Upheaval in How Money Flows Leaves Hospitals Scrambling

Upheaval in How Money Flows Leaves Hospitals Scrambling
By Dr. Michael F. Roizen

I frequently write about how you can stay young in face of events you can't control. Today, that focuses on the changes in the health care system that are and would occur due to cost pressures and transparency so big that even President Obama and the Patient Protection and Affordable Care Act (aka Obamacare) can't make it easy for you.

That's why his statements ("If you like your doctor, you can keep your doctor; if you like your health plan, you can keep your health plan") have proven to be false for so many. Even in the most powerful executive office in the U.S., Obama couldn't ensure that. But the errors in his statements simply reflect that the changes American medicine is undergoing are bigger than Obamacare -- and were occurring without Obamacare. Yes. Obamacare is shaping them, and maybe accelerating them, but these changes alter what you need to do to get care.

Let's look at this from how the most major payers of health care costs are responding -- the insurance companies and the U.S. government (through Medicare, Medicaid and payment for insurance for government employees) is responding. How is that changing your doctors' and hospitals' income statements? And then, what can you as an individual do for you and yours until these changes shake out? While finances often seem boring, it's probably causing your local hospital trustees' blood to boil, and we'll try to make it that exciting for you, too.

Payment Rates at 18% to 38% of Bills

Hospitals are seeing lower reimbursements now due to declining admissions -- and greater transparency and lower payment rates. I'll take the hypothetical example of a for-profit system, although the exact same logic goes in spades for a not-for profit academic system. This hypothetical but realistic hospital system currently bills about $3 billion for medical services and collects around $1 billion. That's right -- the institution, through insurance contracts and payment of fractions of bills by the government, gets 33 cents for every dollar it bills. It costs such a system around $900 million to provide all the services, and thus they are able to have a profit and invest $100 million in plant and equipment maintenance, as well as new equipment. And this hospital system was exceptional, as many community hospitals function on margins below this 10 percent figure -- like 5 percent.

A system like this one gets this revenue by collecting about 23 cents on the dollar billed from Medicare, about 18 cents on the dollar billed from Medicaid and about 38 cents on the dollar billed for the aggregate of commercially insured patients. We are sure this seems bizarre to someone from outside the U.S., and actually it does to us, too, but it's the way the system has evolved.

But now, insurance exchanges are helping more people chose policies that pay Medicaid rates -- nearer 18 cents for each dollar billed -- and it isn't just the uninsured that are choosing these policies, but those who work for small companies that do not cover health insurance for their employees. Eight million people have chosen these policies so far. That is increasing outpatient demand and reducing reimbursements -- going from a policy that paid 38 cents to one that pays 18 cents per dollar billed seems (from what I can learn from friends) to be hitting many hospitals and even academic health systems hard. That's right, being paid 20 cents less on each dollar billed on just 20 percent of the $3 billion you bill reduces our hospital system's income from $1 billion to $880 million, or a net loss of $20 million versus a profit of $100 million (remember it cost $900 million to provide the care the hospital provided). What would you do if you ran that hospital system? You'd cut every non-essential service you could, and darn fast. Your grass would get cut less often. And those decreases mean less money for everyone selling services to that hospital

More Pressure from Reference Pricing

Now couple that with reference pricing: An article in Health Affairs indicates that in California, the Calpers system -- the largest state-run health insurance provider -- has gone to reference pricing in some areas. Calpers gives employees $30,000 for a total hip or total knee replacement and lists the hospitals that charge less than that. Virtually all academic medical centers (those that provide care for the sickest, and those that train our future doctors, nurses, pharmacists, dietitians, etc.) fall into the high-cost group, and their share of the Calpers patient population that has hip or knee replacements went to 35 percent from 54, while the share for low-cost hospitals has climbed to 65 from 46 percent in less than two years. (Only one high-priced group hospital in California converted to a low-cost group hospital in the past three years. These trends have accelerated since 2012, we are told.)

%VIRTUAL-article-sponsoredlinks%Many other states will soon adopt reference pricing, where you'll be guided to hospitals that charge less for a service (and maybe try to not take patients with conditions that increase cost). This means there will be less dollars for the hospitals that have taken the sickest patients to continue to do so in transfer from the lower priced hospitals, as well as less dollars to train doctors. And doctors are seeing less revenue as more of their patients are paid for at or near the Medicaid rate of 18 cents per dollar billed, versus the private or even Medicare rates of 38 and 23 cents on the dollar billed. So it's not just the for-profit hospitals that are seeing less revenue, but all health providers.

How long will the pain last for the hospitals and health service providers till we remodel the system so all practitioners practice at the limit of their license and only the sickest get nursing or physician care? We don't know how this will settle out. This change was tried twice in the U.S. and once in several Canadian provinces in my job lifetime, but each time political pressure -- "I want a great neurosurgeon when I want one, not when my back pain has lasted 10 weeks" -- forced reversion to something close to the prior system. But this time seems different. And for you to avoid a shortage of providers or find out that your doctor has dropped out of accepting your specific insurance here are four tips:
  • Hug your doctor and your doctor's office manager, and do whatever you need to make sure your doctor is willing to make an exception for you and yours to be covered by her -- even if she takes no one else from that network.
  • Hug your company HR director and CEO, and hope they provide insurance coverage and a plan that allows you to keep your doctor. It isn't the ACA or Obamacare that changed this; it is your company or its insurance plan. Also hope that they'll include the academic center nearest you -- in case you or yours need complex care. And tell these folks how much your company's health insurance plan means to you and your productivity.
  • Get preventive care now. Do whatever you can to avoid toxins such as tobacco, secondhand smoke and the five food felons and learn to love physical activity and manage stress.
  • Take your do-over, and stay as well as you can for three to five years until this all shakes out.
Michael F. Roizen, MD, chairs the Wellness Institute at Cleveland Clinic, the first such position at any major health care institution, where he actively coaches patients. He is a former editor of six medical journals and has published more than 175 peer-reviewed scientific papers. Board-certified in internal medicine and anesthesiology, Roizen co-founded with Mehmet Oz YouBeauty, a media company focused on helping women lead healthier, more beautiful lives and RealAge. He is 67 calendar years of age but his RealAge is 48.7. His RealAge series of books as well as his "You" series, written with Oz, are worldwide bestsellers. Roizen and Oz write a daily syndicated column that appears in more than 130 newspapers. Roizen has appeared regularly on "Oprah," "Today," "20/20" and "Good Morning America" and has a two-hour, 33-station radio show. He routinely tweets the week's top medical stories @DrMikeRoizen.

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If you want something a bit more scholarly, Obamacare Exchanges Open: The New Law Explained in Seven Easy Steps uses President Obama's own words to explain several main points of the plan, answering questions about how it will affect health care costs, how it will impact small businesses, and the positive effect that it may have on family finances. And, for those who like bullet points, the White House has put together a list of their own.
Speeches and bullet points and detailed explanations are all well and good, but if you're one of those people who likes to get their weighty explanations with a spoonful of sugar, The Henry J. Kaiser Family Foundation's new video, "The Youtoons Get Ready for Obamacare" does a great job of explaining most of the ins and outs of the new law. It's hard to find a better ground-level understanding of how the new law will affect your life.
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