There has been an excess of depressing economic news in the United States this summer.
We’ve witnessed the absurdity of the Congressional “debate” over raising the debt ceiling, which led Standard & Poor’s to downgrade the U.S. sovereign credit rating. A jittery stock market combined with weaker than expected job gains have left many economists speculating that the United States may be headed back into recession.
Unlike the broader job market, the healthcare industry has been an employment success story – expanding rather than contracting – adding 300,000 jobs over the past year. But speak with hospital executives and the outlook appears somewhat grimmer.
Hospital finance leaders know that the reimbursement noose is tightening. As new delivery system and reimbursement models begin to take hold, CEOs and CFOs know that they are going to be asked to survive on Medicare margins. That, of course, is unsustainable in the long term.
Unlike the current leadership in the U.S. House of Representatives, hospital leaders have for years recognized the need for healthcare reform. Unfortunately, the Patient Protection and Affordable Care Act didn’t give the industry enough incentives for the profound cost controls that are required to stabilize healthcare spending at a manageable percentage of national GDP.
Further, one aspect of the PPACA that was critical to gaining the support of commercial insurers for the reforms that were enacted appears to be on life support.
The individual mandate to buy health insurance was declared unconstitutional in August by the 11th Circuit Court in Atlanta, but the rest of the law was upheld. I suspect that’s the position the current U.S. Supreme Court will take.
But if the individual mandate is severed from the rest of the legislation, what will that mean for the industry? According to David Williams, a healthcare business consultant and blogger, such a move might deliver more than the PPACA’s opponents intended.
Williams predicts that, with no mandate to draw more people into the risk pool, higher insurance premiums are inevitable due to adverse selection. “ "Times New Roman"">Fewer people will have insurance as prices continue to rise inexorably. The healthcare system – hospitals especially – will be overwhelmed by the cost of caring for the uninsured,” Williams contends.
Ultimately, Williams speculates, as healthcare costs skyrocket and access to care diminishes, “we really do get a ‘government takeover’ of the health insurance industry at a minimum, and possibly of major parts of the delivery system.”
"Times New Roman"">I too have long believed that the scenario Williams describes would be likely if delivery system reform, increased access to care and stricter cost controls were not implemented.
"Times New Roman"">While the president and Congress were overly cautious in their reform proposals a few years ago, at least the PPACA was a start. How ironic that those who so adamantly oppose a European-style national healthcare system may be leading the nation toward such a fate by picking apart the tepid reform measures contained in the PPACA.
Irony of healthcare investment
"Times New Roman"">On the subject of cost controls, I want to highlight an important research brief released in August by the Center for Studying Health System Change.
"Times New Roman"">Because healthcare appears to be a recession-proof industry, many communities continue to invest in healthcare expansion. When monitoring healthcare news at the municipal and regional levels, our reporters often hear praise for investments in health services that increase capacity.
"Times New Roman"">However, as the HSC notes in “Working at Cross Purposes,” decades of policy research has concluded that the expansion of the supply of health services leads to greater use of services. Of course, that’s exactly what communities intend when they spend money on expansion.
"Times New Roman"">Yet healthcare expansion by definition boosts healthcare spending and defeats cost control efforts. The Medicare program finances 40 percent of U.S. healthcare services and most of these costs are borne at the national level. Medicaid spending is financed entirely by state and national governments.
"Times New Roman"">Thus, HSC research reveals the tragedy of healthcare expansionism as economic stimulus: “While communities have incentives to expand healthcare capacity to generate local economic benefit…the nation as a whole falls behind as healthcare spending continues to grow at a much faster pace than the economy.”