health care for ALL -- at what price?

F OR MOST, THE HEALTH-CARE problem has become too complicated to be understood, let alone be fixed. But reform has arrived, all 2,300 pages of the new Health Care Reform Bill.

According to a 2005 U.S. Census Bureau Study, there are nearly four million uninsured in Florida or about 20 percent of the population and about 200,000 uninsured in Southwest Florida. COURTESY PHOTO A tome like this does not make for light reading. Sure enough, plenty of lawyers, consultants and experts will be hired to read and translate it for their clients. In the meantime, most citizens, health-care businesses and providers don’t know what to make of the reform or know how to react. They are relying on news coverage. A factoid here or quote there does not make for comprehension, yet entrenched opinions seem to have formed.

Though critical, health care is an unwieldy problem due to its complexity and massive size. It was some 17.3 percent of the U.S. Gross Domestic Product last year. Tinker with one aspect of the health-care system and others are certainly impacted.

“Overall, this is just the beginning”

says Dr. Allen Weiss, president and CEO of NCH Healthcare System in Naples. The Reform Bill will spawn new federal regulations for the industry and these regulations will be enacted over several years with the biggest impacts in 2014 and 2015.

The Reform Bill starts “a process that will unfold over many years. We will have the opportunity to shape health care in our state,” said Bruce Rueben, president of the Florida Hospital Association and a state health care industry expert. The full health care plan will require federal involvement in insurance and Medicaid. the two areas have traditionally been dominated by the individual states.

Even though implementation of the entire bill is not immediate, insurers and hospitals, must — posthaste — begin to address major changes in their core business models. Other health-care providers that are farther down the health care “food chain” are waiting to see further definition of the plan and its rollout before taking action. Some perceive the handwriting on the wall: pricing pressure will ultimately be felt throughout the health-care system.

Some benefits of the plan are clear. The bill is a solution for those who were previously uninsurable due to preexisting conditions, which insurers can no longer decline and for which the cost of coverage is now capped. Those who were insurable but were not covered are required to buy coverage or come under the widening umbrella of Medicaid. People who were covered under Medicaid but were unable to receive primary care can now receive that care comparable in quality to what Medicare recipients get.

There are those who feel injured by the bill. Some citizens will pay higher taxes on unearned income. Businesses of 50 or more employees will be mandated to eventually offer coverage. Insurers will be forced to write actuarially unacceptable policies.

Seniors (and baby boomers about to turn senior) are frustrated that the real “elephant in the room” was ignored: the Medicare system that is set to go bankrupt by 2017 to 2019 and for which there appears to be no solution in sight.

Joining the ranks of the frustrated are the doctors who, as of April 1, are under a 21 percent decline in Medicare reimbursement fees. These low payback rates will persist without another “doc-fix” bill that exempts them from Medicare cost containment.

Political party perspectives dominate the health-care discussion and allegiance to a platform eases the personal responsibility to be informed and form an independent opinion.

Certainly those unimpressed by the federal government’s management of Social Security, Medicare, Medicaid, the IRS, the Postal Service, Fannie Mae and Freddie Mac, etc., feel that this reform will go the way of others — at best, programs never put on solid financial footing, and at worst, programs unmanageable with runaway deficits.

Sometimes the public response has been parochial. Dr. Weiss of NCH says that the three questions most often asked are: “What happens to me? What happens to NCH? Either the perception is that your local hospital is doing well or your local hospital is actually doing well but the large part of the industry is unduly stressed.

Impact of the uninsured

Some experts believe that certain aspects of the health-care system were unsustainable without reforms since the private sector was unable to address the problem of the uninsured. Even in Massachusetts, under Republican Gov. Mitt Romney, the need to solve the problem of the uninsured was deemed to be of greater urgency than the problems caused by state government involvement in the private sector.

According to a 2005 U.S. Census Bureau Study, there are nearly four million uninsured in Florida or about 20 percent of the population and about 200,000 uninsured in Southwest Florida. How is this breaking the hospital system?

When the uninsured needed emergency treatment, the hospitals did not decline and, in doing so, the hospitals generated large losses. By and large, the uninsured were treated charitably or were charged but were unable to pay (causing bad debt write-offs by the hospital).

But the hospitals also became providers of primary care, the type of care generally handled in doctors’ offices, for both the uninsured and Medicaid patients. The Medicaid patients in need of primary care could not find doctors willing to accept low Medicaid reimbursement rates, so they went to the hospital, which could not turn them away. The uninsured, who needed primary care offered the primary-care doctors no pay and they too were at the hospitals’ doors for routine medical treatment. As the hospitals were operationally created for acute care, they were not in a position to deliver cost effective primary care. Instead of being a “last resort” for primary care, the hospitals became the “only resort” for these groups of patients. In 2009, Lee Memorial Health System wrote off $134 million of bad debt related to patient failure to pay and $36 million of charitable care. NCH’s numbers were $49 million and $15 million, respectively. (These numbers are actual costs; they are not hospital charges, which are much higher.)

Medicaid patients are not a 100 percent write-off but they do generate losses. Nationally, the Medicaid allowed/reimbursed cost is 89 percent of actual cost (American Hospital Association 2008 Survey average). But in Florida, the Medicaid allowed/reimbursed amount ranges from 56 percent to 86 percent of actual cost, said Bruce Rueben of the FHA.

Because Medicaid is federally and state funded, reimbursement rates differ by state, by community and hospital. For example, Medicaid currently reimburses NCH at 57 percent of cost; in 2008, NCH’s unfunded Medicaid cost was $18 million. For Lee Memorial, the cost of unfunded Medicaid was $26 million.

Besides the Medicaid shortfall, the hospitals lost money on Medicare as they get reimbursed only 91 percent of actual cost (American Hospital Association 2008 Survey average). Hospitals claim that red ink from uninsured patients, Medicaid and Medicare make it difficult to turn a profit.

For the average hospital to just break even (other than through endowments and charitable gifts to the hospital), it has to shift cost to the only source that can pay above actual cost: the private pay patient. The bulk of private pay is employer-sponsored insurance. True, this group negotiates, but it does not mandate pricing to be under actual cost. In 2008, the national average for private pay (either employer plan or individual plan) was 125 percent of actual cost. Lee Memorial’s private pay rate is 160 percent of actual cost.

Hospital losses from government programs have traditionally been offset by employer insurance plans. Yet, employer sponsored health insurance has been on the decline, said Jim Nathan, president and CEO of Lee Memorial Health System.

“In the last two decades and significantly in the past five years, employer sponsored health insurance has become… the principal means to pay for the shortfalls from Medicare, Medicaid, uninsured and underinsured,” he said. “Thus, employer-sponsored health insurance is experiencing a serious decline. In our community alone, we have seen this decline occur at a very rapid pace. In 2007, 35 percent of our patients paid for the Medicare, Medicaid and uninsured shortfalls. In 2008, it was 30 percent and in 2009, it was 27 percent. This year it is less than 25 percent. This is not a sustainable model.”

By comparison, The American Hospital Association’s national average for private pay in 2008 was 36 percent compared to 30 percent for Lee Memorial. There is not much a hospital can do to change that allocation. Either the community has the employment base or it doesn’t. Southwest Florida once had a 3 percent unemployment rate in the boom years. Today, the rate is closer to 14 percent, creating a bigger drain on the system.

The Reform Bill

The Reform Bill’s solution may be unpalatable to some or perceived to be fatally flawed by others, but what does it attempt to fix?

First, it raises Medicaid reimbursement to the Medicare level for the doctors. For the first five years of the plan, the additional cost is borne by the federal government. Who pays after that is unclear. More importantly, there is no Medicaid increase for the hospitals. The bill is intended to move primary care, as much as possible, out of the hospital and back into doctors’ offices. The incentive to doctors is that they will be as well paid by Medicaid as they are under Medicare. The increase in cost to the federal government is expected to be offset by a decrease in primary care delivery by the hospitals. This shift is expected to allow better care for Medicaid patients and preventive or pre-emptive care for Medicaid patients (to keep them out of hospitals except for true emergency and hospitalization needs) and allow hospitals to deliver acute care services.

Second, the plan expands Medicaid’s umbrella to many who are currently uninsured and cannot afford coverage. Here too, the hospitals will benefit. Of the 32 million uninsured in the U.S., approximately four million are in Florida. About one million Floridians are expected to benefit from the expansion of Medicaid.

Third, the bill expands the pool of those insured under private pay by mandating coverage. This is expected to stabilize private pay rates if (and this is a big if) a large number of young, uninsured are added to the insured underwriting pool. The hospitals are helped if the “actuarially uninsurable” now have coverage. Bad debt for hospitals should drop. But insurers could be hurt. To offset this problem, insurers will pick up millions of healthy and young who are currently not buying coverage. They will benefit from the additional revenue from a highly desired underwriting pool.

These three core changes are accompanied by many other reforms. Given that the Massachusetts’ health care bill was only 70 pages, it is safe to say that this 2,400-page bill is replete with hooks, carve outs and thorns.

After reform, what happens?

Are the hospitals clearly in the black after all these reforms?

There are about 11 million illegal immigrants living in the U.S. and 65 percent or seven million make little money and uninsured. (In 2008 the Center for Immigration Studies estimated illegal immigrant population in the U.S. to be 11 million people, down from 12.5 million people in 2007.) As it stands, uninsured illegal immigrants mostly go to health clinics and hospitals for care. As such, any change in immigration laws allowing amnesty could bring this large portion of the population under Medicaid coverage and generate mega-sized federal deficits. ($30 billion annually is a guesstimate.) Florida has approximately one million illegal immigrants and if the national average of 65 percent applies, Florida has another 650,000 uninsured who will most likely continue to use the health clinics and hospitals for their medical care at no charge.

Florida also has a greater percentage of seniors and Medicare patients than the national average. Medicare, at current levels, generates a shortfall for hospitals. The payment formulas do not diminish the hospitals’ need to reduce cost. Even before reform, Lee Memorial had created an entire department of experts to standardize processes and eliminate waste.

“The hospital’s success or failure will depend on its ability to thrive under new payment formulas,” Mr. Rueben said.

Loopholes exposed

“Certainly there will be some unintended consequences and they will have to be addressed,” Mr. Rueben said.

A younger insurance pool is expected to maintain or lower insurance rates, but this might not happen.

There is a penalty of only $695 annually for failing to buy insurance. (Actu- ally, the penalty will, in later years, be $695 or 2.5 percent of income, whichever is higher.) It is hard to figure the incentive to pay $2,500 or more in insurance premiums if you have no assets and medium income. The choice might be made to pay the annual penalty, go to the hospital if care is needed and claim inability to pay hospital bills. As such, the hospital is still looking at some bad debt. For some, it may be the most attractive financial solution even though in direct contravention of the bill’s intent. Massachusetts considered insurance enrollment key and succeeded in getting 98 percent of residents under insurance coverage.

Some individuals who currently have employer-sponsored insurance might meet the threshold/qualifications under the expanded Medicaid umbrella and choose to drop their employer plan. Because Medicaid comes at no cost (no employee contribution and no deductibles), some employer plans might be less attractive than the new Medicaid option. Hospitals do not want to see their employer base cannibalized. This is also at odds with the reform bill.

There might be a rush to primary care providers by those newly covered and by those covered under Medicaid. Medical conditions that were never addressed will now get attention as they will get government payment.

Another concern is that there won’t be enough doctors to provide expanded health care. It is estimated that the number of doctors entering family medicine and internal medicine has declined by half in the last 10 years. That spells shortage.

“No one knows the real (shortage) number,” said Dr. Weiss of NCH. He added that that the number of mid-level providers, clinical medical professionals who provide patient care under the supervision of a physician such as nurse practitioners and physician assistants, may have to double to provide the needed care in Southwest Florida.

Doctors and other health care providers

For the doctors, the Reform Bill leaves many problems unresolved.

Southwest Florida’s doctors, like others who accept Medicare, face a 21 percent decline in Medicare allowed fees for services as of April 1. Since 1998, the federally approved fee schedule for some 8,000 medical services has been tied to general inflation… except it really hasn’t.

In the 1990s, Congress passed a law cutting Medicare payments to doctors. The cuts ended up being larger than first understood, so in 2003, Congress overrode them. In the years since, Congresses continued to override them with its “doc fix” bills.

The American Medical Association supports the bill prefers a permanent solution to Medicare reimbursement as opposed to perennial “doc fixes.” They want to participate in figuring the bill’s cost-quality indexes. they also want to address problems they say exist with the advisory board that is intended to curb Medicare costs.

But making the “doc fix” permanent adds to Medicare’s woes. As long as the fix is temporary, the long-term Medicare forecast doesn’t have to include the very real cost of continual increases to Medicare. Most think that this time it was too close to the timing of passing the health care bill. No one wanted to look at the cost of the “doc fix,” estimated to be greater than $200 billion, while the reform debate raged.

What would happen to health care in Southwest Florida if there were no “doc fix” or it was delayed in being fixed? As has happened in other communities, medical providers might not want to take Medicare patients. Some doctors argue it could be the proverbial straw that breaks their back. Planning a large medical practice for equipment, staffing and financing around short-term political solutions is a tough undertaking. In the process of fulfilling their Hippocratic oath, the doctors still need to run a practice on sound business principles.

So, beyond the hospitals and the doctors, what other businesses in Southwest Florida will be impacted? Locally, there are a number of medical device manufacturers. One such is Structural Medical, a contract manufacturer of medical implants for the spine and extremities. CEO Lenny Kaiser describes the device market as $170 billion in size, of which $30 billion is outsourced to contract firms such as Structure Medical.

“None of us in the medical device manufacturing market have a good handle on how it will change our business — good or bad,” he said. But it could be a net positive for him. Pressures to reduce costs will be felt all the way down the supply chain and Structural Medical just opened a new 30,000-square-foot facility in Naples with state-of-the-art equipment. This company’s strategic plan is to position itself as a lowest cost, highest quality device manufacturer.

Health-care consultants and actuaries will get a lot of business. Insurance brokers are still selling the same policies, but now they are waiting for some 16 million more to seek coverage (in Florida up to 2.8 million), and they are waiting for new policy plans and premiums.

The behaviors and groups of insured will radically change. Actuaries will have had little insurance claim experience with these groups. For those policies that make no actuarial sense (the very sick who have not been able to get coverage), the insurance companies will have to figure a way to offset these costs — either through more sales to youth or higher premiums to the existing policy base. As happened in Massachusetts, the introduction of a large base of uninsured actually lowered rates to the insured. However, there, unlike in Florida, the new policyholders were sufficiently young to offset other costs.

As there is economic incentive for a small business to remain small (under 50 employees), accountants and lawyers may be figuring ways to slice and dice businesses to be under that threshold requiring insurance for employees.

Higher unemployment levels in Florida and the very nature of Florida’s demographics will make the reforms an even greater challenge. Excellent health care is an important issue in any community and certainly for existing and prospective senior residents. 