Community Hospital Update May 2013
Legislation Filed to Support Community Hospitals
The 2013-14 legislative session began in January 2013. MCCH submitted legislation consistent with removing serious inequities in the current funding of the Safety Net Trust Fund, adjusting the Determination of Need program that affects the ability of community hospitals to compete, and changing the approval process for new insurance product development as it relates to select networks and consumer-driven healthcare. (see legislation)
Research Paints A Clear Picture
Earlier research by MCCH (Moscovitch 1999,2005,2010) noted the lack of profitability of Massachusetts community hospitals compared to national norms, the high relative cost of secondary care performed in teaching hospitals in Massachusetts, and the disproportionate number of patients seen in a teaching setting (>45% of acute hospital admissions vs. 20% nationwide). The reports hypothesized that this high use of high-cost teaching hospitals for care that could be delivered at equal or better quality at a community hospital contributed to the lower profitability of community hospitals. Low profits have contributed to weak balance sheets for many community hospitals. A weak asset base makes hospitals vulnerable to merger and acquisition.
Starting in 2010, the Attorney General began an investigation of price disparities in acute hospital settings. The AG concluded that price variation between providers was very high. Price variation was not correlated to quality. The ability to extract higher prices from private insurers was a function of market leverage of certain providers. (see Attorney General’s report)
The Division of Health Care Finance and Policy (now the Center for Health Information and Analysis) continued the study of provider profitability, price variation in the commercial market and quality. They have created a rich body of work focused on better understanding the construct and performance of the healthcare financing and delivery system. However, there has been little investment in understanding the implications of underfunding within the Medicare and Medicaid programs and the need for cross subsidization in pricing. Underfunding the cost of care for government beneficiaries is one additional reason for the weakness in many community hospitals’ asset base.
Community Hospital Disadvantaged
The takeaway from many of these studies is that the community hospital sector has been extremely disadvantaged in the competition for financial resources despite being a high-value service. The community hospital sector is highly leveraged, suggesting great weakness in access to future capital. The Moral Obligation Bond Program for Community Hospitals and Community Health Centers (passed in 2010) has yet to be implemented. Community hospitals require capital sufficient to meet rising Health Information Technology needs, to compete for primary care physicians, financial reserves to assume greater financial risk as a result of new payment schemes, and capital to upgrade facilities to meet consumer expectations.
Legislative and Reimbursement Challenges
The implementation of Chapter 58 (2007) and Chapter 224 (2012) present additional challenges to the overall viability of the community hospital system and its future ability to optimally care for the communities it serves. Expected cuts in federal payments due to the Tax Relief Act, a pending 2012 initiative in the House to change the wage index, and the pending outcome of sequestration that would further reduce Medicare reimbursement, are causes of great concern. Funds set aside (enabled in chapter 224) to help community hospitals (currently $128M) undergo a transition and correct earlier misallocations of resources will be woefully insufficient to meet future needs of the many hospitals that will need such assistance.
Many community hospitals will continually have to challenge their own ability to remain independent as a result of insufficient capital as well as the lack of market leverage with insurers, which, while revealed as a major issue by the Attorney General, was never cured in legislation.
In 2012 and 2013, several community hospitals opted to join larger organizations. It is expected that this option will continue to be considered over the next several years as the most viable alternative available to a community hospital. However, it remains uncertain that this consolidation will ultimately lead to a lower cost model of care delivery.
See attached list of issues for community hospitals in 2013.