Hospitals Expect Financial Gains From Reform

Hospital leaders knew exactly what they were doing when they struck a deal with the Obama Administration on healthcare reform a few months ago. When the American Hospital Association, the Federation of American Hospitals and the Catholic Health Association pledged to accept $155 billion in Medicare cuts over 10 years, they knew that an expansion of insurance coverage would increase their revenues by $171 billion, for a net gain of $16 billion.

In the cost-cutting agreement, the hospital groups agreed to a gradual reduction of $50 billion in government payments for treating the uninsured. The pact also assumed that procedural changes by the feds would lead to a $2 billion cut in payments for readmissions. The other $103 billion in the savings would come from lower Medicare payments to hospitals.

Meanwhile, an AHA spokesperson told Bloomberg News, the association was circulating a report to Congress and state hospital associations saying that reform would add $171 billion to hospitals' coffers, mainly by reducing the cost of charity care. According to the AHA, this was a "conservative" estimate.

Of course, even if the hospitals had to take a $155 billion hit, that would be a tiny portion of the money that flows through their doors. Uwe Reinhardt, the Princeton health economist, has estimated that hospitals will take in $11 trillion over the next 10 years. So the hospital associations' bargaining with the White House over the amount of the cuts--the President had asked for $200 billion--was really just a public relations show for their members.

What really concerns hospitals are the proposals that the Senate Finance Committee made last spring. The Finance Committee was considering a "value-based purchasing" program that, according to the AHA, would hold back 2 percent of Medicare payments, rising to 5 percent in FY 2016 and beyond. Hospitals that performed well on quality measures would receive their withhold back if they were in the top quartile. Other hospitals would either get part of the withhold or nothing at all. The AHA protested the size of this penalty and another on high readmission rates and said that the committee was moving too fast on bundling hospital and post-acute-care payments.

What does this all mean? It means that, for now, the White House is willing to go easy on hospitals in return for their support for reform legislation. But if the Senate Finance Committee wants to include its proposals on Medicare payment reform in the Senate bill, the President and Congress may have to fight off a wave of lobbying and hostile advertisements funded by the hospital industry.