| Contents | Previous | Next |
Economics and Finance
3.1 Bankruptcies of hospitals and medical groups will increase.
3.2 Healthcare’s share of the Gross Domestic Product could grow to 17percent.
What are the major economic trends impacting healthcare?
How common are hospital bankruptcies and why do they occur?
Why and how much wills the healthcare share of the GDP grow in the near future?
What has been the impact of the Balanced Budget Amendment of 1997?
What are the implications for case mangers in the midst of losses and gains?
Experts and practitioners alike see the economic trends of healthcare as one of the most powerful forces driving the healthcare industry today and on into the next three to Five years ahead. During the year 2000, healthcare should total more than $1.3 billion in the United States (American Hospital Association, 2000). Both the rising cost of pharmaceuticals and wages to meet staffing shortages are seen as trends that will cause upward spiraling of healthcare cost inflation within the next few years.
A full 74 percent of experts surveyed in the AHA Futures can 2000 study agreed will be a serious issue. Healthcare organizations today are facing financial difficulties on a larger scale than previous years. The word bankruptcy, once almost unheard of in healthcare, is now a common and feared word among hospitals and physician groups. As many as one-third of U.S. hospitals will face serous weakening of their financial picture in the next few years (Cleverly, 1999).
Recently, the Allegheny Health, Education and Research Foundation in Pittsburgh filed bankruptcy, which has served as a warning signal to many others in similar positions (American Hospital Association). The profits for many providers may be harder to meet and maintain in the future. Hospitals are caught between the Balanced Budget Act's Medicare payment cuts, which then reduce revenues and raise the operational costs, mostly nursing wages and pharmaceutical costs (American Hospital Association). One study shows that at least 77 percent of U.S. hospitals will lose money on Medicare, the largest costumer for many, by the year 2002 (American Hospital Association). One in four hospitals is expected to be running budgets in the red by the year-end 2000reports.
Several states in the U.S. have reported negative margins in costs to keep hospital doors open. In Michigan, about 18 percent reported losing money, and 22percent lost money on basic operations costs (Peters, 1999).
To survive the costs, some hospitals resort to investment income reserves to meet day-to-day costs of operation. This action is a risky practice, particularly leaving hospitals vulnerable for further crises if the Wall Street world suffers major breakdowns.
Complicating the picture for success or demise of health care providers is the Healthcare Costs - Losses & Gains continued competition for capital ranks. The difference between haves and have notes, according to the AHA, will be the access to capital funds. In other worlds, the largest stock portfolios will bode well for large providers if they maintain a solid budget. Those with less stocks and assets, will be less likely to have access to capital (loans and investors) to Make the needed technological and facility improvements needed as the future unfolds.
Without continued expanding revenue bases, such as new technologies, and new offerings for care, providers will be less able to compete with those who are expanding their revenue base. As an example, the best financially managed hospitals in America, as listed in a recent publication, include these top four: (Morrissey, 1999).
Brigham and Women's Hospital, Boston, MA- Top for all seven years followed
Evanston Northwestern Healthcare, Evanston, IL- top for six of the years
Harris Methodist, Fort Worth, TX - six years top
St. Joseph Medical Center, Tacoma, W A- six years
Community hospitals within the United States are also besieged by loss of revenue through uncompensated care. Uncompensated care includes bad debt andcharity care. The problem of the uninsured in this country and risk this poses for providers is discussed in more detail in Chapter five.
Hospitals, and the health care industry as a whole, will need energy focused on innovation and re-engineering themselves. In the next several years, facilitated by the miniaturization of computers and the expansion of telecommunication technology, even more care will be delivered in the outpatient setting or at home. Hospitals will struggle with continuing pressure to reduce costs and end-cost shifting among payers, even as their admissions are dominated by the sickest patients who remain for longer lengths of stay, consuming considerable resources. These dynamics are likely to result in hospital closures in over bedded areas; the danger is that they will also result in closures in the neediest areas (Sealskin, 2000).
Despite average total margins in 1998 of 5.7 percent and increasing utilization, nearly two-thirds of all hospitals are estimated to be facing significant financial problems (Sealskin). Blame for hospitals' financial problems has been placed on the Balanced Budget Act of 1997 (BBA), increasing numbers of uninsured Americans, and the payment practices of managed care (low pay, slow pay, or denial of services) (Sealskin).
During the same time period of hospital closures reported here, the for-profit chains of The Healthcare Company and Tenet Healthcare Corporation posted profits of $223 million and $301 million respectively (The American Nurse, 2000).
The Balanced Budget Amendment (BBA) of 1997 was perhaps the most important piece of legislation that reduced the amount of reimbursement paid for Medicare patients. It also made the role of compliance and fiscal personnel so important that clinical personnel were the ones targeted for downsized in many hospitals. This impact was felt in facilities caring for a large number of elderly clients, where reduced reimbursement meant "cleaning house" of any type of excess or even necessary staff. Thus, nurses and case managers must understand the impact of the BBA to better know how to prepare for the further challenges this act has on the future.
The five-year program of deep Medicare payment cuts has affected virtually all Segments of healthcare. Just over half of the experts surveyed in the AHA study predict that Congress will roll back or eliminate the BBA reimbursement reductions. Hospitals stand to lose $71 billion in Medicare payments during the next five years, which will have serious ramifications for patients and professionals in healthcare (American Hospital Association).
Late in 1999 Congress put back $18.1 billion of Medicare payment cuts over a five year period (AHA). This relief is targeted at rural hospitals, academic medical centers, hospital outpatient services, and home health agencies. The hardest hit, then, will continue to be community hospitals, skilled nursing facilities, and all others not able to handle the continued reimbursement rate reductions. Today, many hospitals and nursing homes are struggling to stay afloat with the shrinking reimbursements and concomitant understaffed facilities.
Care providers will continue to seek relief from the Federal government as the next three years of the BBA impact is felt. Complicating the scene is the continued risk associated with the long history of capitates reimbursement from Medicare and other third-party payers in the U.S. While many have tried the strategy of integrated delivery systems of hospitals and physicians that would accept more risk, some providers have found this is not working (AHA). In California, many well-organized medical groups that have thrived on capitation in the past are now leaving and not renewing risk contracts with HMOs.
Several large medical groups in California went into bankruptcy recently, inducing the mega-group Med Partners, and the Sutter Health System's HMOOmni care, which in 1999 acknowledged that its physician practices could no longer handle capitation (AHA). Experts attest that the only way to revive capitation and "make it work" is to have managed care firms meet the providers halfway-by improving capitation rates, quality improvement, and population risk management (AHA).
HMOs need to respond to the stress call from providers, and some are trying to be more "provider friendly" in their negotiations and practices. In the meantime, an increasing number of customers are switching to Pops (preferred provider organizations), which offer broader choices of providers and impose fewer impediments to patients' access to specialists. PPO national membership totaled 89 million in 1999, as compared with 81.3 million HMO enrollees (AHA).
The nation's rate of healthcare spending is on the rise again, according to a new report by the Employee Benefits Research Institute (EBRI) (Reuters Health, 2000). National health care spending topped $1.1 trillion in 1998, an increase of 5.6 percent between 1997 and 1998, according to the Health Care Financing Administration. That compares with a 4.7 percent increase in the prior-year period.
Due to the growing US economy, healthcare spending as a percentage of the gross domestic product (GDP) remained relatively unchanged, at roughly 13.5 percent between 1993 and 1998, EBRI said. But HCF A projects that spending will rise to 13.9 percent of GDP in 1999 and to 16.2 percent by 2008 (Reuters Health).
EBRI, a Washington, DC-based research group, says that the uptake in spending, after a period of sub-5 percent increases, "can be viewed as a predictor for the future, as Healthcare spending rates are rising again" (Reuters Health). We are now heading toward a period of instability with the healthcare share of the GDP projected to grow again, perhaps to 16 or 17 percent of the GDP (Health Care Financing Administration, 1999). The cause of this projected increase is believed to stem from the realignment of market forces that is causing rising healthcare costs.
The key factors for the projected increase of the healthcare percent of the GDP are:
In monetary figures, this means that healthcare expenditures may reach $2.1 trillion by the year 2008, assuming that health spending will increase by at least 6 percent yearly after 2000 (American Hospital Association). Although spending will increase, hospitals will continue to struggle to cope with reduced Medicare payments. In similar fashion, managed care plans will continue to press for discounted hospital per diems and physician fee schedules (American Hospital Association).
Managed care health costs were down for much of the 1990s, but the move toward higher premiums is triggering a new round of inflation. Two-thirds of this countries 650 HMOs lost money in 1997 and 1998, and many managed care companies resorted to pricing instead of cost management to offset losses. Many employers were hit by premium hikes of 15 to 40 percent during 2000, and often these costs were shifted to the employees.
Some experts consider the merging and consolidation of major HMOs to be a serious cause of inflation. In other words, the healthcare system may move toward a bilateral monopoly of insurance companies and provider groups in very market (American Hospital Association). If one insurer handled physicians and hospitals in a local area, Consumers could expect to see higher premiums for healthcare coverage.
But the EBRI report also suggests that HCF A has significantly underestimated the Public’s share of the nation's healthcare tab, calling into question the methods used by that agency to calculate healthcare spending in the US. For example, HCF A's calculation of public-sector spending excludes tax revenues that are not collected because of the preferential tax treatment of health benefits, EBRI notes. It also fails to count public-sector employer contributions toward the purchase of employer-based health insurance as a public-sector expense. HCF A assigns those expenditures, an estimated $63.2 billion, to the private sector (Reuters Health).
EBRI points out that if those forgone taxes and public-sector employer contributions were included, public-sector spending would account for 56 percent of all healthcare expenditures, not 45.5 percent, as HCF A has determined.
EBRI suggests that further research on HCF A's methodology is needed. It also concludes that national healthcare spending is difficult to estimate precisely because of the potential impact of legislative initiatives, technological innovations, and changes in the US economy.
Strategic Implications
Hospitals and medical practices are encouraged by experts to attempt to maintain a positive bottom line for the remaining three years of the BBA. This will be a daunting challenge for many. If agencies can take steps now to reduce costs, where appropriate, they may be able to defer another year of losses.
Experts recommend that all healthcare leaders anticipate the financial distress of some hospitals and medical groups. These distressed organizations may be considered "low-cost acquisitions" that could expand capacity or market presence for financially stable systems, if the ailing agencies are recapitalized (taken out of debt) and efficiently managed to improve profitability. In other words, if experts are correct, we can expect to see more "acquisitions" (the word merger is losing favor these days) of smaller or failing hospitals by larger more successful systems in nearly every area of the country.
The positive side to this is that strong systems of care can better position themselves for further challenges ahead, as well as negotiating improved managed care contracts. In the end, these "mega-systems" may be true centers of excellence for patients and providers.
Hospitals and doctors will be back in Congress, lobbying heavily in the next year or so to keep the BBA reductions at the 1999 level, and not see further roll out (down) of the rates for the next three years.
This chapter on financial woes and bankruptcies may sadden some nurses and case managers, anger others, or simply add to what is already known of the American health scene. This information is intended to inform and be cause for thought on how to keep aware of what is happening in reimbursement and financial losses, and how this impacts the patients that need care coordination that case managers provide.
Many of us have heard stories of patients who had developed a relationship with a physician or nurse practitioner in a particular medical group, only to lose all contact with these providers when the group dropped a certain HMO or the group went bankrupt. When these events occur, it may be the acute care or home care case manager who is the true coordinator and facilitator of care for a client or family.
In the next few years, case managers may find it necessary to offer novel independent services to "disenfranchised" consumers who need care coordination but don't trust the hospital or clinic to provide that type of need. References