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John Geyman

John Geyman

Posted: September 1, 2009 04:04 PM

The Corporate "Alliance" For Health Care Reform: III. The Hospital Industry


Faced with increasing political momentum toward some kind of health care reform, the hospital industry, together with other major stakeholders, wanted to retain a place at the negotiating table and protect its interests in whatever legislation resulted. Urgency increased after the drug and insurance industries offered up their pledges to help with financing reform. Then the stakes increased further when the Obama Administration put out a proposal to cut payments to hospitals by $224 billion over the next ten years to help fund reform.

So a voluntary "preliminary agreement" was struck between the hospital industry, the White House and the Senate Finance Committee pledging that the industry would cut Medicare and Medicaid payments by $155 billion over ten years. Three organizations got together on this pledge: the Federation of American Hospitals (FAH) (the trade group representing investor-owned hospitals), the Catholic Health Association (not-for-profit hospitals), and the American Hospital Association (AHA, representing all types of hospitals). The $155 billion pledge included projections to cut annual Medicare payments to hospitals ($103 billion), reducing re-admissions of patients to hospitals ($2 billion), and lowering federal Medicare and Medicaid payments to "disproportionate share" hospitals that provide care to uninsured and poor patients ($50 billion). The hospital organizations also expressed their cooperation with efforts to improve efficiencies and quality of care as well as testing says to better integrate care, including the possibility of bundled payments.

Once again, as we have seen with the insurance and drug industries, the hospital industry is sharply focused on preservation and growth of future revenue streams. While supporting expansion of insurance through the reform proposals, the industry expressed serious reservations about the public option and an independent commission with authority over Medicare spending.

One especially contentious issue, both within the hospital industry itself and in health policy circles, is the future role of so-called specialty hospitals. These are physician-owned, for-profit facilities that usually specialize in the care of insured patients needing procedures in cardiovascular disease, orthopedic surgery and neurosurgery. They have been criticized for cherry picking the market, not carrying their share of emergency care (they usually do not have emergency rooms), overutilization of procedures, and "triple-dipping" by physicians who self-refer to their own facilities, then receive income from doing the procedure, sharing in the facility's profit and gaining in the value of their investment.

The political battle over the future of specialty hospitals will be interesting to watch, and will reveal how effective reform can be in reducing perverse incentives and cutting costs in our market-based system. The interests of specialty hospitals are being promoted by the San Diego-based American Surgical Hospital Association, but are being opposed by both the AHA and the FAH, which together represent most of the hospitals in the country.

Tracking Study carried out by the Center for Studying Health System Change has concluded that " specialty hospitals are contributing to a medical arms race that is driving up costs without demonstrating clear quality advantages".

As of late August 2009, the House bill would prevent the opening of new specialty hospitals by disqualifying them from receiving payments from Medicare, but would grandfather in existing specialty hospitals. Physician ownership would be restricted to 40 percent. In reaction, specialty hospitals have been lobbying Congress heavily to restrict limits on specialty hospitals. As one example, Doctors Hospital at Renaissasnce in Edinburg, Texas, a 530 bed specialty hospital with physician ownership at the 82 percent level and with much higher levels of costs and utilization than peer hospitals, has raised at least $500,000 in a single fund-raising event for the Democratic Senatorial Campaign Committee as well as more than $800,000 for the Democratic Congressional Campaign Committee.

Other tactics conducted by the hospital industry are generally in favor of health care reform as it is developing, based on its expectation that the large increase in the insured population will lead to increased financial returns for hospitals. Not surprisingly, the Federation of American Hospitals joined in a $12 million advertising campaign to support the goals of the Obama Administration, a new group called Americans for Stable Quality Care, which includes such diverse coalition partners as the AMA, Families USA, PhRMA and SEIU, the service employees' union.

So what can we say about likely rewards to the hospital industry from health care reform? If events track along as they are heading, hospitals will thrive, better than ever, with more insured people and generous accommodations from government. This statement by Chip Kahn, leader of the FAH for investor-owned hospitals, reflects his confidence in the future: "The hospitals have been for reform all along, so I see the potential for hospitals and our patients to be big winners in this process."

John Geyman, M.D. is the author of The Cancer Generation and Do Not Resuscitate: Why the Health Insurance Industry is Dying, and How We Must Replace It, 2008. With permission of the publisher, Common Courage Press

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