Hospitals face transitional year in `99

The year 1999 lies before us as twilight to the close of an amazing century of achievements in science and technology, not the least of which has been witnessed throughout the health care industry.

The upcoming year marks the eve of a new millennium, one whose bright light of hope and anticipation beckons the public -- patients especially -- with its promise of even greater accomplishments and dreams fulfilled.

This time is analogous to what we experience in traveling toward the opening of a long tunnel. We are drawn to this new light and become fixated on its rapidly approaching brightness, assuming it yields satisfaction and relief from those dark corners of the road presently traveled. As it draws nearer, it becomes even easier to look beyond the light to new opportunities, greater successes that await our right of passage. Yet to the average hospital, 1999 is a transitional year, portending a strange illusionary effect that will surely hold much more risk than promise. In point of fact, the glowing light that looms in the face of health care providers is not the end of the tunnel of discounted and uncompensated care. Rather, it is the rush of an oncoming train! Indeed, while trying to position themselves for the challenges of a new century, hospitals find themselves on a collision course with the burgeoning force and mounting effects of the Balanced Budget Act of 1997. Such is the true scouting report for many of America's hospitals as the new year dawns. Signed into law on Aug. 5, 1997, by President Clinton, the Balanced Budget Act (BBA) included substantial reductions in Medicare spending so as to balance the federal budget by 2002. Spending for the Medicare program was reduced $116 billion for fiscal years 1998- 2002. Spending for hospital specific services was reduced by $43.1 billion over the same period, a reduction of 8.9 percent below the projected pre-BBA levels. Cuts to skilled nursing facilities (SNF) account for $9.5 billion, 20 percent of which impacts hospital-based SNFs. Cuts to home health agencies account for another $16.2 billion, 38 percent of which affect hospital-based home health programs. These additional cuts go beyond the $43.1 billion earmarked for hospitals alone. In 1998, the first year of the five-year cuts, only about 5.6 percent of the expected impact of BBA changes have taken effect. The year 1999 will see this amount almost triple -- and yet, even by the end of 1999, only 19.3 percent of the estimated total Medicare savings under the BBA will have been realized. The amount doubles again through the year 2000, then doubles yet again over the final two years! As can be seen, the Balanced Budget Act's savings in Medicare expenditures were "back loaded" and payment reductions to providers will rapidly grow through the year 2002. The picture can only get worse as the "train" rushes toward us. The track hospitals are traveling down is not a new one. Many hospitals have worked diligently to maintain stable margins over time as they matched cost reductions with decreasing revenues. Margin calculations depend on both revenue and cost performance. The stability in margins achieved over time has been realized because hospital staffs have labored to lower costs as public and private payments have been reduced. Hospitals held growth in total cost per adjusted admission (taking into account outpatient services) to 0.1 percent between 1995 and 1996 after nearly a decade of growth rates well above 6 percent. Medicare cost per case declined 2.8 percent over the same period -- the third year in a row Medicare costs per case have fallen. However, many of the efficiencies hospitals have been able to achieve are one-time in nature. Continued cost cutting is not sustainable in light of significant cost pressures that loom on hospitals' horizons. The cost of becoming Year 2000 compliant, rising pharmaceutical costs, labor costs and the cost of new technologies continue to push cost trends. These cost pressures make it ever so much more difficult for hospitals in the new year as they continue to re-examine their mission to the communities they serve and what level of involvement they should have in improving the quality of life. Many hospitals are going beyond their traditional role of mending bodies damaged by disease or accidents in extending services to improve the overall status of community health. They are operating or partnering with other organizations to run free clinics for the indigent, teaching healthy lifestyle habits in schools, establishing mentor programs, fighting gang violence, cleaning up neighborhoods, helping with low- income housing and more. Whether they can be sustained will largely depend upon how much they are damaged from the effects of the train. The picture is markedly more serious for other hospitals. Several will be fighting for their very survival in the months ahead. Despite the relatively small percent of Medicare savings realized in 1998 as a result of the BBA changes, many hospitals in Oklahoma have already experienced significant blows from changes in home health care reimbursement, resulting in program closures. This is particularly true for several rural hospitals with hospital-based home health programs. Many of these programs were the pivotal service that determined whether the hospital would conclude its operating year in the black or red. With some appreciation for the fiscal plight of certain rural facilities there is a bright spot within the BBA, a provision creating the Medicare Rural Hospital Flexibility Program. The program recognizes the underfunding, inadequate insurance coverage, health personnel shortages, fragmented delivery systems and inadequate distribution of services and resources that are common to rural areas. Having received federal approval for its State Rural Health Plan, the State of Oklahoma is working to assist vulnerable rural hospitals, promote access to primary care professionals and develop rural health networks. The state is in the process of designating rural not-for-profit or public hospitals who will qualify as "critical access hospitals" (CAHs). Hospitals that work during the coming year to qualify and operate as CAHs cannot be guaranteed their long-term financial viability through this program. At a minimum, though, it should afford many the time to discern (and perhaps transition to) the type of health facility needed by their communities as our health delivery system further evolves. Despite the eventual effects of the BBA on the operational performance of our hospitals, all face the challenge of managing change in this transitory period of doing more with less. The forecasted collision with further cuts in Medicare reimbursement are indeed serious for Oklahoma's hospitals. We work to minimize the collateral damage and at the same time look for new opportunities that can arise from crises. For eventually there is real light at the end of the tunnel. Our hospitals, no doubt, are committed to help lead their communities to it. Craig Jones is the president of the Oklahoma Hospital Association.

Copyright 1998
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