Hospitals differ on possible impacts of Affordable Care Act

April 2, 2012
| By Pete Daly |
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While the U. S. Supreme Court deliberates this spring on the constitutionality of the two-year-old Patient Protection and Affordable Care Act, hospitals must proceed as though it is still on track for full implementation.

Some hospitals anticipate that the act as written could impact their costs and revenues, but that’s not unanimous among the three largest systems in Greater Grand Rapids.

With the law’s health care insurance exchanges not scheduled to come on line until 2014, hospitals don’t fully understand yet how reimbursement to them will work, “but most of us have surmised that it is likely the reimbursement that we get on certain patients will decline” from those levels today, said Steve Pirog, chief financial officer of Saint Mary’s Health Care.

Pirog added he believes any increased costs required to meet the terms of the law will definitely be “a lot less” than the anticipated reduction in revenues.

Phil McCorkle, CEO of Saint Mary’s, said, as an example, that if some businesses decide not to provide health insurance to employees under PPACA and opt to pay the $2,200 penalty per employee, those individuals would then be buying their insurance from an exchange. That reimbursement rate to hospitals, he said, might be at the same level as Medicaid and Medicare.

“That’s going to be a whole lot less than possibly what hospitals were getting,” said McCorkle. “So the negative impact on hospitals is going to be significant, and it’s going to be cumulative over many, many years.”

The smaller hospitals will suffer the most, he added, explaining that a level of reimbursement like Medicare/Medicaid “is not going to sustain them.”

Another challenging prospect is a predicted shift to less reimbursement from the insurance carrier and more from the individual patient in the form of larger co-pays.

“We’re not sure how much of the total payment will be assigned to the patient,” said Pirog. “We just know it will be greater, so we’re going to have to try to figure out how to collect a lot more money from a lot more people than simply billing an insurance company. And that’s a very large exposure.”

The act has already increased the number of people with insurance coverage across the U.S. “That’s great,” said McCorkle. “But how are we going to pay for it? And are we going to have deficit reduction? That might mean additional reimbursement cuts (for the hospitals).

“There are so many uncertainties about this,” said McCorkle. “It sounds good, but the implementation is — wow — a lot of uncertainty.”

Tim Susterich, chief financial officer at Metro Health, sees three major components to PPACA, if it is ultimately implemented in the form it was passed.

The first, he said, is an increase in administrative costs that are already being felt at Metro Health, which he said is now $3.8 million annually. That is the cost of new technology and personnel to collect and process the information that substantiates the organization’s quality efforts, which is required for payment.

Susterich said that under PPACA, the health care industry is “going away from the current reimbursement methodology (insurance), which is paying for what you do,” toward reimbursement based on “the outcomes, or the quality that you provide. We have to prepare for that, and in that preparation, we’re having to incur this cost today.”

The second component includes several changes or reductions in payments that Metro Health receives from Medicare, and Susterich said the predicted impact over the next 10 years is about $59 million at that hospital.

“We don’t have health care reform yet,” said Susterich, “(but) we have payment reform today.”

The third component, which the Supreme Court ruling coming in June may help clarify, is the issue of insurance for those who are uninsured today, he said. “That means a positive impact to us of about $32.5 million, if it is implemented as it is written today.”

Hospital care for the uninsured had been about 13 cents on the dollar, he said, but under the new program, as Metro Health now understands it, it will be at Medicaid rates, which are more like 35 to 40 cents on the dollar.

He said that $32.5 million net gain, offset against the $59 million cut in future Medicare reimbursement, could result in a possible future net loss to Metro Health of $26.5 million.

Steve Heacock, senior vice president of community affairs for the Spectrum Health system, said that organization is doing nothing specifically related to the act in preparation for the act’s survival at the Supreme Court or in the next administration.

“Our focus is on the patient,” he said, “so the question we’ve really had is: Are we prepared for what this act, or any other (act), or the economy in general might do to patients?”

“We are going to be ready for whatever comes. We don’t have a task force, we don’t have a special group where we’ve allocated budget dollars to do something different,” he added.

“From our perspective, the individual needs of people in the community aren’t going to change significantly,” said Heacock.

When asked if Spectrum has considered possible changes in reimbursement, Heacock said, “It’s hard to anticipate anything at this point” because of the challenges now leaving PPACA’s survival up in the air.

Reimbursement for hospital services changes daily, said Heacock. “People shift from one (insurance) plan to another. The marketplace has been moving toward more individual responsibility kind of on its own. So we’re very well prepared for whatever comes.”

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