requiring all employers to provide full insurance to every employee who works more than 20 hours a week. Over the years, between 90-97 percent of the population has been covered.
"Through all of that," he added, "I know that the nonprofit hospitals still had plenty of charity work, community education, etc. to more than justify their continued tax exemption and the issue never came up."
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As usual Steve Gregg is pointed and to the point. Very few want to talk about less of health care that contributes little or nothing to health. As our prez (Obama) rightly says, we aren't going to cut anything from Medicare benefits that is actually good for your health---but that leaves plenty that could be thoughtfully cut. Less of those things means less revenue, and less future bricks and mortar and jobs, for hospitals. Will "we" (not "me") work together to manage that, or continue to "follow the economic cycle" whenever capital is cheap, to build big facilities that steal insured patients from the community hospital in the next town or county? And the current entitlement to high drug and device profits, a medical equipment retail gravy train, and mid- to high six figure incomes for too many of our colleagues in medicine has to be a subject of conversation at the Rotary Club one of these days, the kind of hard "we" conversation that rarely happens now. The worker bees who make institutions run don't need lower wages, with rare exceptions, but they may lose some of the jobs and benefits that now exist nonetheless. And as Steve points out, transparency and accountability is in order to assure lowered costs are reflected in premiums and other prices. Serious conversations about the right stuff are still far too rare.
It is interesting how a group can burn so much energy talking around a subject without addressing the essence. 60% of a hospital's operating costs typically are payroll related, perhaps 80% when considering indirect costs. To reduce health care costs, personal compensation must be constrained if any strategy is to be successful. What is that strategy? Who is expected to suffer the reduction? Was that reduction achieved? Was the savings passed on in the form of lower charges and insurance premiums?
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