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Health care conundrum

Plan or no plan, cost goes up for hospitals
By Brian Gilliland | Aug 03, 2017

(Aug. 4, 2017) Whether one agrees with the implementation of the national healthcare system in this country, two things are true in Worcester County: enrollments in Medicaid and qualified healthcare programs are up, but the costs at hospitals are up more.

The cost side of the equation, Atlantic General Hospital CEO Michael Franklin explained, was less troubling 10 years ago, when the hospital could expect to recover about 88 percent, or roughly all but $350,000, of its $2.9 million in bad debt.

Five years ago, the hospital’s success rate in collecting bad debt was not as good —collections were down to 83 percent, adding more than $100,000 or so to the total revenue it would never see.

That would assume, of course, that AGH’s outstanding debt totals remained the same in each of those for five years, which they did not.

Even though Medicaid expansion in Maryland in 2014 enabled more people to pay their bills — boosting AGH’s collections back up to 85.3 percent — the cost of providing care and services has gone up significantly.

That has translated into a bad debt total that is expected to hit $6 million by the end of the fiscal year. Even with the Medicaid-aided improvement in debt recovery, that would leave AGH with about $1.3 million in uncollected revenue, or roughly twice the amount it could not recover 10 years ago.

“It’s not good, but it’s not as bad as others, while also being worse than it was 10 years ago,” Franklin said.

The population in Worcester without health coverage has dropped, Franklin said, and the Worcester County Health Department agrees.

According to the health department, about 4,500 people or approximately eight percent of Worcester residents signed up for Medicaid or private qualified health programs in 2017.

“We’ve seen a significant impact from the Affordable Care Act over the past several years on the Eastern Shore,” Mandy Baum, case management supervisor, Worcester County Health Department, said. “In just the last year, from 11/1/16 to 1/31/17, a total of 18,247 residents enrolled in either Private Qualified Health Plans or Medicaid in the three counties we serve: Somerset, Wicomico, and Worcester County.”

Statewide, the number is about 158,000 for 2017 so far, and about 501,000 since Nov. 1, 2016, according to the health department.

“Seventy-five percent of our population growth in Worcester is over the age of 65, so they’re eligible for Medicare, which is probably a larger chunk of what is affecting us. Up to about 65 percent of patients have Medicare as their primary insurance, which is the highest rate in the state, and has gone up almost 10 percent,” Franklin said.

Worcester is unique among Maryland counties because of the tourist population that vacations here. That has repercussions, such as the coast becoming the “appendectomy capital of the world” during the summer, not to mention the seasonal influx of relatively minor ailments, like catching a fishhook in the finger, Franklin said.

“People are here and they’re on vacation and they decide they’re going to be active all of a sudden,” he said.

Pushing those patients out to facilities like the 10th Street Medical Center has benefits for the hospital, as that can help spread the costs by reducing dependence on resources the hospital itself uses.

Funding benefits are also accrued this way.

The Maryland Health Services Cost Review Commission sets the rates everyone pays for hospital care in the state. Maryland also is the only state in the nation where a hospital must charge its patients the same rate for services regardless of what insurance they carry.

Maryland’s unique circumstance stems from a waiver it received in 1977 from federal Medicare and Medicaid rate setting requirements that allows it to establish its own health care cost schedules.

“The guiding principal (for the waiver) is the guidelines have to be at least as stringent as Medicare policy,” Franklin said.

From those set prices, hospitals are reimbursed for care — regardless of the services they actually provide. If, for example, AGH’s established billing base set by the state’s cost calculations is $100 million, Franklin and the rest of the staff must either come in under that figure for services rendered, or absorb the remaining cost. If the actual costs are less than $100 million, the hospital keeps the balance.

“We’ve done well in this system. We’re positioned well. We have more primary care physicians with more access and direct partnerships with community physicians,” he said.

Through this structure, Franklin said he’s bending the curve to maximize the set revenue.

On the other hand, the hospital has gained some financial breathing room from the high-deductible insurance plans that have become increasingly popular — or necessary — among consumers.

“High deductible plans have grown exponentially in the last 10 years. Those plans transfer the risk to the individuals rather from the risk pool,” he said. “Moving those costs onto families put the onus on them to spend less, so what is happening is self-rationing.”

This is where problems are going to emerge.

“People who have insurance have catastrophic plans, but for regular doctor’s visits or prescriptions, the first $2,000, $3,000 or $5,000 is coming out of pocket. This is where we’re going to get stuck and see bad debt happening,” Franklin said.

Meanwhile, total health care spending is going up at twice the rate of the Gross Domestic Product — or the sum total of goods and services generated by the United States.

Too soon, Franklin noted, healthcare will consume 20 percent of GDP, which he called ridiculous.

He said two major factors contribute to the situation. First, Americans don’t do a good job with healthy behaviors.

“The next generation is starting to see this. Right now, more than one-third of the country is obese,” Franklin said. “And 40 percent used to smoke, which is down to 15 or 16 percent. We should be more on track with that.”

Healthy choices such as a proper diet and exercise should be an everyday part of people’s lives, he said.

“The other side is to get government out of the health insurance business. The Medicare entitlement can remain, but Medicare is policy driven,” he said.

Insurance companies have either a defined contribution — a set price it will pay for care — or a defined benefit, where after a set amount is spent, any balance of care is fully covered.

“As long as we have a defined benefit, there is exposure to risk because there are variables in age, disease, etc. Switching to a defined contribution makes costs more predictable in allowing insurance to manage care of patients,” Franklin said.

The government should set and enforce rules, and the insurance companies should work within that structure, he said.

The current system has good bones, Franklin said, with ease of access through marketplaces and planned rules of care: bronze, silver, gold plans.

“Advance it farther. The current system is no longer controlling costs,” he said.

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