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Prognosis, Affordable Health Care

As the landmark legislation continues to roll out, hospitals are worried about the financial consequences.



Southwest Florida health care institutions are in a triage mode, of sorts, as they brace for some major Affordable Care Act (ACA) provisions to take effect.

The landmark legislation is touted, among supporters, to vastly expand medical coverage to tens of millions of Americans at cheaper premiums, as well as to lower health care costs. But providers, hospitals in particular, are worried they will not be able to shoulder the financial burden they anticipate.

One way the ACA will pay for insuring individuals is by cutting Medicare reimbursements to medical facilities. For most hospitals throughout the country, this isn’t a huge deal; the newly expanded population of insured patients will counter the smaller reimbursements. Previously, many of these patients would have been uninsured and therefore considered a loss to hospitals when treated in the emergency room. But in Florida, where Medicare patients make up a large percentage of a hospital’s clients, the changes have generated some contingency plans, not to mention some anxiety.

"WITHOUT A DOUBT IT WILL AFFECT US. WE PLAN TO CUT 10 PERCENT OF OUR COSTS."

At Lee Memorial Health Systems (LMHS), for example, Medicare covers 50 percent of patients. With this in mind, administrators have their scalpels in hand, ready to trim anything they can.

“Without a doubt it will affect us. We plan to cut 10 percent of our costs, $125 million over the next 10 years,” says Larry Antonucci, chief operating officer for LMHS.

Other officials also are pondering the full effects of the ACA, some of which remain sketchy.

 

The Prognosis

The legislation was signed into law by President Obama in March 2010, and has been slowly rolling out ever since. Some major provisions, such as the individual insurance mandates and state health care exchanges, have yet to be fully implemented (or even fully figured out).

The ACA calls for the vast expansion of Medicaid, which is a federal-state program that provides health care to the poor and disabled, to help pay for coverage. Currently, Medicaid coverage varies state by state. According to a 2012 report by the Henry J. Kaiser Family Foundation, under the new legislation, families with earnings up to 133 percent of the federal poverty level will be eligible for Medicaid coverage nationwide. By the year 2022, this change could potentially expand the number of Americans on Medicaid by 21.3 million—a 41 percent increase.

But providing coverage for this many individuals won’t be cheap, which is why the program is cutting Medicare reimbursements to hospitals. There are two things here that are important to note: First, this cut is not a cut to seniors’ benefits. Seniors will still be able to receive the same tests and procedures; hospitals are just paid less for them. The second thing to note is that the new law doesn’t cut Medicare reimbursements so much as it slows yearly increases. Medicare reimbursements generally grow from year to year. This legislation significantly reduces that rate of growth.

For most hospitals, the expected larger pool of insured Americans will easily make up the loss in revenue from smaller Medicare reimbursements. Because hospitals cannot turn away emergency patients, the uninsured typically constitute a loss for emergency providers. Dr. Allen Weiss, CEO of NCH Healthcare System, calls these patients “self pay,” but adds: “That’s a euphemism for ‘doesn’t pay.’”

In communities such as Naples and Fort Myers, where large parts of the population are Medicare patients, making up that revenue gap isn’t going to be easy.

“We are going to get reimbursed less for Medicare,” Weiss explains, adding, “and April 1 of this year we got 2 percent less because of the sequester. Going forward with Medicare, starting 2014, over the next five years we’re going to lose about $90 million. We net about $468 million, so if we lose $90 million, we’re talking about real money.”


ACA: A TIMELINE

MARCH 23, 2010, The Affordable Care Act is signed into law. Planned to roll out in stages over next five years, the law hopes to help control health care costs in the United States while granting more

Americans access to affordable health care options.

JULY 1, 2010, The Affordable Care Act expands care for those with preexisting conditions. By 2014 it will be illegal for private health care companies to discriminate against those with preexisting conditions.

SEPT. 23, 2010, Adult children up to age 26 may be kept on their parents’ health care plans. This is one of the few provisions that is popular with the public and health care companies alike. Health care companies are no longer allowed to establish lifetime limits. Patients with chronic conditions or serious illnesses applaud the measure.

NOV. 14, 2010, The Supreme Court of the United States agrees to hear arguments over whether the Affordable Care Act is constitutional.

JUNE 28, 2012, The Supreme Court rules that the individual mandate is constitutional.

OCT. 1, 2012, Value-based purchasing goes into effect, evaluating providers on outcomes versus number of procedures.

FEB. 20, 2013, Florida Gov. Rick Scott reverses his position on expanding Medicaid in Florida. In a shocking flip-flop, the Republican governor says that he would take federal funds available for expanding the program.

MAY 1, 2013, Florida House and Senate cannot agree on how to move forward with the expansion of Medicaid. The proposals in each body stall and neither is enacted by the end of the session. If a special session is not called for by Jan. 1, 2014, the state will lose access to $1 billion in available Medicaid funds.

JAN. 1, 2014, The proposed opening date for the Health care Marketplace. This system will allow those who want to purchase health care outside their employer-offered plan to have a new avenue for shopping for coverage.


The Procedure

For many providers, how they’ll tip the balance sheets back toward some semblance of equilibrium is still a bit of a mystery. Antonucci says increased efficiency will be key for Lee Memorial, but that the hospital is also looking at cost-cutting and revenue-raising options.

“Right now we dominate the inpatient provider network, but in the outpatient network, we only have 20 percent of the market,” he says. “We see that as an opportunity for increased revenue.”

One recently adopted tactic that Naples-based NCH Health care System thinks will streamline efficiency is hiring more physicians. Three years ago, the hospital started bringing doctors on board as employees. Weiss plans to continue the trend into the future.

“We think we can integrate care better and give the patient a better product, and give the physician a more satisfied, engaged career,” he says. He adds that the hospital—just because of its sheer size—can more easily float the large costs associated with running a medical practice like providing health care to employees and paying for malpractice insurance. “The young physicians are all going through the employed model; the older physicians all want their practices to be taken over by the hospital, to help them get computerized; and the mid-career physicians are very perplexed and very anxious about what’s going to happen.”

But then, everyone else in health care is perplexed, too.

“I cannot predict when this will all end or how it will all end,” says Alan Levine, the Florida Group president for Naples-based Health care Management Associates, which owns 71 health care organizations in 15 states, including Physician’s Regional Health care System in Collier County. “Everyone is going to feel the impact from this.”

Levine thinks that the ACA will not just decimate Florida hospitals, but also harm the Florida economy.

“The reality is that Florida represents 8.3 percent of all Medicare spending. It’s going to be a $60 billion impact over 10 years, and sequestration is adding another $10 billion,” he says. “That’s going to have a ripple effect.”

While Levine says that HMA has plans in place to deal with the changes, he declined to speak on specifics. He did, however, criticize NCH’s move to hire more physicians.

“It’s a double-edged sword. We do employ some physicians but I believe that doctors, by nature, want to be independent,” Levine says. “Fifteen to 20 years ago, there was a move to hire more doctors and it proved to be a disaster in the long term. It’s generally a money-losing proposition to run a practice through a hospital.”

But Weiss feels differently, mainly because of how the ACA is putting an emphasis on paying for positive outcomes, not just procedures. He feels that employing physicians improves the communication between multiple doctors treating a single patient. He believes better communication ultimately improves patient care—and that’s going to matter under the Affordable Care Act.

In 2012, Medicare fee-for-service hospitals (these are any providers that are paid per procedure and not on outcome; the vast majority of American hospitals are fee-for-service) began being evaluated on something called “value-based purchasing.” It’s based on how positive the procedure outcomes are rather than number of tests or procedures done.

A certain percentage of a hospital’s Medicaid reimbursement is garnished at the beginning of the year, and hospitals are given a chance to win those dollars back with proof of improved performance.

Some argue that value-based purchasing is a good thing. A study reported in April’s The Journal of the American Medical Association showed that hospitals currently make money from surgical mistakes, as insurance and Medicare pay for subsequent surgeries. And health care experts on both sides of the debate agree that incentivizing health over sickness makes sense.

"IT'S LIKE GROUCHO MARX SAID, 'IT'S NOT THAT THE BAD DAYS ARE HERE, IT'S THAT THE GOOD DAYS ARE GONE.'"

Weiss definitely thinks a wellness model may soon be coming, and he believes that the pay-for-performance model is a good one; that this move may finally make health care more transparent.

“I always say, ‘If you’re going to be naked, you better be buff,’” Weiss says. “But really, I think there are going to be better defined ways of paying for care, better defined metrics for quality, better defined measures of efficiency.”

“I think we’re going to see some hospital systems fall out,” he says. “And I think the other systems are going to get stronger and bigger. I think we’re going to see significantly stronger consolidation.”

Weiss points to NCH’s recent partnership with the Mayo Clinic as a strategic move to improve care and collaboration, while joining part of an even larger and stronger network.

Antonucci and Levine also say that they’re planning to strengthen and grow as a way of insulating their institutions from reductions. Of course, logic says that all three local institutions beefing up operations in a time of decreased spending is likely not possible.

 

The Recovery

But the administrators each seem to hope that their respective institutions will be the ones to endure all of this. And they are, literally, seeing this as something they’ll have to survive. Levine seems especially concerned with the bill’s impact. While Weiss and Antonucci both say that, ultimately, the Affordable Care Act is something America needed, Levine won’t go that far. The most positive statement he gives is that it’s “something that we’ll have to manage.”

Everyone agrees, however, that it’s going to be a tough next few years. In the last few months, five hospital executives in the Tampa area chose to retire. Weiss—who says, personally, that he’s around for the long haul—speculates that they decided this was as good a time as any to get out.

“You know, it’s like Groucho Marx said, ‘It’s not that the bad days are here, it’s that the good days are gone.’”

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