Impact of Recession on US Hospitals

It warns that President Barak Obama’s administration and US Congressional policymakers will ultimately determine the outcome for hospitals, patients and communities based on the way they endeavour to revive the economy and reform US healthcare.
Millions of workers have lost their jobs, and because more than 60% of private health insurance policies are obtained through employer-sponsored programmes, millions of workers have also lost their health insurance benefits. These workers have the option to extend their policies for up to one year if the company at which they worked is still in business, but the cost of a COBRA policy is usually several times more expensive. Middle class and low income workers cannot afford to enrol in these policies. Instead, they lose health insurance coverage altogether. A study conducted in April 2008 by the Kaiser Commission on Medicaid and the Uninsured of the Urban Institute of Washington DC, determined that every 1% increase in the unemployment rate leads to a loss of employer-sponsored health insurance coverage for 2,500,000 beneficiaries and their families. The US unemployment rate in May 2008 was 5%. In January, it was 7.2% and rising.
Laid off workers who do not own their home and are without any financial assets may qualify for Medicaid-sponsored insurance, available to the poorest of US citizens. Those who do not qualify either postpone medical care, or turn to hospitals for charity assistance or long-term payment programmes if they must have hospital care. A report from the Commonwealth Fund reported that in 2007, 68% of the uninsured and 53% without adequate health insurance reported going without necessary care due to costs. In 2009, hospitals expect to see an increase in emergency department admissions of patients who could have been treated in a less expensive manner in a clinic or physician’s office.
Historically, hospitals are a source of economic stability and even job growth in the US. Not only do they employ more than 5,000,000 people, but every dollar a hospital spends supports more than two dollars of economic activity. In 2007, hospitals spent approximately $299 billion on employee salaries and $304 billion on goods and services.
But revenue is declining for hospitals. Patients without health insurance are delaying elective surgery and routine care to maintain health maintenance and wellness programmes. Hospitals receive fewer philanthropic donations. A survey conducted in November 2008 by the American Hospital Association (AHA) determined that 38% of the hospitals responding had already seen a decrease in philanthropic giving. Many hospitals have had their endowments plunge as their investments have shrunk in the more than 40% decline of the US stock market.
Medicare, the government insurance for citizens over age 65, and Medicaid, provide about half of a hospital’s typical revenue. However, receipt of Medicare/Medicaid reimbursement does not guarantee that funds for payment are available. The US federal government and individual state governments share the responsibility for funding this programme. The US government pays each state between 50% to 70% for the health costs of these citizens, and the state government is expected to contribute the difference. Hospitals’ financial health through the current economic crisis depends upon adequate funding of these programmes.
Most states are forecasting huge budget shortfalls, caused in great part by diminishing tax revenue and surging unemployment benefit needs. The median decline in tax revenue for states was 5.9% less in June 2008 than it was in June 2007. As of January 2009, 43 of the 50 states expect to have budget deficits in fiscal year 2009 or 201
The National Governors Association estimates that Medicare/Medicaid payments to all healthcare providers and for prescription drugs represent 21% of an average state government budget.
But these state governments, with lower revenue available, will be facing higher Medicare/Medicaid costs. The Kaiser Commission estimates that for every 1% increase in the unemployment rate, enrolment in Medicaid and the State Children’s Health Insurance Programme will increase by 1,000,000. Medicaid enrolment by 3.6% and spending on healthcare costs by 5.8%. A number of states have announced that they will have to reduce the amount of payments they make on insurance claims. The state of California, for example, enacted a 10% Medicaid payment reduction for all health care providers through March 2009, after which the reduction will be 5%. The State of Massachusetts announced that it would reduce payments by more than $200 million.
The American Hospital Association reports that in 2007, Medicare supplied 41.0% of a hospital’s revenue, and Medicaid 14.8%, for a total of 54.8%. Private insurance provided 42.7%. But this does not mean that Medicare/Medicaid reimbursement pays the actual costs that a hospital incurs. In 2007, for all US hospitals, there were payment shortfalls of $32.9 billion. A US government agency is estimating that, in the financial year 2009, payment shortfalls will be at least 6.9%.
Private health insurance companies have always paid hospitals more equitably, but there will be fewer patients with insurance. Hospitals are already dealing with more bad debt and providing more charity care. Since October, about 50% of the hospitals responding to the AHA survey reported moderate to significant increases in their uncompensated care costs. Estimates are that this represented an 8% increase in the 4th Quarter 2008 compared to the 4th Quarter of 2007. Because the financial health of both private and public hospitals is linked to the financial health and well-being of the community in which it is located, the impact will be uneven.
In the ongoing lending crisis of the US economy, borrowing money and obtaining financing for capital improvements is very difficult. While the economic stimulus measure being proposed includes funding for healthcare information technology (IT), as of November 2008, 39% of all hospitals responding to an AHA survey stated that they were reconsidering or postponing investment in IT. Renovations and new building projects are also being postponed or cancelled by 56% and new equipment purchases are being postponed by 45%.
What will happen? How well are US hospitals going to survive? No one really knows. The AHA report does not include answers.

01.03.2009

• economy (1035)