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In America’s debate regarding healthcare reform, access for all individuals who need care seems the only component on which everybody agrees. Where the debate gets complex lies in deciding how to accomplish universal access and then who should pay for it.

The situation faced by most Tennessee hospitals is pretty simple. They lose money when they treat most of their patients. Only about 24 percent of patients pay what it actually costs for their care. Very few Americans truly understand how hospitals are paid because provider reimbursement is foreign to the logic that prevails in other transactions in our economy.

… Hospitals remain the only true “safety net” in the healthcare system because they are required by law to treat all emergency health situations that come through their emergency departments.

There are 135 acute care hospitals in Tennessee and 85 of them lost money treating their patients last year. The average hospital lost 6.2 cents out of every dollar treating patients because of low payments from government payers and a sharp increase in the number of uninsured individuals. To put it in a different perspective, last year Tennessee hospitals provided over $1.6 billion of uncompensated care due to charity care or payments below cost from TennCare or Medicare.  That is roughly the amount our state spent last year on its higher education system.

Figures from the 2006 Joint Annual Report of Hospitals show expenses at Tennessee hospitals have remained essentially flat for the three most recent years, and actually went down in the most recent year reported. Hospitals have been holding the line on costs in recent years, depending on increased operating efficiencies and dollars they have made from other sources. All the while, they are faced with pressures to provide the latest in lifesaving technology.

Despite the fact that hospitals have held the line on costs, insurance company premiums to employers and individuals rose steadily in Tennessee during the same period.

A recent McKinsey Global Institute study concluded that administrative expenses consume 3 percent of the U.S. Medicare budget. Although complete data on payer administrative expenses are not readily available, the second largest insurer in Tennessee, in filings to the state’s Department of Commerce and Insurance, showed 31 percent of each dollar of revenue was spent on administration or profit, rather than medical services.

A simplified payer system in the U.S. could significantly reduce healthcare expenditures devoted to administering the very complex private health insurance system.

The time for finger pointing should pass. If we are going to tame this healthcare cost monster, all the players  –– hospitals, insurers, doctors, pharmaceutical companies, durable medical equipment providers and others –– will have to make sacrifices and become part of the cost control solution.

Healthcare reform that is viable will be difficult and painful to achieve. It cries out for a simple answer, but none are available or they would have been implemented. From a hospital standpoint, moving to a simplified insurance administrative process would go a long way toward helping alleviate cost pressure.

If hospitals and other providers could simply know in advance what they would be paid for services they deliver and then get reimbursed promptly without having to deal with mountains of bureaucracy placed on them by insurance companies, they also would be able to better manage within that scenario. Hospitals have proven time and again their ability to rise to the occasion on behalf of Tennesseans.

Although a government-run healthcare system like Medicare may not be the right answer, a well-run single payer system with fair provider reimbursement could produce significant savings.







<i>Craig A. Becker is president of the Tennessee Hospital Association.</i>




August 2008

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