Baby-Boomers, Obamacare and the Sequester

Dr. J.’s office is the arched window on the left…

New Atlantis Ivory Tower Medical Center, like many academic medical centers across the nation is tightening its belt and doing everything possible to reduce overhead as it delivers world-class medical care to its patients, and to do so in a way that allows us to keep the world-class individuals (doctors, nurses, technicians and other staff). Indeed, Mrs. Dr. J. spends her time at NAITMC using a machete to cut through red tape; touring the facilities and picking up slack.

So your doctor given his interest in health-care policy, wanted to share with you how passing 3000 page bills without reading them impacts the ability to deliver care at the best institutions across the country. We’ve enjoyed a rather ‘apolitical’ approach to the realities of practicing medicine in the face of Obamacare, HITECH, the Roberts Court decision on Obamacare. Id est quod est, should be our new motto given that we’ve just sucked it up and dealt rather than skip with joy (the libs) or wail and gnash our teeth (the cons).

So, we have known since Obamacare was passed that there was going to be a big pinch happening to academic medical centers in 2013 and 2014. There are a number of factors for this:

The aging population – a chunk of patients are moving off of private insurance to medicare each year. This results in lower reimbursement per patient for the increasing number of folk who are turning 65 each year in our patient census. As long as they keep aging, it costs us reimbursement as private insurance pays better than medicare.
Obamacare hits us coming and going
The Device Tax – Given that we are largely paid in a DRG manner (diagnosis related group) the increasing cost of materials has an effect due to the device taxes is affecting our margin (not-for-profit word for profit) by affecting overhead. Because patients pay via insurance or government transfer patients, these costs, aren’t passed on to them, but eaten by us.
The medicaid expansion provision – it appears that Tennessee in its desire to remain solvent is probably not going to participate in the medicare expansion because while the state will save money in the 3 years the Federal government is buying our buy-in, Tennessee’s budget will be decimated starting in 2017. Expansion is good for hospitals but not for states or taxpayers. Of course not participating affects the employers of 50 or more in the state with a tax hike, but, that is why folks were/are against Obamacare. Former Governor Phil Bredesen can tell you how much fun the Tenncare experiment of the 90’s was. This looks worse. That being said, as we aren’t participating, academic medical centers in states not participating in the medicaid expansion have to be prepared for that short-fall in indigent care payments the Federal Government.
Medicare/Medicaid reimbursement cuts. We are getting paid less to do the same, and in reality more work than we were doing before.
CMS fines for hospital readmission rates are affecting a number of top flight medical centers nationwide.

The sequester has had small but palpable effects effects:

The sequester represents about 8% and 16% of the shortfall a typical academic institution is trying to address this and next fiscal year, respectively. That 2% cut in the rate of growth was not projected into any academic medical center budgets but that 2% represents a big chunk of the belt tightening we have to do to remain solvent. This is because we have a huge budget with a narrow but real margin. It is also a testament to how much the academy is dependent on the largess of Washington.

It is affecting budgets on both the research and clinical sides just a little bit more then they were before it kicked in, but just a little bit more is more nipping and tucking we have to do that weren’t planned for given the the big slices and dices we have been doing because of all of the fun noted above. This is made more painful because the research enterprise of a typical academic medical center costs $1.30 for every $1 brought in. That $0.30 comes from the margin from the clinical enterprise. That same margin pays for capital upgrades (new equipment, repairs and upkeep). This slows down scientific progress which is ironic given how much the president touts himself as the ‘science president.’ How’s that space program working out, big guy?

So what are we doing about it?

Well we’re making sure our clinics and hospital beds are being used optimally, that we aren’t ordering any unnecessary tests. In other words, we are seeing more patients to generate the same revenue.
We looking for risks for readmission in patients at the time of admission so that when they go home they’re ready to stay home.
We’ve arranged for phone calls and close outpatient follow up visits, some of which are not being reimbursed, simply to avoid the re-admission.
We’ve evaluated our vendor choices to see if we can get deeper discounts.
We’re waiting to clear the recent hurdles before we higher additional non-medical personnel.
We are trimming costs in non-medical parts of the institution.
Everyone is working harder and smarter, but harder and smarter are approaching capacity.
We are making our adjustments not to just break even, but with the goal to come ahead with an acceptable margin so that we may continue to maintain our institution as a modern, world class medical center.
Being smart with spending grant vs. non-grant money in the research arena.
Developing service cores in research to lower the unit cost of routine research lab methods (PCR, cell culture, bioassays, animal work).
Partnering with regional affiliates with more favorable payor mixes that permit us to continue our mission to help the sickest among us regardless of ability to pay. We are the biggest charity care giver in the region.
We have to come ahead as if we don’t our bond ratings fall and consequently it would cost us more money to borrow money for growth in the future.
Aggressively working with our tech transfer people to see our ideas become profitable for ourselves and our institution.
Diversify our grant portfolios. Aggressively seeking foundation and industry sources of funds. Sadly this stagnant economy hasn’t been good for the largesse of either of those sources.
More unscrupulous institutions (non-academic) are charging fees to patients for things that aren’t covered by insurance. Essentially ‘waiting room use fees.’ We won’t be doing that.

In summary, a number of factors are coalescing that are making it harder for us to do our job to take care of you. Fortunately, the top medical centers nationwide are doing everything we can behind the scenes to insure that your care isn’t compromised despite the rising costs and shrinking margins. We hope thing will get better, but they can’t without the citizenry understanding the true issues, speaking out at the ballot box in upcoming primaries and midterms.

Dr. J.