Hospital Assn. president questions Medicare cuts

In proposing $9 billion of additional cuts in the Medicare budget, the Clinton administration offered reassurances that such reductions would not be felt by Medicare beneficiaries, and would lead to only “minor disruptions” of the health care system.

Such pronouncements may be politically comforting, but are far from accurate. In truth, a grim threat is presented by deeper cuts to hospitals and health systems. The industry is already struggling under $116 billion of Medicare cuts from the Balanced Budget Act of 1997 (BBA), even though two-thirds of those reductions are yet to take effect. In Rhode Island, that balancing act will cut over $220 million in Medicare payments to the state’s hospitals over five years.

The impact from Medicare cuts is especially severe in Rhode Island and poses real peril to hospitals, which in turn places community health services at risk. Rhode Island is particularly vulnerable to reductions for several reasons:

The number of Rhode Islanders over age 65 increased at ten times the national average between 1990 and 1997. Medicare covers 40 percent of patients in our state, and some hospitals (such as Roger Williams Medical Center) derive as much as 60 percent of patient revenue from Medicare.

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Hospitals in Rhode Island have little room to remove excess cost from their systems. Beginning in 1970, our hospitals participated in a prospective reimbursement system wherein rates were developed for the year ahead using negotiated budgets and an inflation component. The system achieved stability for Rhode Island’s health care economy, building in cost-control incentives for hospitals and allowing insurers to predict accurate expenses. Because of the system and the fiscal conservatism of hospital leaders, our facilities have been the most cost-effective in the nation with operating margins often at one percent or less.

In the lean 1980s, as nearly half of their patient revenue came to be earned through the Medicare Prospective Payment System (PPS), our state’s hospitals were forced to become even more efficient. When the new, intense financial pressures of the 1990s struck, Ocean State hospitals – already operating close to the bone – were particularly hard hit.

The negative forces are moving at a dangerous speed. Our hospitals recorded combined operating losses of $46 million last year, after registering a $19 million gain the previous year

”Minor disruptions?” The squeeze is already resulting in job losses. Today, over 1,000 fewer people are working in Rhode Island hospitals than there were just 18 months ago. At first, payrolls were trimmed by the relatively painless and invisible method of attrition. But lately – at Kent Hospital in Warwick, at Landmark Medical Center in Woonsocket, in the Lifespan hospitals in Providence – we have seen jobs eliminated and hard working professionals displaced. There are plans for further job reductions and more will doubtless be revealed this year. Are these the “minor disruptions” that were forecast?

Such job losses are a genuine concern in a state whose economy is heavily dependent upon health care employment. Hospitals in our state employ 23,000 people, and generate $3.28 billion in direct and indirect expenditures — $1 of every $7 of the state’s economic activity.

And entire hospitals do close. There are three fewer acute care hospitals in Rhode Island than a few years ago. In Massachusetts, more than 20 hospitals have closed their doors in the last 10 years.

In our state and across the nation, the result of hospital belt-tightening has been sobering. The result of further cuts will be jarring.

There are plenty of good reasons for balancing the federal budget. But what many do not fully realize is the danger in the route chosen. As national health policy expert John K. Inglehart writes in a recent

New England Journal of Medicine article, to balance the budget and extend the solvency of the hospital trust fund, Congress took 56.7 percent of the government-wide savings contained in the BBA from Medicare’s estimated future expenditures, although the programs represent only 12 percent of federal spending.

The question is no longer whether hospitals need to change or have the capacity to do so. Hospitals in Rhode Island have proven time and again that they recognize the need for constant change. Responding to the national movement away from in-hospital treatment and toward outpatient services, hospitals in our state have reduced capacity -in terms of beds – by an estimated 25 percent. Indeed, the 1997-98 Almanac of Hospital Financial and Operating Indicators (The Center for Health Care; Columbus, Ohio) has ranked Rhode Island’s hospitals first in occupancy for staffed beds (84 percent). At the same time, our hospitals have reconfigured themselves to accommodate dramatic upswings in outpatient care demanded by employers, insurers and patients. Indeed, many hospitals now receive the majority of their revenues from outpatient services.

Merely taking more dollars out of our current system will not do the job. The issue before us is whether we can absorb current cuts and meet marketplace demands, yet retain the uniqueness of Rhode Island’s health care: care that is community-based, compassionate, inclusive, and delivered with quality. To do so will require a change in the understanding of, and expectations for, our health care delivery system.

To rely solely on the ability of hospitals to absorb cut after cut is to flirt with disaster, because we are at the point now (if we haven’t already passed it) of seeing budget reductions take the form of reduced services and reduced availability of the services that remain. And that does imperil the health of Rhode Island’s elderly.

Edward J. Quinlan is president of the Hospital Association of Rhode Island

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