The Congressional Budget Office(CBO) released a report this month predicting some dire finances for acute care hospitals in the next decade. (1) While currently approximately 25% of hospitals run an operating loss, that percentage is predicted to rise to over 60% by 2025.
Many of the pessimistic predictions are based on assumptions on payment rate reductions, ACA penalties and increasing costs. What is very clear is that both commercial and governmental payers are working to drive costs down. Federal and State payers are proposing initiatives whose goal is not just to be revenue neutral. The ultimate goal of the government and privately insured population is to reduce expenses. While some tout capitation as the long-term solution, the opinion is short sighted. Even capitation is a race to the bottom. As health care providers establish lower rates, next year’s capitation rates will be reduced. Where does this all end?
The CBO report discusses the following possible responses.
Reducing Costs
Increasing Revenues
Addressing Both Costs and Revenues via New Payment Models
Merging or Closing
Some maintain hope that a dramatic growth in volume with the retirement of baby boomers will mitigate the negative effects of the ACA by increasing revenues. Unfortunately most hospitals cannot operate profitably on current Medicare rates and growth of this group will only exacerbate the financial difficulties.
The conclusion of the report regarding the four proposed suggestions is not sanguine. I would go further and suggest other more viable solutions. The current medical treatment model and health delivery system is upside down. We spend 2.7 trillion dollars on sick care and a medical model of treating disease but forget that medical care is responsible for 15% of our overall health and wellness. 85% of our well being is based on the social determinants of health, education, diet, exercise, environmental factors, use of tobacco and alcohol, etc.
What this means is that there are a myriad of new opportunities to enhance the revenue of hospitals by moving from getting paid for treating the sick, to getting paid for keeping consumers healthy. Both the government and the private sector will gladly pay to reduce medical expenses through prevention programs. Showing an ROI is not difficult. Early adopters have successfully implemented prevention programs for which they get paid at many progressive tertiary and community hospitals. The 60% of the insurance market that is self-insured employers are looking for programs which will save them money by reducing expenses, absenteeism and enhancing worker productivity. Self-insured employed businesses are doubly incentivized to both reduce direct medical expenses and generate more revenues for the company with a healthier, more productive work force.
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The doom and gloom of the soothsayers on hospital financial viability must be mollified by refocusing on the ultimate goals of the medical delivery system. There should be optimism about new opportunities. We need to encourage policy makers, hospital administrators, boards of trustees to critically look at their institutional goals of enhancing health and retool to a prevention model , not a sick care model.
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Nicolas Argy, MD, JD
Copyright © 2016 Nicolas Argy
(1) https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/workingpaper/51919-Hospital-Margins_WP.pdf