“We want to thank Dr. Livingston for taking the time to enlighten us”
I have been asked to write a review of the impact of the Covid-19 national triage strategy on the financial status of large and small hospitals and health care delivery systems in our country. I won’t footnote my references because they come from only three sources: 1. CMS (Center for Medicare and Medicaid services an agency under the Department of Health and Human Services. 2. Becker Financial Review. 3 Medscape—A physician collating Web site.
We do have to go through some details, but what I would like to leave the reader with are a few of my simple conclusions. 1. The private sector saved and continues to save the day in our country both on the medical front and the economic front of the so called pandemic. Walmart, Walgreen’s, Target, J&J, Gilead, Ford, and even 3M and many others, in the end all provided supplies but most importantly streamlined supply chains and supplanted antiquated government regulatory roadblocks with new rules. This was a repeat of what happened at the beginning of WWII when military Supply Corps Officers were fired and replaced by the Roosevelt administration with private sector logistical experts. 2nd We have not had a private medicine in this country for 30 years. Because of that the “Command and Control” directives from CMS down through the State Governments created a response that mismatched personnel and material and created opportunity costs that will take years to overcome. That being said the response of the Army Corps of Engineers establishing 5 Field Hospitals in NYC and Los Angeles and the deployment of two hospital ships the USNS Comfort and Mercy. Delivery of the Comfort in the middle of a routine shipyard maintenance, was an incredible feat that no other military in the world could pull off. 3. The Public Health Services Act and it’s amended version in 2006 The All Hazards Preparedness Act helped define the Federal Response which in my opinion was exemplary, but the individual States failed to prepare and live up to their end of the Federalized bargain.
Governors and State Legislatures have severely underfunded emergency medical programs not only because of budget allocation pressures from the various State agencies, but because of stakeholder push back from lobbyists who were looking after their own piece of the pie instead of potential patient needs in an emergency. As an example, I met on several occasions with then-Governor Kempthorne and Lt Gov. Riggs and heads of several State agencies including a representative from the Idaho Guard in early 2003 to update State preparedness planning Something as simple as cross State credentialing of doctors in case of an emergency was strongly resisted by the IMA/IHA lobbyists because they did not want member hospitals or providers to have competition from out of State. They were worried about competition in a disaster!
The details: Medicare and certain private insurance companies pay for hospitalizations using a DRG (Diagnostic Related Group) payment system. Only 35% of hospitalizations are paid for by private insurance and 60% are paid for by government programs. CPT (Current Procedural Terminology) and ICD-10(International Classification of Diseases) also are used to identify provider costs and subsequent billing. Each code has its own formula and after application of the codes with their various formula an invoice and then a bill is produced. This bill is subject to adjustments applied to the end bill the insurance carrier or government agency responsible for paying the bill negotiates. The price for service on a yearly bases, so like purchasing an airplane seat, everyone has a different payment to make. This system is easy to game by both the hospitals and the insurance companies and doctors.
Kickback and rebate schemes during all these transactions can be exploited in a variety of ways through supply chain discounts, transfer patients or so called “activation fees”, DSH payments—Disproportionate Share Hospital payments that are statutory payments for uncompensated care to hospitals. Large hospital systems that are able to deploy armies of coders, accountants, case managers, and lawyers are able to game these payment systems and programs in such a way that they can maximize profits. Small hospitals like most of Idaho’s rural hospitals especially those with less than 100 beds—not so much. One other strategy that non-profits use is the “bucketing of uncompensated debt”. There are three buckets of uncompensated income where hospitals can place their losses. “Charity, uncompensated government transfers, and bad debt. It behooves providers to shuffle the funds in each bucket so that activations fees, DSH payments and other government rebates are maximized. Characterizing these payments as operational or non-operational also allows these institutions to legally manipulate financial statements. Balance sheets (Statement of Financial Positions), Income Statements (Statement of Activity) absent a Statement of Financial Expenses and a funding system of accounting identifying origins of funds and final allocation of funds can lead to changes in government reimbursement strategies that always seem to benefit the hospitals at the expense of the patents and tax payers.
I have two sons who are CPAs and when we together go over their hospital invoices and bills we cannot figure out our payment responsibilities to the hospital, the doctor(s), laboratories, pharmacies and medical supply companies. This is because each individual entity may have a unique contract with an insurance carrier. In other words lots of seats on the plane all with different listed prices? The Corona Virus Aid and Relief and Economic Security Act passed last month provides for 6 months income to hospitals unfortunately not to most of our rural hospitals, based on the previous 6 months income. Under the act there has also been a suspension of the 2.5% of DSH sequestration payments. Finally there is incorporated into the law a 20% increase in compensation for Covid coded patients. As one can readily see there is lots of wiggle room and incentives all legal but expensive, that are built into the system.
Today these large hospitals are telling us that they have seen revenues decrease by 50% which was reported in a St Al’s newsletter last week to the medical staff. Why is this? Because services in other areas have been cut back, Chemotherapy down 20%, ER visits down 30%, elective surgery put on hold for 3 weeks. Median occupancy of large hospitals has gone from 70% to 53%. ICU’s are being manned at 150% with less than 30% of beds being used. These areas account for 60-70% of hospital income. Good thing labor and delivery and neonatal ICUS are still up and functioning. They also only report on lost revenue not the decreased cost of labor with employee furloughs, early retirement, temporary lay-offs whatever that is.
For hospitals with less than 500 employees PPP funding/grant money is also available. So tax payers have socialized the Covid risk while allowing hospitals to Capitalized the Covid gain to be reaped by large non-profits and private hospitals. Management at these institutions have made incredibly poor business decisions and because the ramifications of these decisions will never be felt by their businesses. The large institutions with their legions of coders, accountants, lawyers and lobbyists IMA/IHA, will be profligate. Not so much the smaller institutions. Who represents them? Who represents patients? The ones who suffer most with loss of access are those on the margins, not the families of the Corporate Captains, government bureaucrats, or hospital administrators. Good businesses adjust to conditions of customers. These government “backstops” incentivizes poor business decisions and create conditions where market adjustments are not honored.
Today I ate lunch at “Chick-Fillet” There business at lunch is approaching 300% greater than it was pre-Covid. I talked to Rachel the day manager and she told me about the planning that went into the adjustment of their business model. Multiple tents with 12 young people taking orders in the parking lot with I-pads. 20 cars through in 5 mins! This adjustment was not precipitated with a government subsidy or kickback. Chick-Filet had their back against the wall and had to adjust. If there was a government kick back at the end of their rainbow I might have had to wait 30 mins for a sandwich and never would I have come back.
I vote for Rachel for Governor or at least head of the Idaho Department of Health and Welfare or better yet CEO of St. Al’s or Luke’s. She understands markets and capitalism because capitalism works best when allowed to correct markets under stress.
So in the end regarding our hospital systems. Big hospitals do great. Little ones not so much. Fee for service surgery centers best of all.
Who are the winners and who are the losers?