Over the next few weeks, I’m going to be writing extensively about the death spiral of the American health insurance system, a fate as certain as it is unthinkable.
As enrollment in private insurance plans declines, and the Medicaid population increases, providers will have to increasingly rely on the remaining private pay patients to cover the costs of the uninsured and, in the case of Medicaid, under-reimbursed. I’ll begin the discussion with a story that clearly illustrates the problem.
Hartford Hospital’s announcement that its primary strategic focus is to achieve a “Solid Foundation” is prima facie evidence of the future of health care – the continuation of the private insurance death spiral.
In its press release, HH says:
“Negotiating with managed care companies is one key element of Solid Foundation. In 2010, Hartford Healthcare has two more major contracts to negotiate, and these contracts have a common thread – historic underpayments from private insurance companies. Hartford Healthcare physicians and hospitals have been paid too little for too long compared to hospitals across the country with similar services and capabilities.”
That’s not to say they’re out there looking to make billions; HH is aiming for margins in the 1% – 2% range.
But in order to make those modest margins, HH is going to have to fill beds – and the data indicate the Hartford area has too many beds, which will result in higher costs without an improvement in quality of care.
Compared to New Haven, CT, [link opens the Dartmouth Atlas for New England as pdf] Hartford has 23% more excess bed capacity and hospital costs that are more than 10% higher per capita.
I don’t know if the hospitalization rate in New Haven is appropriate or not; I don’t know if the hospitalization rate in Hartford is appropriate or not. I do know that one of the two, or perhaps both, aren’t the ‘right’ rate.
Hartford Hospital is responding to its need to preserve it’s organizational existence, and therefore will push hard to raise reimbursement while filing beds, a double hit for private insurers and employers who are being ‘taxed’ to help offset declining reimbursement from CMS and an increase in the number of Connecticut citizens without health insurance.
An intelligent approach to our nation’s coming health care disaster would be to address the supply issue. Reduce the number of beds in Hartford (while I don’t know there are too many in Hartford, that’s a pretty good guess).
What does this mean for you?
Until intelligence appears in the health care reform debate, you’ll see more and more announcements like Hartford Hospital’s. While they work to solidify their financial foundation, we’ll be watching our nation’s health care system crumble.
Feb
25
I believe that the Anthem increase in California are the early signs of the coming Health care Apocalypse. I live in the Dallas area and we keep building hospitals and the ones being Built are Doctor owned. You cnnot work with the current system and expect any success at controlling costs. I fear unfortunately the models need to be rebuilt. The sooner the better.
I see occasional hints that Darwin may have been right. In my part of PA we have seen a couple of hospitals close, along with some specialty care centers, and RNs are having a hard time finding work. This is not to say that the market will take care of the often radical imbalances we see in health care supply and demand, but it may be starting to impose some degree of reality in a world that has been oddly impervious to it for some time.
Joe, you’ve got some great points here, but I want to take issue with one that I see you and many others repeat. You make mention of under-reimbursement by Medicaid. Some I have read even lament under-reimbursement by Medicare. The lament usually contains words to the effect that reimbursement by these two payors doesn’t cover “costs.”
This really wouldn’t fly in any other business environment. From Day One, hospitals and/or physician offices can easily figure out their potential payor mix and should be managing their “costs” based on their projections for revenue based on the contracts that they sign.
I fully understand the problem of bad debt from no-pay patients. That should be built into your business model. Retail stores build in the cost of shoplifting and other losses. They call it “shrinkage.”
I also fully understand that in a difficult economy there has been a payor mix shift, toward more patients seeking services that will be paid from the lower end of the reimbursement scale. That is a downward adjustment that a physician office or hospital should be expected to make, if not cheerfully, then at least competently, just as nearly every other business has to do in a bad economy.
There are other factors that can put downward pressures on revenue that I don’t even need to go into. I get it that they are not fun or convenient. They are annoying, and in some cases galling. But every other business sector finds the wherewithal to adjust. And doctors in particular, who were the smartest kids in high school, went to the best colleges, passed the MCATS and graduated Med School. They, perhaps more than most of us, have the smarts to think through solutions to a problem.
What I’m left wondering is, if the problem is low reimbursement from Medicaid, why not build your medical practice’s business model on the assumption that every patient in the door was going to be reimbursing you at 50 percent of Medicare? We all know that’s an absolute worst-case scenario — except for the possibility that every patient would be uninsured — but we also know that it would never work out that way. Some number of Medicare patients would drop in, and perhaps a portion of private-pay patients, and the reimbursement from them would then be gravy. It seems to me that adjusting upward from the worst-case scenario would be the prudent starting point for a practice. I know doctors have egos, but they can’t all really believe that they are entitled instead to complain loudly about having to adjust downward on their business models built on the best-case scenario: every patient through the door is fully covered by a private-pay indemnity plan that pays usual-and-customary. Or can they?
What is the cost of an empty hospital bed? Not what is loss in revenue but what is the actual cost? I believe uncompensated inappropriate care is one of the issues killing The California healthcare system. We have lost many of our ER options because of the overflow of patients using them as primary care and not paying the bill.