A tight squeeze

Funding cuts: two words that strike fear in the hearts of people everywhere, particularly when they’re associated with health care. Patients and providers know that what happens on Capitol Hill and in the statehouse—plus, recently, in the courts—has a major impact on local medical centers and doctors’ offices.

Hospitals in Butte County receive a significant chunk of their funding from the federal government (via Medicare) and the state (via Medicaid, known in California as Medi-Cal). Talk of cuts to either source raises concerns, and lately there have been headlines regarding both.

Consider this:

• Today (March 1), doctors nationwide would have borne a 27 percent cut to Medicare reimbursements if not for a provision in Congress’s payroll-tax extension that delayed cuts for another 10 months. That compromise, passed in both the House and Senate on Feb. 17, came with a caveat: In order to help offset the expense, hospitals and laboratories would take some cuts.

• Last Wednesday (Feb. 22), the U.S. Supreme Court kept alive a legal challenge to Medi-Cal cuts by referring the matter back to the 9th Circuit Court of Appeals. This comes on the heels of a federal judge blocking the state from imposing new co-pays on low-income Medi-Cal patients.

Neither matter is by any means settled.

It’s not surprising, then, that Myron Machula, chief financial officer at Enloe Medical Center, refers to government funding as “pretty much a moving target”—noting, “It’s hard to figure what’s coming through the pipeline.”

Bob Wentz, chief executive officer of Oroville Hospital, calls the ebb and flow “dysfunctional for planning what we try to do and physicians try to do.” Yet, Wentz also points out, the term “cut” also can be misapplied. A change taking place this fall may hit hospitals in the balance sheet, but from his perspective it’s more a philosophical than financial distinction for well-run organizations.

What Wentz refers to is Value Added Purchasing. Come October, when the federal government opens its fiscal year for 2012-13, Medicare will withhold 1 percent of the funding to hospitals. (That amount will increase by a quarter percent annually until the total reaches 2 percent in 2017-18.)

A single percentage point or two may not seem like much. But, for hospitals the size of Enloe and Oroville—even Feather River Hospital in Paradise—a percentage point of annual revenue can represent a seven-figure sum.

Meanwhile, since July, hospitals have supplied the federal government with data on performance and customer satisfaction. That information gets plugged into what Machula calls a “matrix” in order to compare facilities across the country. Those hospitals that meet or surpass Medicare’s standards will “earn back” the withheld money.

Is that a cut? Well, it does represent a potential decrease in income. Likewise, it represents a bonus for good performance.

“I don’t see it as a cut,” Wentz said. “I see it as a quality parameter we need to meet and should meet. People can quibble about approach, but the bottom line of accountability is a great thing.”

By anyone’s definition, the “cuts” making headlines recently represent funding reductions. The federal government would have slashed its reimbursements to doctors today—and will in 2013 without further Congressional action. Concurrently the state would have reduced its Medi-Cal burden had courts not blocked additional cuts and co-pays.

The cuts matter most to patients who see independent physicians, rather than practitioners in larger health systems. Oroville Hospital operates doctors’ offices as well as its hospital, clinics and labs—in that way, it’s more diversified than Enloe, which does not operate doctors’ offices.

In that regard, Oroville may be better poised to absorb cuts to physician reimbursements than Chico (or Paradise). Individual doctors’ offices are on their own, without ancillary businesses to help offset expenses. That’s why a number of physicians in Chico stopped taking new Medi-Cal patients or accepting Medi-Cal altogether following cuts several years ago—a trend that could continue with further cuts, and possibly extend to Medicare.

“How tragic would that be for everyone?” Machula said. “Hospitals and physicians would say they are not meeting costs now, so every [publicly insured] patient treated means they lose money. Costs get shifted to commercial payers, and no one likes that.”

He’s not asking for a blank check, however: “We need to be careful about our own costs. We can’t just say, ‘This is what our burden is.’ We have to be mindful of our quality and efficiency so we don’t have double-digit increases in costs.”

That’s where accountability comes in, and where the Patient Protection and Affordable Care Act may well have addressed some problems with health-care economics.

But not all. Wentz is among those in the medical field looking for “a cohesive, comprehensive health policy” tying up loose ends.

In the interim, should patients worry when they hear about looming cuts?

Machula says he is “moderately concerned, but we’re taking the steps that we need to. The last thing a patient should have weighing on his conscience or mind is whether the hospital will be here. We will have our doctors and nurses and be able to provide quality care.”