Obama's health care reform is unhealthy for hospitals

Trying to squeeze productivity gains out of hospitals will force many to close

March 19, 2011|By John D. Hartigan

Over the last few months, the U.S. Department of Health and Human Services has exempted a long list of unions and employers from an Affordable Care Act provision that would have made it too costly for them to continue some of their health care insurance plans. But, in sharp contrast, HHS apparently doesn't intend to do anything at all about a new health reform mandate that could eventually force hundreds of badly needed U.S. hospitals to shut their doors.

Many of these hospitals are already struggling to make ends meet because Medicare only reimburses them for 90 percent of what it costs them to take care of Medicare patients. But, instead of helping them out, this rule change does the opposite. In a misguided effort to pressure them to become more efficient, it arbitrarily assumes that they can achieve the same productivity savings as the economy at large and decrees that these hypothetical cost savings must be deducted from any Medicare reimbursements they receive after September.

The trouble with this is that it lumps hospitals in with manufacturers like IBM and General Electric and takes it for granted that they can ultimately save almost $30 billion per year by replacing their workers with equipment or by squeezing their operations into tighter quarters. Nothing could be further from the truth.

First of all, hospitals are far too labor intensive to be able to slash payrolls as easily as manufacturers. They can automate functions like lab work and record keeping, but there's no way they can substitute equipment for nurses, orderlies, housekeepers, nurses' aides, kitchen workers or maintenance men. Moreover, hospitals can't downsize as readily as manufacturers either. Hospitals that close floors have to uproot the patients on those floors and crowd them in with patients on other floors, and there are obvious safety and tolerability limits to how far that kind of doubling up can be pushed.

Given these constraints, very few of the 4,686 U.S. hospitals providing patients with Medicare Part A services are going to be able to boost their productivity enough to make up for the new reimbursement reductions. To quote Medicare's own chief actuary, Richard Foster: "While such payment update reductions will create a strong incentive for providers to maximize productivity, it is doubtful that many will be able to improve their own productivity to the degree achieved by the economy at large. ... Thus, providers for whom Medicare constitutes a substantive portion of their business could find it difficult to remain profitable. ... Simulations by the Office of the Actuary suggest roughly 15 percent of Part A providers would become unprofitable within the ten year projection period."

That's a shocker. What Mr. Foster is telling us is that deducting the legislatively presumed productivity savings from Medicare reimbursements would gradually turn more than 700 of our hospitals into chronic money losers. And — while he doesn't spell out what would happen when those hospitals eventually had to shut down — there's no doubt that the impact would be devastating. Patients in rural areas would have to travel long hours to get to the nearest hospital still open for business, and patients everywhere would have to put up with critical shortages of beds, operating rooms and ICUs, as well as badly overcrowded clinics and emergency rooms.

Not only that, care would almost certainly have to be rationed. Grandpa might not get his heart bypass. His daughter might not get her mammogram. And his grandson would probably have to wait months for surgery to repair a sports injury.

Despite all this, HHS has no plans to intervene. Brushing off Mr. Foster's warnings, his superiors insist that the new Medicare reimbursement reductions won't cause any harm to hospitals or the communities they serve because hospitals can "become more productive" if they "invest in system changes." But that's just bureaucratic posturing. In order to survive the reductions, a typical 200-bed hospital would have to achieve long-term productivity savings of about $7 million per year, and investing in "system changes" couldn't possibly cut payroll costs by that large an amount.

So let's hope the new productivity mandate is either eliminated or scaled down to a level that's reasonable. Otherwise, our hospitals risk becoming an endangered species.

John D. Hartigan, a Chevy Chase resident, is a former vice president and general counsel of Technicon Corp., developer of the first fully computerized hospital information system. His e-mail is hartlex@comcast.net.

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