Cutbacks need strong tactics: Ensure Congress knows your hospital’s story
It’s not too late to make your voice heard on Capitol Hill
If there’s any good news about the Balanced Budget Act (BBA) of 1997 and the Medicare cuts eating into your hospital’s budget, it’s that there may be time to prevent further cuts by making your voice heard on Capitol Hill.
Despite negative margins, staff layoffs, and cutbacks in patient services, associations are taking a pre-emptive strike at the next wave of cuts by joining associations and letting legislators know how the reductions are playing out in the real world. (For information on how to get involved and let Congress know about your situation, see editor’s note at the end of this article.)
The BBA included cuts in Medicare spending by $115 billion over five years. This reduces what Medicare pays providers to care for patients in hospitals, skilled nursing units, at home, and as outpatients, including cancer and rehabilitation therapy.
The BBA is just part of a series of legislation that reduced federal funding for health care, says Scott Malan, vice president of legislative services for The Hospital & Healthsystem Association of Pennsylvania (HAP) in Harrisburg. But reports and case studies show that the unintended consequences of the initial BBA cuts have alarmed both the health care industry and many federal legislators. For example, in its commissioned Lewin Report, "The Balanced Budget Act and Hospitals: The Dollars and Cents of Medicare Payment Cuts," the American Hospital Association (AHA) in Chicago released these findings about the BBA:
-Total Medicare payments to hospitals will be cut by $71.2 billion (10.5%) — not $53 billion as estimated by the BBA — from 1998 to 2002.
-While inpatient margins remain positive (between 4.2% and 7.5%), they will fall under the BBA — especially if costs increase at historical rates.(For more information on inpatient cuts, see chart, p. 115.)
-These reductions will force total Medicare margins downward to -4.4% assuming moderately low-cost growth, and even lower with a more historical rate of growth.
-Margins for outpatient, hospital-based home health, and prospective payment system-exempt services will all be negative under the BBA.
The Lewin Report, limited to traditional fee-for-service Medicare services, was based on federal fiscal year (FY) 1995 data and 1997 AHA survey information. The Lewin Group is a health care policy and management consultant firm in Falls Church, VA.
Although elderly patients covered by Medicare especially will be affected by the cuts, the reductions end up hurting everyone, Malan says. "The BBA was so pervasive in all of the changes that it made that it affects inpatient, outpatient, home health care, skilled nursing facilities — right on down the list."
A survey of 256 HAP hospitals of FY 98 results show a "marked deterioration in the hospitals’ financial health due to provisions of the BBA."
These results include:
-67% of hospitals are unable to cover operating expenses with patient revenues.
-59% reported a decrease in net income from FY 97 to FY 98.
-54% are operating with net margins below 4%, considered insufficient for sustaining financial viability according to general industry standards.
-BBA reductions in revenues over the next two years ($960 million) will remove more money from the system than hospitals currently earn.
-The decrease in net income in 1998 occurred across hospitals of various sizes and types. This negative impact is exacerbated by higher levels of managed care penetration in large urban areas.
Even Wall Street analysts are commenting on the BBA, says AHA News. "The effect of the BBA has been so much more dramatic than what Congress expected and than what the companies expected that it’s literally been devastating for the service health care business," said Norman M. Fidel, senior vice president of Alliance Capital Management, at a conference sponsored by the Center for Studying Health System Change.
Hospitals and health systems have responded to the initial reductions by cutting vacant positions, laying off staff, living on investments, and cutting services.
"We’re seeing that our members are having to cut some services — not quality — that they have been able to provide to their patients," says Dionne Dougall, assistant director of media relations for the AHA. Methodist Healthcare in Memphis, TN, for example, eliminated a transportation service that brought a monthly average of 218 rural patients to Memphis for inpatient and outpatient treatments not available in their communities.
Still, some providers are barely staying afloat or going under. In Pennsylvania, several skilled nursing facilities and home health care entities have closed or are being run at such a loss that they are in jeopardy for the future.
"Providers feel very challenged," Malan says. "They have worked hard over the last several years to maintain quality and access and yet become more efficient. Now they are starting to reach the point where that is becoming unmanageable."
Financial managers and hospital administrators can do little more than they already are doing to try to reduce the impact of the cuts in their own organizations, Malan says. Instead of waiting for the next wave of cuts to hit, however, many are joining their associations in letting legislators know how these reductions are actually playing out in the real world.
"We have been gathering case studies from the field about the different hospitals and health systems that have been affected by the BBA," Dougall says. "We’ve been sending those stories to Congress in a daily fax."
The AHA also is holding "advocacy days" in which different segments of its membership go on the Hill and talk to their lawmakers about how the BBA has affected them. For instance, more than 100 teaching hospital administrators attended a meeting in Washington, DC, in early June.
In addition, the AHA is placing advertorials in publications such as the New York Times and ads in some of the Congressional papers. Dougall says she thinks the first-person accounts from providers have been the most effective. "It drives the point home when you get the actual members talking to their Congressmen about what is happening to them."
The AHA is now collecting quotes from Congressmen who acknowledge they went too far with the BBA reductions. Still, members of the Senate Finance Committee have debated how to remedy the situation without current data to help them know how to divvy up relief, should they decide to legislate it. "We have a hell of a mess on our hands," said Sen. John Breaux (D-LA) at a hearing, AHA News reports. "When the data finally come in — everybody will be out of business."
And at least one White House official is not impressed with the case studies or the reports. Daniel Mendelson, associate director for health and personnel at the Office of Management and Budget, said the administration has no interest in undoing the BBA. "We won’t just give away money," he said at a June conference sponsored by the Council on the Economic Impact of Health System Change, AHA News reports.
Mendelson added that the administration has yet to see "systematic evidence that one might want to see" before reopening the BBA.
This indicates that providers and their associations have a long way to go to meet their goals of reducing the impact of the Medicare cuts. "At this point, we have to do as much as we can to try to make this turn around," Dougall says. "Of course member input has been valuable, but ultimately the decision lies with the folks that put the BBA into drive in the first place."
[Editor’s note: Let organizations and Congress know how Medicare cuts are affecting your hospital’s patient care services. The AHA is collecting and developing case studies regarding the impact of the BBA on hospitals’ and health systems’ ability to provide quality patient care. To help providers prepare their case studies, the AHA has posted on its Web site a template and list of questions to help you quantify the BBA’s impact on your institution. Instructions on how to fax the form to Congress are included on the site. Visit the page at: www.aha.org/bba/Survey.html. Information on finding your Congressman or Senator also is available. Visitors to the site can create a message, choose to send a pre-written letter or customize it, to send to legislators. Visit the site at: www.capweb.net/aha.]
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