Welcome to “Health Care Reform” at our community level.
Recently announced changes in how KershawHealth will be doing business in the future stems from the perfect storm of a depressed state economy, proposed federal Medicare payment rules, and a disconnected community/government to local health care resources.
The State of South Carolina cannot afford the Medicaid budget so they’ve cut it. If KershawHealth has annual net patient revenue of $100 million and suffers a $2.2 million revenue cut by Medicaid, the effect on the hospital’s margin will be greater than 2.2 percent.
“Value based purchasing” proposals by Medicare conforming to the Patient Protection and Affordable Care Act can result in up to 6 percent cuts in future Medicare payments by fiscal year 2017 if hospitals fail to meet increasingly complex, and graded, measurements in quality, safety, and service standards. To avoid these Medicare cuts, hospitals must increase administrative costs to not only provide increasing mounds of data to Medicare but to work to keep standards progressively higher, spending more to make less, resulting in still lower margins for hospitals.
On rough average, Medicare accounts for 40 to 50 percent and Medicaid 10 to 15 percent of patient volumes. Furthermore, Medicare and Medicaid rarely create much, if any profit, for hospitals. Health care has not been in a “free market” environment for years with Medicare and Medicaid. Market-based approaches to health care, especially hamstrung by mandated low Medicare and Medicaid payments, do not ensure equitable distribution of health care services. Medicare and Medicaid cuts in reimbursement are therefore life threatening to health care providers and community accessible health care services in small communities such as ours.
What kind of margins do hospitals make in South Carolina? Roughly 1/3 of hospitals in our state are operating at a deficit. Another 1/3 run on a 0 to 2 percent margin. The remaining third are considered to be “doing well” and if a hospital can maintain a 6 percent margin, they are considered to be doing “GREAT.” Are you a local business owner? Would you be interested in a business that does “well” with a 3 percent margin? Up until recently, a CD’s interest rate could do better than these margins!
While this has been going on, our community is blissfully unaware of the financial crisis that has been evolving for the last decade in our local “health care.” And no doubt the same community will decry the public’s loss of the Health Resource Center as a cardinal event. Unfortunately, it’s only the tip of the iceberg.
Continued political, social, and especially financial pressures will further push evolutionary changes in health care. And will have profound effects on our community in the process. The most chilling comment in the recent article was probably missed by most casual readers. Donnie Weeks, KershawHealth’s president and CEO, is quoted as stating “(The hospital) had to look at services that are provided by KershawHealth that aren’t core health care services and eliminate those first.” It begs the question who will define “core health care services?”
In a recent article from the Journal of the American Medical Association a study found from 1990 to 2007 that 33 percent of urban acute-care hospitals shut down their emergency departments primarily because of “low profit margins.” While this “urban” study may not be immediately applicable locally, it is pertinent to see how health care providers react to lowered margins in health care profitability. If state and federal governments are putting the squeeze on health care, facilities offering “core health care services” are compelled to look at profitability issues. More simply, something’s got to give.
Imagine if you ran a grocery store and were mandated by law to serve meals from the deli to anyone who showed up, regardless of ability or more pointedly, intent to pay. You discover you are losing your grocery business because of the increasing traffic to the deli. Your customers are, quite literarily, eating your lunch! What would you do? Close the deli and focus on your “core business” of selling groceries?
Many hospitals, ours included I suspect, eagerly positioned themselves to create ACOs, (Accountable Care Organizations), as a panacea for ensuring future profitability. Hospitals were stunned to learn the capital costs and the entry requirements released last month were so high that rather than the anticipated thousands of ACOs expected to be developed will in realty perhaps be 75 to 150 nationally. I applaud KershawHealth administration for quick action when it became apparent a self-directed ACO simply wasn’t feasible locally and it’s equally apparent they were already prepared for contingency plans, when the ACO regulations were finally released. Maintaining the status quo when the health care ecosystem is anything but status quo is a formula for extinction.
Whether or not our local community is ever involved with a regional ACO formation, the hundreds of pages of federal guidelines and rules concerning ACOs are instructive to learn the future trend of “health care reform.” It’s about doctors and hospitals working together constructively, cooperatively, and for mutual benefit and support. But the ACO rules demonstrated “health care reform” is not just about the health care industry, it’s about community. An involved community that is sensitive and understanding to the needs of local health care providers as much as the community expects local health care providers to be sensitive to patient needs.
County funding of KershawHealth is a drop in the bucket. Even if county funding was doubled, it wouldn’t even put a dent in the distress caused by the $2.2 million Medicaid shortfall. But it is essential for the community to become involved by paying closer attention to the politics and finances of “health care reform” beyond the 10-second emotionally charged sound bites and force elected representatives to work with local health care business executives representing myriad of health care workers to find mutually beneficial solutions that don’t force hospitals and other businesses of health care to simply do what they have to do to maintain fiscal solvency. While the federal government can run a deficit budget, hospitals who persistently sustain less than a 0 percent margin simply close. Hospitals and other health care providers are engaged in a life and death struggle to continue to provide their communities quality care access.
Can you imagine our community without the public venue of the Health Resource Center? Without an emergency room? Without a hospital? There is an ongoing crisis called “health care reform” that will create change. Some desired change but some unwanted change. Participate in the discussion and demand higher solutions that honor truths from all sides. You never appreciate something till it’s gone, but once it’s gone, it’s gone.
(M. Tray Dunaway, MD, FACS, CSP practiced surgery for 17 years in Camden before leaving his practice in 2001 to start a physician education business and is an award-winning keynote speaker on “business of health care” topics to help health care providers “take care of patients, and each other, better.”)