Hospitals agree to funding cuts but oppose government insurance

Kaiser Health NewsJuly 8, 2009 

WASHINGTON — With the Obama administration's help, hospitals are moving aggressively to resolve their biggest objections to legislative proposals to overhaul the health care system.

The deal announced Wednesday — an agreement with the White House and Senate

Finance Committee on $155 billion in Medicare and Medicaid cuts over a decade — is only the most public part of their intense lobbying effort. For weeks, hospitals have been battling proposals to create a government-run insurance "public option" for consumers, out of fear that it would pay hospitals less than private insurance does.

The hospital industry is getting mixed signals. Some say the White House is sympathetic to the industry's demands that any government plan's fees not be linked to Medicare rates, which the industry says would create financial havoc.

Earlier this week, White House Chief of Staff Rahm Emanuel told The Wall Street Journal that one option was to trigger a public plan only if competition proved to be lacking among private insurers. President Barack Obama later said in a statement that he thought a public plan was "one of the best ways" to achieve his health care goals, but he left open the possibility of some other approach.

Hospitals and their congressional allies — especially Democratic conservatives and

moderates in the House of Representatives known as Blue Dogs and New Democrats — have depicted a public option as potentially disastrous.

"An open-ended public plan alternative would mean bankruptcy, almost immediately, for hospitals and large physician groups," said Steve Brenton, the president of the Wisconsin Hospital Association.

He also opposes creating a public plan that would be activated only under certain circumstances. "You put a bow tie on a pig and it's still a pig," he said.

From the White House's perspective, defusing hospitals' opposition would be a major step. Satisfying all their concerns won't be easy, however, considering that the industry is diverse, with for-profit and nonprofit members, large public hospitals, small rural hospitals and academic medical centers. Each sector has its own agenda.

"There is not a one-size-fits-all-approach to getting all hospitals on board," said Larry Gage, the president of the National Association of Public Hospitals and Health Systems.

Hospitals' concerns encompass several issues:

_ MEDICAID. Any health overhaul legislation is likely to expand Medicaid, the state-federal program for poor people and those with disabilities, to pick up millions of uninsured people. Hospitals argue that expanding a program that they already lose money on could spell financial doom. "Medicaid is such a bad payer, it's a constant challenge for our institutions," said Jim Kaufman, the vice president of public policy at the National Association of Children's Hospitals.

_ GRADUATE MEDICAL EDUCATION. Despite congressional proposals to increase federal funding to train more primary-care doctors, teaching hospitals and academic medical centers fear that overall spending on graduate medical education will fall, affecting training for specialists. "Everything is at risk," said Atul Grover, the chief advocacy officer of the Association of American Medical Colleges. The association wants Congress to spend $12 billion over the next decade to expand residency training slots.

_ CHARITY CARE. Sen. Charles Grassley of Iowa, the ranking Republican on the Finance Committee, has been pushing for a requirement that nonprofit hospitals spend at least 5 percent of their revenues on charity care each year in order to maintain tax-exempt status. Nonprofit hospitals, which make up more than 80 percent of U.S. hospitals, want either to kill or scale back the proposal or to have a very broad definition of charity care.

_ PAYMENT REVISIONS. Some hospitals, particularly large integrated health systems such as the Mayo Clinic in Rochester, Minn., and the Intermountain health system in Salt Lake City, say the overhaul proposals that are being debated wouldn't change the Medicare payment system enough to reward high-quality, low-cost providers.

The biggest issue for most hospitals, however, is the public plan.

Egged on by unhappy hospitals and doctors in their home districts, Rep. Ron Kind of Wisconsin, a leader of the moderate New Democrat Coalition, and Rep. Mike Ross, D-Ark., a leader of the conservative Blue Dog Coalition, oppose a government-run option.

On June 16, they confronted House Speaker Nancy Pelosi, D-Calif., and other leaders, shortly before the leaders released the outline of their health care package.

The leadership had planned to require that hospitals and doctors with Medicare patients participate in the proposed new public plan. To defuse the confrontation, they said instead that participation would be voluntary. They also offered to beef up the fee system slightly; hospitals would be paid Medicare levels plus 5 percent.

The next day, a delegation of 17 health care groups from Wisconsin, Iowa, Washington and Utah converged on the Capitol to complain about the proposed public plan and about Medicare rates, which are below private insurers' rates and, hospitals say, their costs.

Wisconsin hospital officials say that Medicare, the federal health care program for the elderly, reimburses little more than 50 percent of their costs for treating seniors and that a 5 percent bonus would make little difference.

Karl Ulrich, the president and CEO of the Marshfield Clinic, which operates 45 medical centers with 775 physicians throughout Wisconsin, testified recently that it would take "Medicare plus 100 percent" to cover his facilities' costs.

Brent Miller, the federal government relations director of Marshfield, added, "We're picking up more and more of our people's (hospital costs). Our losses are accumulating. We take all patients regardless of ability to pay, but they fill up slots in our centers that we would like to fill with commercial patients."

(Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy-research organization that isn't affiliated with Kaiser Permanente.)

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