Clinton Plan Seen as ‘Scary’ for Hospitals

Anthony M. Lombardi cringes when he thinks about how President Clinton’s plan for health care reform is likely to alter the economic landscape in which he operates a profitable, well-regarded community hospital.

“It’s scary--no doubt about it,” said Lombardi, president and chief executive of Monongahela Valley Hospital in this western Pennsylvania town.

If Clinton remains true to his word, the Administration’s new health care plan is likely to significantly alter the reimbursement system, further limiting the fees that hospitals receive from the government for treating the poor under Medicaid and the elderly under Medicare. Even now, the reimbursements do not cover the costs of either program.

Furthermore, the Administration is likely to limit the ability of hospitals to shift costs to private patients and insurers as a means of making up any shortfall in government payments.

These and other potential changes in the health care system are causing anxiety among the nation’s hospital administrators, who are questioning how Clinton’s plan will affect their balance sheets. In fact, many hospitals already are hedging against reforms by trimming costs now.

At Monongahela Valley Hospital, a 300-bed facility that has never operated in the red, Lombardi recently imposed a hiring freeze and began searching for other ways to economize. “We are fairly typical in that regard,” he said. “You see a lot of retrenching going on in a lot of hospitals right now.”

Although nearly every American will be affected by the changes being proposed for the health care system, hospitals are likely to experience the most turmoil because they lie at the heart of the nation’s health-delivery system. Virtually every aspect of their business could be altered, in one way or another, by the plan Clinton has promised to unveil next month.

But despite the dramatic changes that loom for their institutions, hospital administrators like Lombardi are by no means opposed to reform. Perhaps more than any other group involved in health care, they recognize the need for change.

When America’s 35 million uninsured people get sick, the first place to which most of them turn for care is the hospital emergency room. In 1991, hospitals were left with an estimated $10.8 billion in unpaid bills from uninsured patients--up from $3.5 billion in 1981, according to a study by Lewin/ICF, a private Washington consulting firm. Similarly, hospitals lost $4.37 billion in the same year in uncompensated care for Medicare patients.

To provide care for the uninsured and to make up for the shortfall in Medicare and Medicaid payments, hospitals have raised prices drastically for privately insured patients--often causing an uproar in their communities.

As a result, hospitals keenly feel the need for a new system that will contain costs and provide coverage for all Americans.

To be sure, the hospitals themselves share some responsibility for creating the problems that exist. By competing for the most profitable business over the last decade, hospitals often have expected the public to finance their investments in high-tech equipment that their communities did not always need.

In an effort to help find a solution to the problem, the American Hospital Assn. has developed a full-blown reform proposal that calls for health coverage of all workers through employer-provided insurance, full funding of government health care programs and a system in which care would be provided by doctors and hospitals linked together in so-called “community care networks.”

These ideas are not necessarily incompatible with the reform proposal being drafted at the White House. But there are a number of ideas that the President’s health care advisers are known to be considering that would be hard for the hospitals to accept, including further cuts in Medicare and Medicaid payments, a freeze on health care prices, a tax on hospitals and a long-term phase-in period for insuring the uninsured.

Hospital administrators say they believe that they have every reason to be suspicious of new government health care programs. Many times in the past, the government has established elaborate new health care programs, imposing new standards on hospitals and then gradually cutting funding for these programs.

“No health care provider can trust the government,” Lombardi said. “They have broken every promise they ever made to us. They created Medicare and promised to fund it. They broke their promise. They created Medicaid and promised to pay for it. They came up with prospective payment (reimbursement under Medicare), and they broke that promise too.”

Hospital officials say the federal government’s revised Medicare reimbursement schedule put hospitals in fierce economic competition with each other during the 1980s. Instead of reimbursing for all services on a dollar-for-dollar basis, the revised system offered higher returns for more complex procedures. Ultimately, the system encouraged the purchase of high-tech equipment and competition to attract patients who needed it.

Competition also led to a dramatic transformation in the administration of many hospitals, which began to view themselves more as big corporations than as care-giving institutions. Like Lombardi, most hospital administrators started to call themselves “CEOs,” and some even moved their corporate offices out of the hospitals.

In addition, health care experts like Kathy Hurwit, legislative director of Citizen Action, a consumer-oriented advocacy group, say the profit-hungry hospitals were often guilty of unnecessary markups and investing money in lucrative gift shops and parking lots instead of in patient care.

The expansion in hospital services in the 1980s was particularly evident in western Pennsylvania, where an emphasis on organ transplants and other high-tech specialties at hospitals in Pittsburgh helped bolster the local economy, compensating for the demise of steel and manufacturing plants.

In 1985, in keeping with this trend, Lombardi established a cancer treatment center that brought new business to Monongahela Valley Hospital. He noted that his hospital is now the community’s fourth-largest employer.

But the cost of maintaining high-tech hospitals--combined with the rising costs of treating the uninsured and the government’s failure to fully fund the cost of caring for Medicare and Medicaid patients--also put many at risk.

In this region today, according to Jack C. Robinette, president of the Hospital Council of Western Pennsylvania, a third of all hospitals are operating in the red. Of the 12 largest hospitals in western Pennsylvania, only two reported making a profit in patient services last year.

Even at Monongahela Valley Hospital, a relatively small facility that has resisted the impulse to acquire all the latest high-tech equipment, the profit margin has been slowly diminishing in recent years. Investment income fell 50% last year, and profits on patient services were down 26%.

“The ability to make a profit is getting harder and harder,” Lombardi said.

“When you stop to think that Medicaid pays about 80 to 82 cents on the dollar and Medicare pays about 90 cents on the dollar, and you stop and think that accounts for about 66% of our business, it’s very, very hard to make a bottom line. . . .

“Where in America can you go today where if you want to buy a can of Coke that costs a dollar and you give me 82 cents, I will turn around and write off the other 18 cents?” he asked.

Not all hospitals are suffering financially, of course. “In many instances,” Hurwit said, “we have not even begun to scratch the surface of hospitals that are milking the system.”

To save money, some hospitals are eliminating the more expensive services used by Medicare, Medicaid and uninsured patients, including trauma care. At Monongahela Valley Hospital, for example, Lombardi has gradually reduced the number of obstetric beds from 34 to 10 because most of the women who come to his hospital to deliver their babies are on Medicaid.

This year, the economic outlook for hospitals is even bleaker here because of a likely multimillion-dollar shortfall in Pennsylvania’s Medicaid fund and because of the uncertainty caused by news reports that the President’s plan may further limit the profitability of hospitals. Lombardi contends that many hospitals in his area have started laying off workers.

The biggest concern of officials at hospitals that treat large numbers of Medicare and Medicaid patients is that the Administration has decided it must find more “savings” in the funding of those two programs.

Even if the Medicaid program is ultimately converted into a private insurance program for all low-income Americans, as some expect, hospital officials fear that it will not be funded adequately.

Together these programs will account for 16 cents of every federal dollar spent next year--10 cents for Medicare, 6 cents for Medicaid.

“If the government says: ‘We’re going to save $20 billion next year,’ that is really not $20 billion being saved,” Robinette said. “It means they want the private sector to pick up that $20 billion.”

True reform cannot be attained, Lombardi said, unless the President’s plan ends the system that forces private patients and insurers to pay the uncompensated costs of treating Medicare and Medicaid patients. “Economic discipline cannot occur unless you eliminate the cost-shifting,” he said.

Even now, cost-shifting is becoming more difficult because a growing number of privately insured patients have joined managed care plans, which rigorously resist price increases. Clinton’s plan is expected to encourage the movement toward managed care and possibly freeze prices paid for health care.

If Clinton decides to trim Medicare and Medicaid payments without also strictly rationing the care available to these patients, hospital officials warn, many hospitals would instantly be in financial trouble--especially if they no longer could pass the unpaid bills on to private payers.

Lombardi advocates more rationing of care for the elderly under Medicare.

“We have to talk about rationing and who gets what,” he said. “This is a terrible thing to say, and I’m not for euthanasia, but should an 82-year-old man get the next heart transplant that comes down, or should it go to the 43-year-old woman with kids at home who need motherly care?”

Like the AHA, Lombardi said he wants Clinton to define a limited package of basic health care benefits to be fully funded by employers and the government. But he said he fears that the basic package will be too generous. As he put it: “They want to give the world an ice cream sundae with whipped cream and a cherry on top.”

If all private patients are insured under Clinton’s health care reform plan--as the President has promised--that would help to eliminate the unpaid costs that hospitals pass along to private payers. But hospital industry officials said they fear that the Administration intends to control costs immediately while slowly phasing in universal coverage.

“That would be the worst-case scenario,” Lombardi said.

Furthermore, hospitals have reason to fear that Clinton will adopt a proposal advocated by some of his advisers to impose a tax on hospitals to recover the savings that they would enjoy as a result of insuring everyone. Needless to say, the industry does not favor that idea.

On the plus side for hospitals, however, the Administration seems to be looking favorably on a number of proposals that they would welcome, including plans to streamline health care administrative procedures, to exempt hospitals from some antitrust regulations as a way to promote community collaboration and to limit financial awards in malpractice cases.

In Washington, AHA officials insist that it is too soon to judge how hospitals will fare under the President’s plan, which has not yet become final. “Right now,” said an AHA lobbyist, “you have to reserve judgment.”

But Lombardi admits to being apprehensive.

He said he fears that Clinton’s plan will be flawed because Administration officials are rushing to unveil it by early next month. As he put it: “John Q. Public would be just as happy knowing they were taking their time and doing it right.”