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Hospitals, Image, and Political Deals

hospitalYesterday we looked at the recently finalized cost-cutting agreement between President Obama and the three main associations that represent the majority of America’s hospitals.

Specifically, hospitals have agreed to accept reduced payments for Medicare/Medicaid/poor patients to the tune of $155 billion over the next ten years.

So why did these three groups- the AHA, the Federation of American Hospitals, and the Catholic Hospital Association- suddenly come willingly to the table?

We looked at some of the reasons here.

Another motivating factor to consider is image

Hospitals, especially non-profit providers, have received some bad press over the last few years.

Non-profit hospitals have been criticized for reaping huge profits while simultaneously closing hospital branches in low-income, inner-city areas that do not generate enough paying customers.

(It’s also worth pointing out that non-profit hospitals spend a lot on executive compensation.  They paid their CEOS an average of $490,431 in total compensation in 2006, according to a new report from the IRS.)

In the City of Pittsburgh, for example, the University of Pittsburgh Medical Center, better known as UPMC, posted an annual profit in excess of $600 million in 2007.

At the same time, the medical giant made plans to close its Southside branch, citing operating losses and a small profit margin there.

The hospital served the neighborhood’s poor and elderly populations, many of whom will now have to take an hour-long bus ride to receive care at the next closest hospital in the UPMC system.

While closing inner-city branches, many non-profits have also shifted their focus to building and expanding suburban campuses that have more prosperous clientele.

Hospital administrators defend these activities, saying that they have to build up high-income locations to make up for the losses they take in poorer communities.  (Yes, the same poorer communities that they are also moving out of.)

Republican Senator Charles Grassley from Iowa, on the other hand, is quick to argue that non-profit hospitals are not doing enough to fulfill their mission to help the poor and uninsured get better access to care.  This mission is the basis for their tax-exempt status.

Senator Grassley points to the statistic that, on average, uncompensated care accounts for just 7% of total hospital revenue, and community benefits account for just 9%.

  • Further, about 60% of the uncompensated care provided in 2006 came from just 14% of all non-profit hospitals- which means that some hospitals are doing more than their share, and some are not doing nearly enough.

Grassley and Senator Max Baucus (D-MT) have proposed legislation that would require a minimum annual level of charitable care for non-profits to keep their tax-exemption.

The Senators also want non-profits to provide services regardless of ability to pay, and to follow certain collection procedures.  Hospitals that didn’t follow these rules could face excise taxes, or lose their exemption completely.

Some hospitals have stepped up their charitable game as a result of these threats.

For example, the Connecticut Hospital Association made a big deal recently about spending 9.4% of its hospital revenue in 2007, or $718 million, on community benefits programs.

  • This figure includes $228.8 million on uncompensated care, including charity care and subsidized health care for needy residents.

We think that some of this pressure on non-profit hospitals may have helped to loosen up the AHA and the other hospital associations when it came time to negotiate payment cuts with the President.

After all, the hospital associations certainly want to be seen as community players and reform advocates as they prepare to fight the Grassley/Baucus legislation.

But the other issue to raise here is whether hospitals are doing enough to reduce healthcare spending and to provide care for the uninsured and/or poor populations.

As a reminder, we spend 30% of our healthcare dollars on hospital care, which is the largest piece of the healthcare pie.

And while the hospital associations have agreed to payment reductions of $155 billion over ten years, this is not as large a sum as the President initially requested.  We’ll be interested to see how the Grassley/Baucus charity legislation plays out, and whether non-profit hospitals will be required to make a bigger commitment to treating our country’s neediest patients.

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