2/12/2012
By MICHAEL STRAND Salina Journal
Given such trends as declining reimbursements from the government, an aging population and the popularity of high-deductible health insurance, what does the future of health care look like?

"Soylent Green," says Micheal Terry, CEO of Salina Regional Health Center, after a short pause to ponder.

"I was thinking 'Logan's Run,' " says Joe Tallon, the hospital's vice president of finance.

The two 1970s science fiction films seem wildly different but share a backdrop. In 'Soylent Green,' the elderly are encouraged to report to government-run euthanasia centers; in 'Logan's Run,' people are required to report to what they've been told is a kind of reincarnation center on their 30th birthday -- where they are killed.

In the nearer term, Terry and Tallon see a landscape of health care rationing and shuttered hospitals.

They also envision the convergence of numerous seemingly disparate trends, ranging from a growing entitlement mentality, trends in lower government reimbursements, and a heavier and fatter population -- all working to make health care an increasingly difficult business.

Consider this: Tallon says Salina Regional actually gets paid about 36 percent of what it bills.

And he expects that figure to decline.

Writing off millions

In a typical year, Salina Regional writes off about $15 million in bad debt -- bills the hospital has given up trying to collect.

About half of that bad debt comes not from patients who lack insurance, but from those who are only responsible for their deductible -- but don't pay.

"This has been an increasing concern as more individuals move to high-deductible health plans," Tallon said.

Such plans, which have become more popular in the past 10 years, charge a lower premium for health insurance each month, but instead of a $500 or $1,000 deductible, a patient has to pay the first $5,000 or more of their health costs.

"People think, 'I'll put aside that $5,000, so I'll have it,' " Terry said. "But then that money goes to a new big-screen, or a new car, and it's not there."

And in some cases, Terry said, that means the hospital (and other providers) don't get paid -- and instead of losing $500 or $1,000, they're out $5,000.

Another large share of the uncollected debt, Tallon said, is from patients coming through the emergency room, and people with recurring drug or alcohol problems.

Compared to some parts of the country, people in central Kansas are still more likely to try to pay their bills, Tallon said, but there's "growing mindset" that health care is a right, and people holding that view are more likely to think they don't need to pay their bills.

"We've got to get paid for what we do," Tallon said. "Bad debt really hurts. A patient's co-pay can be the difference between breaking even and not breaking even."

Charity care

For people having genuine problems paying their bills, the hospital is willing to work out payment plans, write off part of the bill, or chalk it up to "charity care."

The charity care is based on family income.

For a family at 200 percent of the poverty line -- $44,700 for a family of four -- the hospital will write off 100 percent of the bill, Tallon said, and will forgive smaller amounts for people earning up to 400 percent of the poverty line.

That alone adds up to a considerable amount. In 2010, the hospital wrote off some $5.7 million in "charity care."

As for payment plans, Tallon said the hospital is willing to work with people, but there are limits.

"We're not going to do a 'forever and always' payment plan," Tallon said. "I'm in the same boat. I couldn't write a check for $8,000 or $10,000."

But, he added, "We're not going to do $25 a month on a $5,000 bill -- it would take forever to pay off."

The hospital will also work with people to help them qualify for Medicaid -- a government health care program for the needy -- and other programs, though Tallon said people have to be proactive and ask for the assistance -- and take the time to fill out the paperwork.

"There's a lack of follow-through, sometimes," Tallon said.

Won't cover the costs

But getting the government to foot the bill doesn't do much for the hospital's bottom line, either.

Private insurance companies regularly negotiate with hospitals and other health providers, and end up paying somewhere between half and three-quarters of the "sticker price" for a given service. That's acceptable because the hospital's typical actual cost of providing services is just under half of that sticker price.

But reimbursements for Medicare -- the government health care program for those 65 and older -- are roughly 35 percent to 40 percent of the sticker price. That's less than the actual cost of providing the service, and Medicaid reimbursements are in the 15 to 20 percent range.

The difference between what the government pays and the actual cost of providing services to Medicare and Medicaid patients totals about $10 million a year, Tallon said.

"We're losing money more and more on both private insurance and government insurance," Terry said. "Medicare used to be 'We'll pay your cost,' but that went away 20 years ago. Medicaid has never covered actual costs."

Cost-shifting

To compensate for all those bills that don't get paid, hospitals shift the costs to paying patients -- much the same way that prices at a grocery store are increased to make up for shoplifting.

Tallon couldn't say how much of a typical bill is related to such cost-shifting.

"I've never put a number on that," he said. "I'm not sure any two people would come up with a similar number -- but I can say that nationally, it's billions of dollars every year."

It's only going to get worse

Terry predicts the situation will get worse.

"We're squeezed now and (will be ) more so in the future," he said. "We cringe a lot. If that 8 or 9 percent Medicaid population goes to 12 or 15 percent -- we're sunk."

But a down economy could push those Medicaid numbers higher.

"High commodity prices are helping," Tallon said. "But we've been talking about Boeing closing. "It seems like it's a long ways away, but how many of those workers might move here, or how many live just south of here and drove to Wichita for a job but will start coming here for hospital care?"

Already, Terry said, some services Salina Regional provides don't break even. He said the first time he's heard Tallon use the word "rationing" was in a staff meeting in early January.

"There's an unlimited demand for services," Terry said, adding that there's not an unlimited supply.

Terry and Tallon are both skeptical that federal health care reform and Gov. Sam Brownback's plan to have private contractors run Medicaid will control costs or improve care.

Do wellness programs work?

Brownback's plan includes encouraging healthier living and a greater emphasis on staying healthy rather than treating illnesses.

Tallon said that when he worked in Texas, a similar plan was tried, with limited results.

The hospital has for several years tried to encourage employees to be healthier, and "I'm not sure it's worked for us," Terry said.

In society at large, Terry said, alcohol, tobacco and obesity are still serious problems, and the more government covers those costs, the less incentive people have to change.

He said he recently heard of a patient with serious health problems whose reply to her doctor was, " 'It's my life, don't tell me what to do,' " Terry said. "But they do expect someone else to pay the bill."

Paperwork requirements are also likely to increase.

"In one department here, we're going to have to hire four to six new people with all kinds of expensive letters after their names," Terry said. "And not one of them is touching a patient -- it's all for paperwork -- paperwork that goes to the government."

Do you really need an MRI?

Smaller rural hospitals are likely to get squeezed worse than regional hospitals such as Salina Regional, Tallon said. Many of them already have 70 to 80 percent of patients on Medicare -- close to double the rate at Salina Regional.

To help control costs, Tallon predicts the federal government will start a form of hidden rationing by, for example, not allowing a hospital to buy an MRI machine because another nearby hospital already has one.

"They'll say, 'There's another MRI in a hospital 35 miles away,' and require a 'certificate of need,' " Tallon said.

Many levels of government already employ similar procedures. In some cities, a person can't open a new cab company without first convincing city officials there's a need for more taxis.

"It's the government picking winners and losers," Tallon said.

But does every small-town hospital really need an MRI? "Ask them out there, and they'd say yes," Terry said. "It gets back to that unlimited need."

n Reporter Mike Strand can be reached at 822-1418 or by email at mstrand@salina.com.

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