Category: Hospitals

A Very Weak Argument in Favor of Hospital Mergers

Earlier this week, I discussed the rapid pace of mergers throughout health care. Hospital consolidation is one point of special concern, because it can reduce competition and increase prices. In the Wall Street Journal, Dr. Kenneth L. Davis, MD, CEO and President of Mount Sinai Health System in New York City puts forward a number of claims in favor of hospital consolidation. Each is weak, making an unconvincing argument overall.

First, Dr. Davis asserts that the new goal of hospitalization is not to make any individual patient well, but “population health management”. Greg Scandlen has thoroughly challenged this as an appropriate goal. With respect to hospitals specifically, Dr. Davis’ theory of population health management leads him to conclude that “stand-alone hospitals have neither the number of patients to manage the actuarial risk of population management, nor the geographic coverage to serve a large population. Hence the reason for allowing strategic hospital mergers.”

You’re Being Observed in the Hospital? Patients with Private Insurance Better Off Than Seniors

This headline comes from that notorious member of the right-wing conspiracy, Kaiser Health News. Here’s the story:

Senior Man ThinkingAn increasing number of seniors who spend time in the hospital are surprised to learn that they were not “admitted” patients — even though they may have stayed overnight in a hospital bed and received treatment, diagnostic tests and drugs.

The distinction between inpatient status and outpatient status matters: Seniors must have three consecutive days as admitted patients to qualify for Medicare coverage for follow-up nursing home care, and no amount of observation time counts for that three-day tally. That leaves some observation patients with a tough choice: Pay the nursing home bill themselves — often tens of thousands of dollars — or go home without the care their doctor prescribed and recover as best they can.

Boom! Hospital Revenue Up 5 Percent in Twelve Months

This morning’s Quarterly Services Survey (QSS) released by the Census Bureau reported that hospitals’ revenue rose 4.9 percent from the end of the second quarter in 2013 to the end of the second quarter in 2014. From the first quarter to the second quarter of 2014, it jumped 2.8 percent, overcoming a first quarter drop of minus 0.8 percent. Revenue for ambulatory services rose only 2.4 percent in the same twelve months. It jumped 3.0 percent from the first quarter of 2014, but had dropped 2 percent in the first quarter from the end of 2013.

The QSS surveys a sample of service businesses, and is assuming increasing importance in economic research. It is important because it reveals complementary — and in this case contradictory — data about health spending. As I’ve discussed frequently at this blog, healthcare employment is growing steadily, but not in hospitals. Growth is in the outpatient setting. I had hoped that this indicated that health services were moving out of the high fixed-cost hospital setting and into lower fixed-cost outpatient settings, especially convenient retail clinics.

Hospitals’ Revenues Lagging, Unions Flagging

Smiling NurseOne of the under reported causes of the high cost of health facilities, especially hospitals and nursing homes, is the high rate of unionization in the sector. In the glory days of spending growth, unions staged great campaigns to organize healthcare workers. Conflict erupted, for example, between the California Nurses Association and the Service Employees International Union to sign up nurses.

After Obamacare, things are different. Moody’s recently reported that non-profit hospitals’ top-line revenue growth was just 3.9 percent last year, an “all-time low.” For many businesses, 3.9 percent revenue growth in the Obama economy would be relatively rosy. However, it’s not what hospitals are used to:

Hospitals’ Huge Bills: Is Medicare Caving In?

Before the Labor Day long weekend, the Centers for Medicare & Medicaid Services (CMS) quietly disclosed a deal it is offering to America’s hospitals, many of which are engaged in a long-running dispute over hospital charges. Apparently responding to political pressure, CMS is offering hospitals which accept the deal 68 cents on the dollar to close disputed claims.

At issue is hospitals charging higher prices for inpatient procedures in cases where CMS (and its auditors) assert lower prices for outpatient procedures are appropriate. There is a growing caseload of these disputed claims, jamming the administrative courts, giving hospitals cash flow problems, and motivating them to lobby against the audits that identified the alleged overbilling.

Healthcare Workforce Healthy, Hospitals Lagging

We’ve been observing an interesting trend for a few months: healthcare employment is growing apace, but hospital employment is lagging. The latest Bureau of Labor Statistics monthly report confirms the trend. At Forbes, Dan Diamond has a chart and an explanation:

What’s the culprit behind hospitals’ incredible slowth? There are a few factors — for one, the hospital industry is relatively large (hospitals employ four times the number of workers as home health agencies) and mature, which acts as a constraint on its growth.

But more importantly, the jobs trend line reflects the pressures on hospitals generally and inpatient care specifically:

Is Consumer-Driven Health Care Hurting Hospitals? (And Should We Care?)

Dobson DaVanzo, a leading consulting firm, has produced a report for the Federation of American Hospitals, the trade association for for-profit hospitals. The report notes that the rate of change of health spending has slowed down. Indeed, the report concludes that spending is set to shrink this year by over one percent. This introduces a “paradox”:

However, paradoxically, consumers perceive that their health care spending is increasing more than usual. This perception is largely a result of spending on their health care increasing faster than personal income combined with a continuing redesign of their health insurance benefits, which shifts more of the cost burden onto consumers:

  • Almost 60% of Americans think that health care costs have been growing faster than usual in recent years, and more than 70% of consumers attribute responsibility for their perceived high and rising costs to health insurance companies.
  • Total premiums have increased substantially over the past decade, from 14.9% to 21.6% of median household income between 2003 and 2012.
  • Employee contributions to premiums and out-of-pocket spending have risen 23% faster than employee costs since 2009 (32% in cumulative growth vs. 26%) (See Exhibit 2).

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Non-Hospital Healthcare Jobs Are Growing Fast

Jobs in health care, especially in outpatient settings, continue to rally. Of 217,000 nonfarm civilian jobs filled in May, 34,000 were in health care. This was twice the average monthly gain over the previous twelve months.

As previously observed, most of these jobs are in ambulatory settings. Two thirds of the gains (23,000) were in physicians’ offices, outpatient-care centers, and home-health care. Hospitals only added 7,000 jobs from April.

Table 1 shows the seasonally adjusted changes over the last twelve months. It continues to become apparent that the sector is undergoing a transformation: Care is being increasingly delivered outside hospitals. Although hospitals still account for one third of employment in health services, job growth there is anemic. Although outpatient-care centers employ only 715,000 workers, they continue to add jobs rapidly.

Hopefully, this indicates a shift to more productive ways of delivering care. However, the perverse incentives in ObamaCare (which cut hospital payments bluntly) caution against optimism.

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Health Care Workforce Continues to Shift Out of Hospitals

Although the Bureau of Labor Statistics latest employment report shows that health care continues to add jobs at about the same rate as the rest of the economy, the shift of jobs to out of hospitals continues.

From March to April, hospitals barely added two thousand new workers. Physicians’ offices, on the other hand, added six thousand, while providers other than hospitals added jobs at a faster rate than hospitals. This is a trend that has persisted for months.

Hopefully, it portends a change in practice to lower cost settings. Nevertheless, hospitals are still adding workers. The hospital lobby often complains that reduced government reimbursement is causing cutbacks. The data do not confirm this.

Further, the unemployment rate in the education and health services sectors is just 3.7 percent (only government workers, with an unemployment rate of 2.7 percent, are doing better). Were the hospitals to actually reduce their workforce somewhat, we could plausibly anticipate that many of those workers would quickly be picked up by physicians’ offices and other health-services providers.

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Hospital Price Transparency: More Toothless Regulation

The Administration continues to promulgate ineffective regulations that are supposed to help patients understand how much money they owe their hospital. Here is this month’s proposed rule updating the hospital Inpatient Provider Payment Services (IPPS) schedule for 2015:

Hospitals are responsible for establishing their charges and are in the best position to determine the exact manner and method by which to make those charges available to the public. Therefore, we are providing hospitals with the flexibility to determine how they make a list of their standard charges public. Our guidelines…are that hospitals either make public a list of their standard charges (whether that be the charge master itself or in another form of their choice), or their policies for allowing the public to view a list of those charges in response to an inquiry.

It is hard to imagine how this is going induce hospitals to present good-faith charges to patients, whether they are insured or not. A better solution would rely on common law, not federal regulation.