A report released last week by the Washington State Hospital Association indicates that virtually all hospitals in the state are in financial difficulty. (here) A recent survey found that hospital revenues increased by 5% from 2021 to 2022, but spending increased by 11% over the same period. It is unbearable. Several hospitals, if not many, are at risk of closing if these losses continue for another year. This includes both rural and urban facilities.
Leaders give a number of reasons for the financial problem. Topping the list is Medicaid’s low reimbursement at just 42% of hospital costs. Compounding these low salaries are high labor costs with temporary employees, inflation, and the inability to transfer patients out of the hospital in a timely manner. (here)
Some hospitals are already cutting services, especially in pediatric, maternal and mental care. For hospitals that are short on beds, one solution is to reduce elective operations and procedures. Unfortunately, this leads to more financial problems.
Not listed in the report, but a chronic financial problem for hospitals, is poor Medicare reimbursement. Federal government officials essentially dictate what Medicare will pay for a given service based on the patient’s diagnosis. The program then pays 80% of that amount, regardless of the cost to the hospital for that service. Most hospitals pass their costs on to patients from private insurance to cover losses incurred by Medicare and Medicaid patients.
For years we have heard about the current health care crisis caused by the high number of uninsured people. Interestingly, hospital officials do not cite uninsured people as a reason for their financial hardship. In other words, simply having health insurance isn’t a solution to hospitals’ financial problems — especially if government officials dictate payments that don’t cover hospital costs.
Although the American Hospital Association does not support “Medicare For All,” (here), over the years hospital organizations have advocated for an expansion of existing Medicare and Medicaid programs and also supported the passage of Obamacare. The argument, of course, is that more people would have health insurance and theoretically access to medical care. If hospitals can’t cover their overhead costs now with government program payments and keep their doors open, it doesn’t matter if people have “insurance” or not.
The government is directly responsible for other issues that contribute to the financial problems of hospitals. Government officials control the number of medical and nursing schools that can be built and are therefore responsible for the number of doctors and nurses available in the labor market. Likewise, the government is responsible for the high inflation that the United States is currently experiencing.
At least in Washington state, certificate of need laws control the number of long-term care and skilled nursing facilities that can be built. Due to the lack of these beds, patients are housed in acute care hospitals, driving up the expenses and costs of these facilities. Additionally, Washington State has guardianship laws that prohibit family members or close friends from taking responsibility for referring patients to long-term care.
We are seeing more hospital consolidation nationally and in Washington State. Theoretically, consolidation was designed to lead to more efficiency and cost savings. However, research now shows that costs rise and patient choices become limited when hospitals consolidate. (here) Ironically, the government is extremely proactive with anti-trust regulations when companies want to consolidate in other sectors outside of healthcare.
Washington state hospitals see the short-term solution as more taxpayer money — the state currently has an $8 million fund that could be tapped. Unfortunately, this would be an insignificant amount of money and would simply lead to more demands for financial bailouts.
The real solution is to put patients in charge of their own health care, not the government or employers. Hospitals have to compete, just like companies in other sectors do. Hospitals should offer price transparency to introduce competition based not only on quality but also on price, so that patients can become informed purchasers of medical care.
Similarly, government officials have an opportunity to give patients more control over their healthcare:
- Change the tax code so that individuals can take advantage of the same deductions that employers currently receive.
- Medicare reform that eliminates benefit mandates, so it acts like real insurance, not a continuation of health care.
- Expanded use of health savings accounts to pay for day-to-day health care.
- The use of high-risk pools to cover high-cost, high-utilization patients with pre-existing conditions.
- Meaningful reform of Medicare, medicare, and the Affordable Care Act so that these government programs can be sustained and act as true safety net plans for the most vulnerable.
The government is directly responsible for the financial crisis that hospitals are currently facing. Increased government intervention and taxpayers’ money are not solutions.