Health Care

In Obamacare Buildup, Hospitals Face a Self-Inflicted Wound


In Obamacare Buildup, Hospitals Face a Self-Inflicted Wound

Illustration by 731

Liberty Hospital near Kansas City, Mo., has eliminated 120 jobs this year, closed its wound-care clinic, and stopped offering free rides to poor and elderly patients. The Cleveland Clinic is searching for ways to cut $250 million from its $6 billion budget in the next 16 months. It’s already closed expensive maternity wards in half the hospitals it operates. In northern New York, Adirondack Health may shutter its emergency room in Lake Placid and a dialysis center in Tupper Lake. All of these hospitals and scores of others nationwide are squeezing services to make up for unexpected budget shortfalls—the result of a deal they made with the federal government that they’re now having second thoughts about.

When the Obama administration was selling the benefits of the Affordable Care Act in 2010, the hospital industry agreed to accept a $155 billion decrease in Medicare payments over a decade. The administration assured hospital executives that patients newly covered under the health-care law would make up for much of the loss. Because of the ongoing squabbles between President Obama and Republicans in Congress over the U.S. budget, that hasn’t happened.

The automatic federal spending cuts known as sequestration have sliced an additional 2 percent from Medicare reimbursement payments to hospitals this year. Beginning next year, many hospitals will also collect less money from Medicaid, the federal program that provides coverage for the poor, than they’d been promised when they signed on to the Affordable Care Act. The law required all states to expand their Medicaid programs to cover uninsured citizens who make too little to buy plans under Obamacare. But the Supreme Court ruled last year that states could opt out. Nearly half have chosen to do so, as Republican governors or GOP-led state legislatures have opposed the increased Medicaid spending. That means 6 million poor Americans who would’ve been eligible for health coverage won’t get it; many of them will continue to walk into emergency rooms unable to pay for services that hospitals by law have to provide. “We are hugely affected by what’s happening in Washington,” Adirondack Chief Executive Officer Chandler Ralph says. “It’s a hiccup there, and it’s a tsunami here.”

For-profit health systems whose patients are largely covered by private insurance may be equipped to absorb the losses. Rural and inner-city hospitals that run on thin margins and treat large populations of patients on Medicare, Medicaid, or without any insurance are suffering. “The trade-off that the hospital industry made was, we’ll take lower payments going forward in exchange for more people being insured,” says Patrick McGuire, chief financial officer of St. John Providence Health System in the Detroit area, which eliminated 160 positions in May. “It’s not quite working out the way we thought it was going to.”

Missouri’s decision not to expand Medicaid is bad news for Ozarks Medical Center, which serves a largely poor, rural part of the state near the Arkansas border. Beginning on Oct. 1, the 114-bed nonprofit hospital will lose $630,000 a year in federal payments it now gets for treating low-income patients. Expanded coverage under Medicaid was supposed to make up for that, but Missouri’s Republican legislature blocked it. The federal sequester is taking another $660,000 from Ozarks’ budget, says CEO David Zechman. He and 64 other managers took a 5 percent pay cut at the end of June, and the hospital laid off 32 workers. A dozen open positions won’t be filled. “We haven’t cut any services yet. That’s not to say we won’t in the future,” Zechman says.

The industry is lobbying to get some government money back. A bill by Georgia Democratic Representative John Lewis would delay Obamacare cuts to the extra Medicare and Medicaid payments that Ozarks and other hospitals receive for treating the poor. Another measure, introduced in June by Democratic Representative Bruce Braley of Iowa, would reinstate some funds for rural hospitals, such as Adirondack Health, that were allowed to expire in the fiscal cliff standoff in December.

U.S. hospitals have lost jobs in two of the last six months, according to the Bureau of Labor Statistics, a point hospital lobbyists stress in their rounds on Capitol Hill. They aren’t hopeful of persuading lawmakers to put money back into the federal budget when all of Washington is arguing over how to take more out. Rick Pollack, executive vice president of the American Hospital Association, says hospitals that treat the poor and elderly are instead focused on preventing deeper cuts in the deficit showdown coming this fall. The goal for now, he says, is “making sure that there is no more harm done.”

The bottom line: The sequester has shaved 2 percent from payments to hospitals, leaving poor and elderly patients with fewer services.

John_tozzi
Tozzi is a reporter for Bloomberg Businessweek in New York.

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