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Health care industry’s perfect storm

Published: Saturday, May 19, 2012 5:30 a.m. CDT
Caption
(Kyle Bursaw – kbursaw@shawmedia.com)
Mike Laferty of All American Roofing gathers his supplies May 9 after finishing a waterproofing treatment on part of the expansion at Kishwaukee Community Hospital in DeKalb. The expansion of the hospital's emergency department and maternity ward are being done to better serve patients, hospital officials say, in order to better meet the changing landscape of the health care industry.

When local health care officials talk about the state of their industry, they say a perfect storm is brewing.

Kevin Poorten, president and CEO of KishHealth System, and Michael Flora, executive director of the Ben Gordon Center, said providers work together to ensure people who need care get it, even as demand increases.

At the same time, providers are in the midst of what Poorten calls an unprecedented shift in how health care is delivered in the U.S. on the backdrop of financial challenges.

There’s the federal Affordable Care Act, which aims to improve access to and quality of health care while controlling costs through a number of mandates. And at the state level, there are proposals to cut billions from the Medicaid program and discussion of taking away the tax-exempt status of hospitals – all as Illinois continues to drown financially.

“I’ve never seen the rate of change at the pace that we currently are experiencing,” Poorten said.

Jane Lux, administrator for the DeKalb County Health Department, said there is no doubt health care has to be delivered differently.

“There is the push to improve outcomes and yet to do it more efficiently and at less cost,” Lux said. “It’s exciting in a way, when you work in the field of health care. Now you have to look at this and figure out, how are we going to do this? It’s an opportunity, but it’s also a very big challenge.”

Flora said there’s so much innovation in health care it could almost be called disruptive innovation.

“It’s that perfect storm, where there are multiple factors,” Flora said. “In the meantime, providers responding to the change still have to perform care on a daily basis. The demand doesn’t change.”

All the unknowns – whether that be new mandates at the federal levels, cuts at the state level, waiting for the reimbursement check to come or insurance providers wanting to reduce payments – make it hard to plan for the future, said Alice Freier, administrator of the DeKalb Clinic.

“Because of the continued uncertainty of what the government is going to do, whether it be the local, state or federal, it’s very hard to make plans going forward,” she said.

Shifting priorities

Providing care to the community is what local health care providers said their core mission is and will remain despite the uncertainty. What will change is how they do that.

The reform focus at the federal level – and appropriately so, Poorten said – is transforming the health care system from one based on volume and quantity to one focused on value and quality.

Poorten said the three-fold aim of the federal Affordable Care Act – improving access and quality while decreasing costs – is a good one. So are many of the reforms, such as letting young adults stay on a parent’s insurance until 26 and the elimination of pre-existing conditions as a reason to be denied insurance coverage.

But the act presents “an incredible amount of challenges” for health care systems developed on volume and quantity standards, he said, and the transition is going to take time.

Take the mandate to have all medical records kept electronically. Flora said that will make it easier to provide integrated care amongst various doctors – which is what’s best for patients, he said – but it takes investments administratively and financially to get there.

Local health care providers realize the federal government can’t sustain health care as it is today. Spending on health care was 17.6 percent of the country’s Gross Domestic Product in 2010, according to the federal Centers for Medicaid and Medicare Studies. By 2020, it’s expected to be 19.8 percent.

While local officials agree health care needs to focus on less-expensive prevention efforts, that needs to be accompanied by a culture shift.

“We have to, as a culture, be engaged in prevention,” Lux said. “That’s why it’s what we hear from all levels. There is a huge push to address the problem with issues of obesity, how do we eat healthier, how be more physically active, how change environments and communities so we can be more healthy.”

One provision of the Affordable Care Act aims to do that. As of October, hospitals will not get paid if Medicaid patients with certain conditions – such as some heart ailments – are readmitted to the hospital within 30 days of being discharged.

Today, the hospital is reimbursed for both visits, Poorten said, but starting in October, it will only get paid for the first time.

The move will encourage health care systems to provide better care coordination to ensure patients follow up with a primary care physician, eat right and take necessary medication, he said.

But it also depends on patient self-care. And that can be tough for a number of reasons. Nationwide, 30 percent to 40 percent of people discharged from hospitals don’t fill prescriptions – often because they can’t afford it, Poorten said.

Lux said health care officials are doing a better job than ever before at informing patients about how to stay healthy, as well as focusing on prevention and offering wellness classes. KishHealth and the Kishwaukee Family YMCA have gotten involved in initiatives such as Pioneering Healthy Communities, which is designed to change environmental factors and local policies to promote healthy behavior.

At the same time, it’s hard for many to access health care, often due to economic and social factors, Lux said.

“It takes resources, money or time or learning about how to [be healthier],” she said. “If your family is in crisis mode most of the time, it’s just going to be harder to even get to that point of, what am I doing with food that could be more healthy.”

State proposals

The mandates of the federal health reform are playing out as the state’s dismal finances take a toll on health care providers.

The DeKalb Clinic is owed $4 million in state and federal payments. The state is a year behind paying the County Health Department and more than 200 days late in paying KishHealth, which is owed $20 million.

The state is current with payments to the Ben Gordon Center, which provides mental health services to local residents. Still, the center provides more than $400,000 in care annually above the grants it receives. And the state has cut its mental health budget by more than 31 percent since 2008-09, Flora said.

With the state billions of dollars in debt, the Illinois Hospital Association says it understands that everyone has to be a part of solving the state fiscal crisis.

Illinois is expected to end this fiscal year with almost $2 billion in unpaid Medicaid bills, caused in part by rising medical costs, increased enrollment and a deferral of $1.9 billion in last year’s bills to this fiscal year, according to Gov. Pat Quinn’s office.

Medicaid provides health care for low-income and disabled people. Quinn has proposed reducing Medicaid spending by $2.7 billion for the next fiscal year, a 23 percent reduction.

His plan calls for about $1.35 billion in service cuts next fiscal year, an 8 to 9 percent reimbursement cut for health care providers, and a $1 tax increase on every pack of cigarettes.

“We must act quickly to save the entire Medicaid system from collapse, and protect providers and the millions of Illinois residents that depend upon Medicaid for their health care,” Quinn said in April when announcing his proposal. “This proposal will fundamentally restructure our Medicaid system, alleviate the pressures on the rest of our budget, and ensure the program is sustainable for years to come.”

The Civic Foundation, a nonpartisan government research organization working to maximize the quality and cost-effectiveness of government services in Illinois, supports Quinn’s proposed budget – the first time in four years the organization has supported a proposed budget.

In a news release issued earlier this month, the Foundation said Quinn’s Medicaid reform proposal aims to eliminate the funding gap. While the foundation notes it is unfortunate the state allowed the program to get to the brink of collapse, Quinn’s proposal “is a reasonable effort to restructure the program given the severity of the crisis.”

But A.J. Wilhelmi, senior vice president of government relations for the IHA, said Quinn’s proposals are too drastic.

“We feel there are alternatives to blunt cuts to the program,” he said. “Cuts of that magnitude will cause irreparable harm to patients.”

Health care officials fear lawmakers aren’t considering all of the unintended consequences as they rush toward a solution.

Take the governor’s proposal to cut the reimbursement rate – a rate, Poorten noted, that hasn’t been increased since the 1990s. If it goes through, it would mean a $1.16 million hit for KishHealth. If the reduction includes behavioral health, it could mean a reduction of $80,000 to $100,000 for Ben Gordon Center, Flora said.

The state already doesn’t cover all the costs of a Medicaid patient. For example in fiscal 2011, KCH was paid 43 percent and Valley West 36 percent of what it costs to provide care for a Medicaid patient.

And if the Affordable Care Act is upheld through its legal challenges, every U.S. citizen will be required to be insured by 2014. Many will go onto the Medicaid system of whatever state he or she lives in.

The IHA is asking lawmakers to take time and make smart changes or be prepared to suffer unintended consequences. The organization has submitted a dozen alternatives that could save up to $1.4 billion. Ideas include enforcing current eligibility policies so those who no longer qualify for the program are removed from the program; a co-pay of $10 for non-emergency visits to emergency departments by Medicaid patients; and enhancing provider-based care coordination.

State Rep. Robert Pritchard, R-Hinckley, said the governor refuses to look at proposals that would move the state into a good direction, such as those focusing on eligibility and fraud.

“My frustration is the governor’s staff isn’t responsive to those kinds of arguments,” he said. “The hospital association has been meeting with them for ages and they take a few of the low-hanging fruit ideas but don’t do the things that will also save us some real money. ... It’s not all a matter of logic and what can be justified, it’s what is politically feasible that can we get accomplished.”

State Sen. Christine Johnson, R-Shabbona, serves on the state’s Medicaid task force. She said proposals that target fraud and waste should be the first step to reform. When the state sent out an annual mailing in January, for instance, 6 percent of the replies came back from people with out-of-state addresses.

Other ideas Johnson supports include scaling back who is allowed on Medicaid, noting the program has undergone massive growth in recent years, mainly due to expansions under former Gov. Rod Blagojevich. Illinois also covers more services, such as adult dental care, under Medicaid than other states, and going to the national average for those services could save $1 billion.

Johnson said action on Medicaid could come next week. While she agrees that decisions shouldn’t be rushed, she also noted Medicaid discussions have been ongoing since January.

“As critical as this is getting to be, we have to do something,” she said. “We need to make our best good-faith effort to try to avoid all the pitfalls you can. There is no such thing as a perfect bill, unfortunately.”

Property tax concerns

Another idea being discussed in Illinois is to take away the tax-exempt status of hospitals, which traditionally are considered nonprofit organizations.

If KishHealth lost its tax-exempt status, it would mean paying $2 million to $2.5 million more annually in property taxes. KishHealth already pays property taxes on some property, such as on Hauser-Ross and the cancer center. Brad Copple, president of Kishwaukee Community and Valley West Community hospitals, said both could be taken off the tax rolls but the health system keeps them on there in order to be a good neighbor.

There is a push that would say the only way a hospital can earn property tax-exempt status is to look at how much a health provider spends on charity care, which is defined as care provided to people who cannot pay.

But charity care doesn’t include things such as the Community Cares Clinic – the effort between KishHealth, Northern Illinois University and private donors to provide affordable access to primary medical care – sponsorships of events such as the cancer walk, or donations to places such as Ben Gordon Center that are specifically targeted for those on Medicaid, the underinsured and uninsured populations of the county.

In its most recent community benefits report, KishHealth gave $68 million in what Poorten calls community benefits. Of that, about half was the gap between what the system is paid for treating Medicaid patients and what it costs to actually take care of those patients.

“We aren’t saying everything needs to be included, but we are saying the bucket needs to include a lot more than just charity care,” Poorten said.

Johnson and Pritchard agree the definition of charity care needs to be expanded. The Civic Federation and Illinois Chamber of Commerce have expressed support for keeping hospitals tax-exempt and establishing clear standards of eligibility, as has almost the entire Illinois Congressional delegation.

Finding solutions

Poorten called himself “the biggest optimist” and said the industry’s problems will be figured out. But he stressed lawmakers need to create clarity for health care providers and keep financial impacts of their actions in mind.

“I think there is a general sense, even in Springfield, that hospitals are doing OK, that hospitals are making money, that we don’t have to necessarily have to worry about the financial, that we can continue to take more from the hospitals, because we have continued to take more from the hospitals and they have continued to survive,” Copple said.

“That has to end,” he said. “We are at a point where with the piling on ... we are going to start losing hospitals, and that’s going to include an access problem.”

Poorten encouraged residents to get informed about the looming changes and proposals because whatever is implemented affects everyone in the end.

“That’s the takeaway. It’s not about Medicaid, it’s not about pensions,” he said. “It’s about quality of life for our community.”

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