Economic Decline Killing Hospital Care
The economic decline is continuing to ravage the nation's hospitals, with half of them operating in the red and many planning service and staffing cuts, two new reports show.
Hospitals are ailing because of a number of problems hitting in close succession. First, hospitals' investment incomes plummeted -- like everybody's -- eliminating a cushion for operating budgets and curtailing capital spending.
Then, the mix of patients began to shift: Paying admissions declined as people put off elective procedures and insurers tightened their grip on the length of hospital stays they covered. And the number of patients without insurance or the means to pay their part of the bill began to rise.
These problems have been surfacing for several months. But new data show their breadth and depth. Indeed, an unprecedented 50% of the nation's hospitals appear to be losing money, according to an analysis of government and proprietary data that Thomson Reuters is set to release today.
When the slide began, returns on investment were the primary culprit, according to Thomson's analysis of data on a cross-section of hospitals. Total margins for every type of hospital -- public, private, for-profit and nonprofit -- declined in 2008, the analysis found.
Hospital operating margins -- the extent to which operating income exceeds expenses -- remained fairly consistent through the third quarter of 2008. But nonoperating margins, composed primarily of investment income, started to fall in late 2007, and the decline accelerated in mid-2008.
"This dragged down the median total margin to near zero and left approximately 50% of hospitals in the red," the analysis concluded. "When we compare these total margin statistics with historic data, we find that medians this low have not been observed before."
The 25% of hospitals in the worst shape posted margins below -7%, or 7% worse than the break-even point, while the top performers' margins exceeded 4.5%.
Even operators of the most robust hospitals are bracing for another difficult year as the effects of layoffs and employer cuts in health insurance benefits take hold.
"We will see our charity care numbers go up as a result of the current economic situation, and we'll also see our bad debt go up and people who are unable to pay their bills," said Deborah A. Proctor, the chief executive of St. Joseph Health System, based in Orange.
The nonprofit system -- which runs 14 hospitals in California, New Mexico and Texas -- ended its last fiscal year with a healthy 4.8% margin. That will be a tough mark to achieve this year because of the anticipated increase in uninsured and underinsured patients, Proctor said.
"It will hit all hospitals," she said. "Those who are already in negative revenues will probably see that get worse as things go along."
Forty-four percent of hospitals have seen declines in surgeries, with hip procedures showing the steepest drop-off at 45%, according to another new survey. As a result, 47% of the hospitals surveyed expect to make staff cuts, and 69% plan to cancel or delay equipment purchases, according to the survey by Novation, a company that manages supplier contracts for hospitals.
Novation has responded by demanding that vendors maintain or roll back prices on the goods they sell to hospitals.
"We know that the weakened economy has hit hospitals particularly hard, and they are being forced to make some tough decisions," said Novation President Jody Hatcher. "In November, we took a bold 'no increase' pricing stance."
Proctor said the St. Joseph hospitals may have to delay building projects and equipment purchases. But she said she did not anticipate layoffs or service cuts.
"We have to operate more effectively and more efficiently" to meet the needs of the growing ranks of uninsured and underinsured, she said. "However, it will not keep us from providing in those situations. That's our mission. It's always been our mission to serve the least among us."
The foundation arm of St. Joseph was set to make a down payment on a healthier future this year. It had long planned to roll out a $3-million, three-year attack on childhood obesity in Orange County through medical screenings, as well as nutrition and exercise programs in schools.
Proctor said the organization proceeded with the effort in spite of the economic downturn in the belief that it would eventually pay dividends for the community.
"We did not in any way back away from this program," she said. "This was a key commitment for us."
Universal Health Care?
Since President Obama has called for health care reform in this coming year and has selected Kansas Governor Kathleen Sebelius as Secretary of the Health and Human Services Department, the perennial debate about universal health care will soon be roaring fast and furious. What the opponents of universal health care apparently fail to appreciate is that the United States already has universal health care - emergency rooms.
In 1986, President Reagan signed the Emergency Medical Treatment and Active Labor Act into law, which requires virtually all hospitals to provide emergency care regardless of the patient's ability to pay, citizenship or immigration status. The Act imposes significant penalties on hospitals for noncompliance but provides no funding to finance emergency room care. This causes hospitals to increase the price of emergency room care so that it can recoup some of its costs from insured patients who access emergency room care. It also causes hospitals to increase the cost of non-emergency medical care provided to insured/paying patients.
While the Act was enacted for the noble purpose of insuring that poor patients received the same care that more wealthy and insured patients can receive, the emergency room system of universal health care has proven to be extremely costly. According to the National Coalition on Health Care (www.nchc.org), nearly 46 million Americans, or 18% of the population under age 65, lacked medical insurance in 2007. About 20% of the uninsured stated that their usual source of care is the emergency room compared to only 3% of those covered by insurance.
The US spends nearly $100 billion per year to provide health services to the uninsured, often for preventable diseases that could be treated more efficiently if diagnosed at an earlier stage. The uninsured are 30% to 50% more likely to be hospitalized for an avoidable condition, with the average cost being about $3,300. The National Coalition on Health Care also found that hospitals pay about $34 billion worth of uncompensated care per year; another $37 billion is paid by private and public payors for health services for the uninsured and $26 billion is paid out-of-pocket for those who lack coverage.
When the health care debate begins, Republican politicians will inevitably pontificate about the need to let the free market reign and the danger to our economic system of universal health care. While higher emergency room medical costs may not be the primary culprit of our runaway medical costs, it is time to remind them that we already have universal health care under a system enacted by a Republican president-the emergency room and the Federal mandate that emergency rooms provide all patients receive care regardless of ability to pay. Proponents of universal health care simply want to supplement it with a system that is less costly, more effective, and more humane.