Healthcare Reform: a boost to the hospital bottom line?
By Thomas Day
Okay, as the histrionics of the legislative process start to fade, the question remains: “So what went down, anyway?”
I’m sure we’ve all read that hospitals will benefit. The theory is that there will be fewer uninsured people and insurance companies will no longer be able to cap or deny coverage. More business means more profit, right? Well, more than if you didn’t have that paying business, sure. So that’s a boost. But a remarkable fact is that the majority – actually the large majority – of hospitals lose money on their Medicare and Medicaid funded business. Some lose a lot. While the hospitals need the volume to survive and cover overhead costs, these patients bring in substantially less revenue for the same work than privately insured patients.
Many CFOs are figuring out what their core cost structure needs will be to come close to a financial break even on Medicare patients. The CFOs believe that this will be increasingly important as the country ages, and Medicare represents about half their hospitals’ business and it’s growing fast. Medicare and Medicaid reductions figure highly in the CBO’s cost impact analysis. Further, the ED still has to treat illegal immigrants, who are not allowed to buy coverage on the insurance exchanges. And if you are a Disproportionate Share Hospital, you can count on losing as much as half that Medicare and Medicaid money.
So again: will hospitals thrive? That will depend entirely upon their ability to deliver high-quality medicine while reducing unnecessary cost. Is Healthcare Reform legislation a boon to hospitals? You tell me, as the jury has yet to return a verdict.
Thomas Day is president of HMC.
