The co-chairs of the Joint Select Committee on Deficit Reduction have announced that the committee has failed to come to an agreement on a deficit reduction strategy.  The bi-partisan, bicameral committee, formed by the Budget Control Act, was charged with reducing the national deficit by at least $1.2 trillion.

The committee’s failure to reach an agreement means automatic spending cuts totaling $1.2 trillion, to be split between defense spending and non-defense programs, will become effective in January 2013.  Under this across-the-board cut, hospitals face a 2 percent reduction to Medicare payments over nine years (2013 to 2021).  Medicaid cuts are, however, exempt from the cuts.

Congress will now take the time to determine the next steps for deficit reduction.  Some are calling for the cuts to be repealed or delayed further, though the president has already threatened to veto any attempts to do so as a means to encourage continued Congressional action on deficit reduction.

IHA strongly opposes the cuts to hospitals as not only are they incredibly arbitrary, but hospitals have already committed to more than $155 billion in Medicare cuts to help finance the health care reform law.  By simply piling on more and more cuts, hospitals are finding themselves unable to expand critical services and are unable to create jobs with so much financial uncertainty, adding additional pressure to the economy.  IHA will continue to work with Iowa’s Congressional Delegation on this issue.

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“I think the focus needs to be on what staff, physicians and leaders can do to improve the patient experience instead of the ‘throw up your hands’ approach and blaming patients for being more difficult,” said David Brandon, CEO of The Finley Hospital in Dubuque.  “You cannot have an ‘opt-out’ culture if you’re going to succeed in creating an exceptional patient environment.” 

Both Sioux City and Dubuque are in multi-county hospital referral regions (HRRs) that rank in the top 20 nationwide for patient satisfaction.  The HRR around Mason City ranks at the top.  Meanwhile, out of nearly 300 HRRs, Manhattan is dead last and Cleveland is 237^th. 

“Where many CEOs fall down is they see this as a fluff kind of thing,” said Greg Paris, CEO at Monroe County Hospital in Albia, who received IHA’s hospital leadership award in 2007 in part for his work to pull that hospital’s patient satisfaction scores out of the basement.  “What they don’t realize is that satisfaction is directly related to quality outcomes, financial results and employee engagement.”

But, he added, “Smiles and singing don’t drive satisfaction.” 

Paris talks about how using key words reduces patient anxiety, which improves compliance with care plans and leads to better outcomes.  Hourly rounding (“I hear large hospitals gasping,” Paris laughed) reduces patient falls by 50 percent.  Checklists reduce errors.  Discharge calls save lives because one in six patients has an adverse health event after they go home.  Lower employee turnover means fewer mistakes and less harm to patients. 

But shouldn’t getting the highly touted care at Cleveland Clinic or NYU be enough?  The better question – the one really being asked through HCACHPS and Hospital Compare – is why not expect high-quality care and a first-class patient experience?  Anyone who has made use of the Iowa Healthcare Collaborative’s “Iowa Report” will see Iowa hospitals are uniformly committed to both. 

“Yes, we need to have the right facilities and evidence-based strategies in place, but more than anything else it is the never-ending commitment to create a culture that holds service in the highest regard,” said Brandon.  “Without the right culture, the strategies and facilities alone will not allow you to meet the expectations of your patients.” 

And because of the growing amount of publicly available data, hospitals cannot depend on just their word-of-mouth reputations or referrals.  “The next generation will pick their hospital based on outcomes and experience, not just by where their doctor sends them,” noted Paris.

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A recent Des Moines Register article expounded on publicly reported information to support the obvious conclusion that bringing tax-exempt organizations onto the tax rolls would lower other taxpayers’ proportional tax liability.  It’s important to know that two different standards on tax exemption are involved in an evaluation of this question.  

One is a standard in Iowa law that exempts from property taxation any religious, educational or charitable institution.  The other is a federal regulation that exempts organizations from taxes on revenue if that organization provides community benefits that the government otherwise would have to provide or, at the time of application for tax exemption, don’t exist in the community.   

Each standard involves evaluation by regulators – the Internal Revenue Service for community benefit and the Iowa Department of Revenue for charitable status – and both have had extensive and consistent scrutiny by the courts.  The Register noted that hospitals pay significant sums in property taxes and in addition to that, some make payments in lieu of taxes to support police and fire protection. 

Iowa hospitals supported mandatory reporting of community benefits in federal law because of their practice of doing so prior to this mandate.  Iowa hospitals continue to support the community benefit standard for the express reason that an assessment of community need is driven by its demographics and by the needs and priorities identified by community members.  The capacity, opportunity and definition of community benefit is different in a community of 1,500 than one modestly or significantly larger.  It’s certainly different when that institution exists in Des Moines or Chicago or Los Angeles. 

As the Register noted, opinions of policymakers and policy wonks differ on the question of what should be included in the definition of community benefit or whether a flat percentage mandate should be required.  Iowa Senator Charles Grassley supports inclusion of Medicaid payment shortfalls in an analysis of community benefit.  In 2010, Iowa hospitals’ net losses from Medicaid equaled nearly $200 million.  Uncompensated care, that care which was not classified as charity but which otherwise had no identifiable source for payment, equaled $340 million in 2010. 

So, what should be the appropriate ratio for calculating community benefit?  The Register took a very narrow view and used charity care divided by total expenses.  Hospital expenses consist of labor costs, infrastructure costs in delivering patient care as well as expenses unrelated to patient care.  Why not net patient revenues?  Perhaps because it supports a conclusion exactly opposite of the position promoted by the Register.   

Using the analysis of charity care plus Medicaid losses plus uncompensated care, Iowa hospitals provided 11.2 percent of net patient revenues for community benefit.  Using the same inputs and expenses for the denominator as the Register does shows Iowa hospitals allocated 10.2 percent of expenses for free care. 

In a country with a stagnating economy, it’s tempting to toss out simplistic solutions that rarely account for all the policy considerations at play let alone consider the implications for an industry that has a $6 billion impact on Iowa’s economy and provides nearly 70,000 jobs.  The important thing to know is that Iowa’s hospitals believe in and live up to being accountable to the communities they serve.

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Imagine a chart with the hospital represented in the middle and then each layer of regulatory authority circling around it, from city councils and county supervisors to state legislators, agencies, boards and inspectors to the federal government, including everything from the fairly obvious like Human Services, CDC, FDA and, of course, Congress, but also the IRS, FCC, FAA, Homeland Security, OSHA, DEA, FTC and EPA, among others.  There is, quite literally, a universe of regulation surrounding a hospital and for nearly every employee on each day, there is interaction with that universe. 

Regulators demand a lot from health care providers and it does impact care for patients – but that impact is not always positive.  One study found that for every hour of patient care, there is at least 30 minutes of paperwork.  In some settings, the ratio is one-to-one: one hour of paperwork to every hour of patient care. (The Obama administration recently announced steps it was taking to reduce regulatory red tape hospitals face.)

Does this mean hospitals are against regulation?  Absolutely not.  Hospitals recognize and honor the need for consistency, guidance and accountability because, in the end, providers and regulators are seeking the same thing: the right care for every patient, every time.  As David Vellinga, CEO at Mercy Medical Center-Des Moines, recently wrote: “While these processes can be burdensome at times, we at Mercy understand they are important parts of continuously improving quality — necessary steps in the journey toward perfect care.” 

The work to comply with regulations, inspections and surveys is no less for a smaller hospital.  “At times it is difficult to look beyond the minutia of regulations to see the intent,” said Sharon Taylor, who serves as the compliance officer at Burgess Health Center in Onawa.  “However, the intent of the majority of regulations is to be sure that treatment, payment and health care operations are delivered to our patients in a safe and effective manner.” 

Another reality is that nearly every hospital employee is affected by regulations and has a role in knowing and complying with them.  To prevent infections, housekeeping staff need to know that different cleaners must be used in different rooms and situations and they need to know how to use those cleaners safely and effectively.  Plant operations staff need know where hand gel dispensers can be mounted to comply with fire regulations.  And all staff are routinely trained on patient safety and privacy regulations. 

But, despite the hard work of staff, mistakes do happen.  “Employees come to work to do a good job, they don’t come with the intention of making a mistake or breaking a regulation,” Taylor said.  “Sometimes it is the processes that are put into place, because of regulations, that cause mistakes to happen and sometimes mistakes are just that, a mistake. While this doesn’t make it right and is certainly not an excuse, the people working in health care are after all humans.” 

More and more, hospitals – often in partnership with inspectors and surveyors – are looking closely at those processes, looking for opportunities to reduce problems and mistakes. “Over the years surveyors have changed their perspective to a more collaborative team approach,” said Michelle Burford, who manages compliance at Fort Madison Community Hospital.  “In my experience they often welcome questions.  They share suggestions they have learned from other organizations across the country.” 

Though it is enormous, the amount of regulation placed on hospitals is, for the most part, well intended. Most hospitals see its advantages and, in fact, practically all hospitals voluntarily seek other outside assessments that ultimately create more work but also improve health care.  “Mercy has proactively added to the number of survey processes by seeking and achieving accreditations and certifications for many services,” noted Vellinga.  “Mercy wants our patients and communities to understand the extensive efforts under way every day to scrutinize our facilities and services, find opportunities for improvement, and make changes to ensure we do everything right, every time, for every patient.” 

That is the goal of all health care providers – and it should be the goal of those who regulate them.  Just as hospitals examine and re-examine their processes in quest of improvement, hospital regulators should be careful as well, making sure whatever further demands they place on providers are both necessary and effective.

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The Joint Select Committee on Deficit Reduction, commonly referred to as the “super committee,” held its first public hearing in Washington, D.C. this week and focused on examining the history and drivers of the nation’s “debt and its threats.”   The hearing began with the announcement that the committee’s official website is now up and running and is expected to be a good resource to monitor the committee’s progress.  The committee called one witness to testify during the hearing:  Dr. Doug Elmendorf, director of the nonpartisan Congressional Budget Office (CBO).  The committee asked Dr. Elmendorf to testify about the scope of the budget and financial issues facing the nation.  Ultimately, the committee must decide whether and how revenues and spending cuts play out as it grapples to determine the role Congress wants the federal government to play going forward. 

Dr. Elmendorf explained that according to CBO analysis, changes in taxes and spending that would widen the deficit today but narrow it later in the decade would be the most effective combination of policies to solve the budget crisis.  This would work best if the policy approaches are specific, enacted into law and widely supported so observers believe that the fiscal restraint would truly take effect. 

Additionally, Dr. Elmendorf explained that the rising cost of health care and the aging population make solving the budget crisis today different than during any other time in U.S. history.   The number of Medicare beneficiaries is expected to increase by one-third in the coming decade.  Dr. Elmendorf stated that to address today’s deficit concerns, Congress must deviate from past solutions in at least one of the following ways: 

• Raise federal revenues significantly above their average share of gross domestic product (GDP).   According to CBO analysis, over the last 40 years, revenues have averaged about 18 percent of GDP.  Currently, revenues make up about 15 percent of GDP.  In the past, when the federal government has balanced its budget, revenues were approximately 19-21 percent of GDP. 
• Make major changes to the sorts of benefits provided for Americans when they become older, like Medicare. 
• Substantially reduce the role of the rest of the federal government relative to the size of the economy. 

Committee member Max Baucus (D-MT), chairman of the Senate Finance Committee, asked Dr. Elmendorf what changes in tax policy would stimulate the economy most.  Dr. Elmendorf referenced a January 2010 CBO report that examined a set of alternative tax cuts and explained that CBO found that reductions in payroll taxes are one of the more powerful levers, followed by expensing of investment costs and then broader reductions in income taxes. 

The super committee must make many difficult decisions under a very tight timeline.  While the committee technically has until November 23 to present its recommendations to Congress, as a practical matter it only has until the beginning of November to make those decisions.  This is because CBO and legislative counsel need several weeks to accurately “score” the committee’s recommendations and turn them into legislative text for a congressional vote. 

Another complicating factor adding to the committee’s work is the jobs initiative brought forward by President Obama earlier this month.  As the president rolled out his plans to create new jobs, he asked the super committee to find a way to pay for the bill.  So while the committee is hashing out ways to reduce the national deficit by at least $1.2 trillion, it must also find an additional $450 billion to pay for and help move the president’s jobs initiative forward. 

IHA continues to engage Iowa’s congressional delegation and monitor progress of the super committee carefully.  Given that Medicare and Medicaid comprise more than 20 percent of all federal spending, some policymakers are advocating for reductions in Medicare and Medicaid payments for hospital services as part of deficit reduction options, even though hospitals already are absorbing more than $155 billion in Medicare and Medicaid payment reductions.  Additional reductions would not only harm the ability of hospitals to care for patients, but could result in lay-offs of hospital workers at a time when the hospital sector is one of the few positive contributors to job formation. 

Of key concern for rural states like Iowa, some policymakers are also suggesting payment cuts to small, rural hospital programs and policies and in March of this year, CBO offered a budget-cutting option that would eliminate the Critical Access Hospital (CAH), Sole Community Hospital (SCH) and Medicare-Dependent Hospital (MDH) programs.  The March CBO option to eliminate these special rural hospital programs and policies would have a devastating effect on Iowa and Iowans’ access to health care.  Ninety-two of Iowa’s 118 community hospitals are classified by Medicare as Rural and 82 of these Rural Hospitals are also classified as CAHs.  Six Iowa Rural Hospitals are classified as MDHs and seven are classified as SCHs.  IHA does not anticipate elimination of the CAH program, for instance, but reductions to all programs including rural add-ons will be considered by policymakers.   

The super committee was created last month through the passage of the Budget Control Act that raised the nation’s debt ceiling and prevented the first-ever federal financial default.  The committee is a bipartisan, 12-member group chaired by Senate Democratic Conference Secretary Patty Murray of Washington and House Republican Conference Chairman Jeb Hensarling from Texas.  The committee is charged with presenting Congress recommendations by Thanksgiving that would reduce the national deficit by at least $1.2 trillion. 

If the committee fails to produce the recommendations or Congress fails to adopt the recommendations by December 23, then an automatic spending cut of $1.2 trillion split between defense spending and non-defense spending would take effect January 2013.  Under the automatic trigger, hospitals and other providers would receive reductions in Medicare payments of up to 2 percent, an estimated $43 billion in cuts to hospital payments alone; the 2 percent reduction would impact CAHs.  CAHs would continue to receive payments of 101 percent of cost as provided under current law, but the 2 percent reduction would occur during the cost-settlement process. 

Many are pushing for the committee to be very transparent as it continues its deliberations, but there is concern that the many of the upcoming meetings will be closed to the public.  The committee has not announced the date of its next public meeting.

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