Forward Thinking - Healthcare Financial Management

This article is very relevant to your strategic planning efforts:

"An old rule of thumb is that a hospital needs (requires) 150 percent of depreciation in cash to maintain the physical plant and equipment, replace old technology and acquire new technology. Less than one in five hospitals met this standard in the most recently recorded fiscal year. More concerning, it is estimated that less than one percent of American hospitals broke even on the Medicare program last year.

Despite all of the political bickering in Washington, D.C. there is uncanny bi-partisan consensus to reduce federal support for the Medicaid and Medicare Programs for U.S. hospitals. Why? Two reasons; hospitals have minimal political support and the cost of healthcare has to be moderated. It is breathtaking to take in the political clout of the pharmaceutical industry. Medicare Part D was rammed through the George W. Bush Administration with no offsets and with extraordinary ease. American hospitals have not seen anything on this level since the passage of Medicare itself in 1965. With unlimited political contributions permitted by U.S. corporations to political campaigns and the extraordinary restrictions for political contributions from the hospital sector, we are simply outgunned in the political arena.

Medicare and Medicaid have to be tamed, and they will. The financial cost of Medicare and Medicaid are growing at a rate beyond the rate of growth of the U.S. economy and has been for decades. The natural conclusion of this growth is that our children and grandchildren will not have to worry about the cost of a gallon of gas. They will not own a car, house, clothes, food or anything else. The only thing that will be in the U.S. economy will be healthcare. Obviously, this will not be permitted. The cost of healthcare will be cut with an axe and with surgical precision. It will not be fair - it has to be done.

For those of you feeling warm and comforted by the Affordable Care Act (Obama Care), it is scheduled to remove $550B over the next ten years in federal support for the Medicaid and Medicare Programs. Of course, it is possible the U. S. Supreme Court will invalidate Obama Care in the June deliberations of the high court. Alternatively, if Governor Romney (R) is elected in November, he is committed to repeal Obama Care.

There are or have been other attacks on Medicaid and Medicare funding. Many state houses have already dramatically reduced Medicaid funding and hundreds of hospitals are reeling in an effort to balance their budgets as a consequence. And then there are the speculative proposals to whack away at the Medicare Program. When the congressional Super Committee was debating ways and means to reduce the federal budget late in 2011, the Obama Administration offered an additional $320B in Medicare cuts, over the next ten years, to move the process along. When the committee efforts failed, pre-agreed cuts hit many federal departments. Scheduled for January 1, 2013, under Medicare Sequestration, is a two-percent across the board cut to all Medicare payments to all Medicare providers. While the total is unknown, this is a serious blow to those communities with a heavy Medicare patient care load.

To illustrate that these cuts are by no means partisan, the point person for Republican federal fiscal policy is Wisconsin Representative Ryan (R) who just led the passage of a budget through the U.S. House of Representatives that includes $5.3T in budget cuts over the next ten years. The Ryan Plan provides some definition to the so-called “Medicare Voucher Option.” With respect to Medicare, the program would be privatized. Future beneficiaries will choose from a menu of private options and will not have the choice of the standard Medicare plan. Wealthier beneficiaries will get a small voucher and poorer beneficiaries will get a larger voucher. Vouchers grow at GDP+1%, whether or not Medicare does the same. The implications of this proposal are far reaching.

Under the Voucher Program, hospitals will be obligated to pursue payment from patients after the financial benefits of their “voucher” expire. This will call into question the tax-exempt status of U.S. hospitals. Where is the charity care?

With all of the political volatility in Washington, D.C., it is most likely that none of these cuts, as defined, will ever see the signature of a U.S. President on a piece of federal legislation. The people I trust are the leadership of the Healthcare Financial Management Association and they predict an eight to twelve percent cut in Federal support to the Medicaid and Medicare programs over the next five years. This will close hundreds of marginal U.S. hospitals and cripple essential community providers all over the United States. It is also predicted that 30 percent of U.S. hospitals will close over the next eight years."

Best,

Don Lyons