Republican and Democratic plans to curb Medicare costs share a common trait — looming financial challenges for hospitals

Republican and Democratic policymakers recently announced vastly different proposals to change the way Medicare is financed.  But either approach is likely to place an even more onerous burden on already struggling hospitals and other healthcare providers.

On April 15, the House of Representatives, on a party-line vote, passed a budget plan introduced by Republican House Budget Committee Chairman Rep. Paul D. Ryan of Wisconsin that would ultimately replace current government-funded Medicare and Medicaid programs with a system of private insurance subsidies to beneficiaries and block grants to states.

Ryan’s objective, ostensibly, is to curb the growing financial drain that unchecked government spending on Medicare and Medicaid represents and at the same time empower the private sector to do what it does best – find alternative, less expensive ways to accomplish the same task.

But according to Alec Vachon, a former aide to ex-Senator and 1996 Republican presidential nominee Bob Dole (R-KS), Ryan’s proposal needs a reality check.

“(Ryan’s proposal) is a pure budget solution, not a health policy solution that would improve the budget. By contrast, a health policy solution would recognize drivers of health costs, especially those generated by government policy, such as tax treatment of health benefits,” Vachon said in an interview in Kaiser Health News, a publication of the Henry J. Kaiser Family Foundation.

According to Vachon, Ryan’s objective of limiting the federal contribution for the private purchase of insurance by seniors might work on paper, but he said he was “not sure it would work in the real world if seniors are unable to buy insurance with the available subsidy.”

The likely impact on hospitals and insurance premiums could be devastating.

A spokesperson for Penn Medicine, the University of Pennsylvania’s hospital system, told the Philadelphia Inquirer that “Moving people from traditional Medicare onto private insurance rolls will cause a dramatic increase in the volume of claims submitted to these private insurance companies…  To absorb the cost of this increase in volume, private insurers will have to either cut reimbursement rates to hospitals and providers, or increase premiums for the rest of their coverage population.  The most likely result will be a combination of the two.”

The ultimate result?  “A dramatic increase” in unpaid hospital bills the Penn spokesperson said.

Another proposal to cut Medicare costs, this one put forth by President Obama’s team of deficit reduction specialists, is also facing strong resistance from members of both parties.  The President’s plan would expand the power of the 15-member Independent Payment Advisory Board created by the new healthcare reform law by making it difficult for Congress or the courts to counteract the panel’s decisions in regard to Medicare spending cuts.

Republican Paul Ryan told the New York Times that the proposal created “a rationing board” and said Congress should not “delegate Medicare decision-making to 15 people appointed by the president.”

But Democratic opposition was also staunch.  Rep. Pete Stark of California, the senior Democrat on the Ways and Means Subcommittee on Health, cautioned that “In its effort to limit the growth of Medicare spending, the board is likely to set inadequate payment rates for health care providers, which could endanger patient care.”

Also voicing opposition were the American Association of Retired Persons (AARP), the American Medical Association and the American Hospital Association.   AARP’s chief executive, Barry Rand, told the Times that “Relying on arbitrary spending targets is not a good way to make health policy, especially when the decisions may be left to the unelected and unaccountable.”

By law the Independent Payment Advisory Board would not be able to make recommendations to ration health care, raise revenues or increase beneficiaries’ premiums, deductibles or co-payments.

So what’s left?

“This increases the likelihood that the board will try to save money by trimming Medicare payments to health care providers,” the Times notes.

Both of these proposals carry serious implications for many financially hard-pressed hospitals that are already teetering on the brink of insolvency. And as many hospital CEOs and CFOs will attest, that’s not hyperbole.

Here at Source One, our professionals have been working with a number of hospitals and other healthcare providers across the nation to help them find ways to meet the economic challenges of healthcare reform, a slowly recovering economy, the specter of decreasing reimbursements and a host of other related tribulations.

Stated simply, our efforts are designed to help hospitals “Do More With Less.”  We work with hospitals’ in-house staff to identify potential cost savings in areas of spending that frequently are overlooked but that can have a tremendous impact on the non-salary operating budget.  In fact, our efforts have helped save millions of dollars in operating costs for some of the most prominent names in the healthcare industry.  Translated, that means more available funding for vital staffing and other services geared to improving the health and treatment of patients in need.

In short, Source One offers a financial life line for hospital administrators trying to deal with policymakers in need of a reality check.

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