Healthcare Reform: The Good, The Bad, and The Ugly (Part 2)

Yesterday I covered some of the positive aspects of the new healthcare reform legislation. Yes, there are some. Today let's take a look at some of the more troublesome points in the new plan. This could probable become a very exhaustive list, but I will choose to stick with the highlights (or perhaps more accurately, the lowlights). These include the obvious payment cuts to help finance the expanded system and the employer "free rider" penalty which will cut into hospital bottom lines.

About half of the new healthcare reform legislation's cost, estimated to be $938 billion, will be financed through savings coming from the current healthcare system. These savings will largely be generated by just cutting reimbursement for existing services. Hospitals are expected to shoulder about $149 billion in cuts to market basket updates and disproportionate share hospital (DSH) payments. Hospitals will also be ultimately affected indirectly by the cuts being made to other related industries such as health insurers, pharmaceutical manufacturers and device companies.

In making these cuts there is the assumption that hospitals are being run inefficiently and that through there own initiatives, hospitals will be able to become far more productive and thus sustain the cuts with no damage to their bottom line. I have no doubt that most hospitals can become a bit more efficient. We at Compirion Healthcare Solutions assist hospitals with this effort every day. But to base the financing of this huge initiative on a general assumption like this without knowledge of the impact this will have on struggling but critically necessary hospitals is irresponsible.

To make matters worse, the cuts to DSH payments are based on another assumption that many of the current payments are not justified based solely on the cost of providing indigent care. Also that these costs will go down when coverage is expanded. I don't know of many high DSH hospitals that are making record profits like some of the insurance companies or pharmaceutical manufacturers. Is this really the right place to cut?

Finally hospitals need to consider the impact of the free rider penalty they may face as an employer. Hospitals as a service industry are labor intensive and healthcare insurance costs are a major expense to the bottom line. Any employer, including hospitals, with 50 of more employees that offers a qualified health plan and contributes any portion to the premium must also provide a free choice voucher equal to the employee's premium contribution. The employee can then use this voucher to purchase insurance in a state exchange. If the hospital plan does not meet all requirements they are subject to a free rider penalty. If this sounds confusing, it is. But hospitals need to be aware of their financial liability.

So much for the bad in the news healthcare reform at least for this go around. I am sure that more will come out later. Tomorrow I will discuss the significant system reforms (the ugly) that will be occuring.

More on this later.

Mark Brodeur