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Disappearing dollars?

December 2012

Published in the December 2012 issue of Today’s Hospitalist

AMERICAN HEALTH CARE seems to be in perpetual crisis. Before Obamacare, we had Hillarycare (1993), Cartercare (1976) and a host of other reform efforts. Frankly, weve been hearing about this crisis for so long that we tend to tune it out. And why not? Hospitals remain open, and hospital medicine has been an unstoppable growth industry. Maybe concerns are overblown. Or maybe not.

I just updated my employee benefits. My price tag for health and dental insurance for my wife, three young kids and me is now $362 per pay period, or a whopping $9,000 per year. And this is just premiums, not copays and other costs. When I forwarded the confirmation e-mail to my wife, she replied with, “Really! That seems crazy … but do we have a choice?” Not really.

Prior to employer-based insurance, we bought our own insurance “a low premium, high deductible policy with a health savings account “and still spent about the same. We’re pretty healthy, but MRIs, minor surgeries and urgent care visits for five people add up in a hurry.

Bottom line: We’re going to pay no matter what.

Runaway costs
Nine grand is a lot of dough, but everyone else is getting hit, too. Accordingly to a sobering report by the Kaiser Family Foundation, the average cost for family coverage is $15,745 per year. Employers cover 72% and employees pay the rest.

The report notes that family coverage cost $5,791 in 1999 and has increased steadily ever since. Premiums since then have increased 8% every year.

But the economy, income and the cost of consumer goods are all growing at a much slower rate. According to the U.S. department of commerce, gross domestic product (GDP) grew 4.3% on average a year during that same time. Median household income was about $55,000 and $50,000 in 1999 and 2011 respectively, with not a lot of variability in between. Ditto for the consumer price index, which tracks the cost of life’s necessities and which changed on average only 2.5% per year.

Something is out of whack in health care.

Things get really depressing when you start considering Medicare. The Social Security Advisory Board released an ominous publication in 2009 titled “The Unsustainable Cost of Health Care.” It noted that out-of-pocket health care spending by Medicare beneficiaries increased 64% between 1997 and 2005.

Unfortunately, beneficiaries’ income increased only 25% over that same period. One-quarter of people on Medicare spend 31% of their income on health care; sicker patients spend proportionally even more.

And we all know that a bolus of baby boomers is approaching retirement age. An analysis by the Congressional Budget Office determined that aging will be responsible for 37% of increased spending on Medicare and Medicaid by 2035. Another 46% of projected Medicare spending was attributed to “excess cost growth,” which is health care inflation in excess of projected growth in GDP.

Hospital care
Where does all the money go? A recent study by the California HealthCare Foundation determined that Americans spent $2.6 trillion on health care in 2010. Of this amount, hospital care accounted for the biggest chunk at $814 billion (31%). That number excludes physicians’ fees, which fell into another category. Medicare and other forms of public insurance accounted for $429 billion, or 53% of the total.

In separate drilldowns, the same study found that 34% of expenditures by private insurance went for hospital care. The figures were 43% and 38% for Medicare and Medicaid, respectively. Physicians’ fees were again placed in different categories.

Not so good
None of this bodes well for hospitals and hospitalists. Lots of people are using health care, costs are soaring and a good many of the dollars are being spent in hospitals.

So what to do? Both employers and Medicare have basically one option: control costs. There are lots of ways to do this, and Medicare is employing several. The scrutiny of claims for accuracy and medical necessity is at an all-time high, and the CMS is using recovery audit contractors (RAC) to determine whether Medicare was billed appropriately for services rendered.

Then there are the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) program and value-based purchasing, which simultaneously incentivize and penalize health care organizations to keep costs flat.

But one of the easiest ways to control costs is to sit on reimbursement rates. The chart (“What does Medicare pay for 99222?“) illustrates Medicare’s recent approach to professional service fees. We grabbed Minnesota data for 99222, a mid-level H&P (initial hospital care), as a representative E/M code. Rates went up or down depending on the year, with an annualized increase of only 1.2% between 2000 and 2012 “far less than health care inflation.

Unfortunately, such increases lag behind the consumer price index. This means that the price of food, clothing and shelter increased more quickly than Medicare reimbursement.

And this is where the whole health care crisis finally hits home. Hospitalists are losing buying power relative to the reimbursement that determines our incomes. Of course, most hospitalists are not paid based solely on billings. But if reimbursement for our services remains flat, we’re going to feel the effects at some point in the future.

What’s in your wallet?
Hospitalists have had a nice run over the past decade. But we’re a bit skeptical that the prosperity will continue. Although our jobs are secure, our income probably isn’t. Hospitals will likely need to ask for shared sacrifice if reimbursement remains stagnant or shrinks.

You’d be wise to take this back to your hospital medicine group for discussion about your business strategies and tactics for 2013 and beyond.

David Frenz, MD, is a hospitalist for HealthEast Care System in St. Paul, Minn., and is board certified in both family medicine and addiction medicine. You can learn more about him and his work at www.davidfrenz.com. Sue A. Lewis, RN, CPC, PCS, is a compliance consultant with HealthEast Care System.