Information released this week by the American Hospital Association (AHA) shows how the worsening economy has taken a toll on U.S. hospitals. 

According to AHA, U.S. hospitals provided $36.4 billion in uncompensated care in 2008, a $2.4 billion increase over 2007.  Uncompensated care is the combination of bad debt (money hospitals expected to receive for care provided but did not) and charity care (money not expected to be received from patients who met the hospital’s guidelines for free care). 

In Iowa hospitals, uncompensated care totaled $709 million in 2008, up from $613 million in 2007. 

Meanwhile, underpayment by Medicare and Medicaid to U.S. hospitals reached $32.4 billion in 2008, up from $31.9 billion in 2007 and $3.8 billion in 2000, respectively.  Medicare reimbursed 91 cents and Medicaid reimbursed 89 cents for every dollar hospitals spent caring for these patients.  In Iowa during 2008, Medicaid losses totaled nearly $178 million, while Medicare losses amounted to $103 million. 

The poor economy and the rising cost of insurance have led to more people becoming uninsured.  Research has shown that for every one percentage point increase in unemployment, 2.5 million people lose their employer-sponsored insurance.  More uninsured people means more spending by hospitals to pay for care for people who cannot pay for it themselves. 

Some of the uninsured qualify for government assistance to pay their medical bills, often through the Medicaid program.  But Medicaid doesn’t pay hospitals for the full cost of care (neither does Medicare, but Medicaid pays even less) and hospitals must cover the difference.  With more people going on Medicaid, that difference is growing larger. 

How does this impact hospitals?  Well, for one thing, the growing demand for charity care and more instances of bad debt makes it harder for hospitals to pay better salaries (it’s well known that Iowa nurses salaries are among the lowest in the nation) that help keep medical professionals (particularly young ones) in the state.  It also makes it harder for hospitals to build reserves that pay for replacing aging equipment and improving services. 

But uncompensated care and underpayment by Medicaid and Medicare also impact individual Iowans, because these costs are shifted to payers who do cover their full cost of care – mainly people who are privately insured.  In Iowa, Wellmark has estimated that 10-15 percent of the dollars it pays to Iowa hospitals and physicians is to compensate for government programs’ shortfall. 

Uncompensated care and underpayment by Medicaid and Medicare are always a challenge for hospitals.  This is why IHA supports efforts to insure more Iowans and more Americans and why IHA has fought to keep the government from cutting Medicare and Medicaid payments.

The American Hospital Association, along with other health care industry leaders, presented President Obama with a voluntary cost-curbing plan this morning. In a letter, the groups committed to work together as stakeholders to help achieve the administration’s goal of reducing health care costs by 1.5 percentage points over 10 years – saving $2 trillion or more.

The groups will focus on curbing cost increases through consensus proposals that:

• Make administrative simplifications across all sectors of the health care system.
• Reduce excessive utilization and under-use of health care by aligning quality and efficiency incentives.
• Encourage coordinated care and evidence-based practices.
• Reduce of the cost of doing business through delivery model improvements and information technology.

Many news reports today incorrectly reported that the plan promised to curb the growth rate of health care spending by 1.5 percentage points each year for 10 years. But the letter clearly stated:

“As restructuring takes hold and the population’s health improves over the coming decade, we (hospitals, physicians, other health care workers, payers, suppliers, manufacturers and organized labor) will do our part to achieve your Administration’s goal of decreasing by 1.5 percentage points the annual health care spending growth rate — saving $2 trillion or more.”

IHA has long supported health care reform efforts that incent value by aligning quality and efficiency measures. Confirmed by the 2008 Dartmouth Atlas Project, IHA maintains that Iowa’s care delivery system should be a model for the nation of how to provide high quality care at a low cost.

A complete overview of IHA’s position on value-based purchasing is available for download.

IHA released its latest economic impact report in January 2009, providing statistics on the number of jobs generated by community hospitals and the amount of money added to the state’s economy.

Despite the increasingly important role hospitals play in Iowa communities, they are just as susceptible to feeling the impact of a downturn in the economy. Comparing hospital data from the fourth quarter of 2008 to the same period in 2007 shows declines in virtually all service areas.

Thanks to the American Hospital Association, now you can hear specifically from leaders in Iowa hospitals about how they are dealing with these economic challenges. AHA spoke with several Iowa hospital executives at the AHA annual meeting this week and provided video clips on YouTube. Read more