The Certainty of Uncertainty
The Certainty of Uncertainty

Michael Cates
Hospitals forced to prepare for changes that haven’t yet arrived

If 2012 came with its fair share of political and economic uncertainty for hospital systems, 2013 is starting out under an even grayer cloud.

Between the 12th-hour fix of the SGR formula, the looming threat, once again, of sequestration, and preparation for the effects of the Affordable Care Act set to take place in 2014, hospitals find themselves planning their finances in a perfect storm of uncertainty.

“One of the reasons I got into this field is because it’s so dynamic,” said Jason Little, executive vice president and COO of Baptist Memorial Health Care. “Healthcare is ever-changing, but clearly we’re in a time right now when we’re seeing more change in the economics and the political impact than I think we have in the last 15 years.” 

For Memphis’ largest two hospital systems, that means planning for the worst and hoping to be pleasantly surprised.

The year started off with Congress passing a one-year patch to the SGR formula, which ensures that growth in Medicare expenditures per beneficiary do not exceed growth in GDP.

For the last 12 years, Congress has patched the formula for one year or less, but with Congress deadlocked over issues like the nation’s debt ceiling, the fiscal cliff and taxes, many wondered whether the SGR formula fix would also fail to pass on time.

It made it, offering relief to hospitals, but many wish for a longer-term fix.

“It doesn’t feel any different (this year) other than it’s not the ultimate answer,” said Chris McLean, CFO of Methodist Le Bonheur Healthcare. “It’s been year-to-year since as far back as a couple years after it was implemented. Some years they did it six months at a time.

“(A long-term fix) would remove one level of uncertainty. I think we’ve all built in the assumption that nobody’s going to put in a 20 percent cut, that there will be fixes. The concern we have is that eventually they’re going to have to restructure other cuts in order to pay for this.”

Sequestration was also narrowly avoided in the fiscal cliff early this year by a patch, though only for a few months. But this time hospitals are already planning the cuts into their budgets whether they come from sequestration or not.

“There is a 2 percent decrease in Medicare reimbursement in the sequestration discussions, but we avoided the 26 percent, so that’s good,” said Michael Cates, executive vice president of the Memphis Medical Society. “I think the hospitals are looking at whether the governor decides to do the Medicaid expansion or not.”

Tennessee Governor Bill Haslam has not yet said whether Tennessee will accept federal money to expand the state’s Medicaid program to cover the uninsured or set up its own system of insurance collectives to offer programs for the poor.

“When we run our numbers to the impact of healthcare reform in general, we are still leaving the effects of sequestration in our overall model so we understand how we need to brace for it,” Little said. “We’re waiting to see.

“Just like there are aspects of the fiscal cliff that impacted hospitals, we were preparing for those and then it was a nice thing when the fiscal cliff was addressed and we were

able to count on some of those programs that we’ve been counting on for years to stay in place.”

McLean went even further, saying that if sequestration is not the issue, there will be some other issue involving cuts to Medicare that will have to be addressed. Planning for cuts of some sort is more practical in the long run.

“The overall belief in society is that we’ve got to bring down the rate of growth in healthcare cost,” McLean said. “There are going to be years when reimbursement is going to be cut more than we think, and there’s going to be years when reimbursement goes up a little more than we think, but let’s still try to deliver what we call value.

“Healthcare is 18 percent of GDP and it can’t go to 25 percent, so we’ve got to rein in the rate of growth. We think change is inevitable; the rate of change is what is uncertain.”

Cates said the Tennessee Medical Association did a survey of physicians over the issue of accepting federal money to expand Medicaid and the results were almost even between those who favored and opposed the measure.

“We are definitely in favor of the states of Tennessee, Arkansas and Mississippi expanding Medicaid to provide that coverage,” McLean said. “And we’re working with insurance companies right now to be a proactive participant provider on the exchanges.”

Hospitals are optimistic about some of the effects of the Affordable Care Act, beginning in 2014, particularly a large decrease in the number of uninsured patients whose care is eventually written off.

“We believe it is a good thing because right now the uninsured are still getting care and they’re getting it in the highest cost setting, which is the emergency room, and later in the stage of their disease, which is higher cost,” McLean said.

“We do also understand that payment for individuals who were paying us nothing will be positive to us, but it’s also good for the system because we’ve been cost-shifting that unpaid cost onto employers, and this allows us to stop doing that.”

Still, Little said, any positive effects on the Affordable Care Act will not be enough to maintain the status quo in hospital finance. It’s just one more sign that everything will continue to change.

“It’s less about trying to adjust to a moving target and more about trying to fulfill our mission in a changing culture,” Little said.

“When you look at our numbers in terms of the Affordable Care Act with sequestration in there, it’s about $690 million in cuts to our system over 10 years. We have a responsibility to our patients to provide the same service that they’ve come to expect. We’re being asked to evolve.”

 

 

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