Threats to slash services for women and children are the latest tactic hospitals are using to try to loosen Medicare's purse strings.
The Balanced Budget Act of 1997 mandated Medicare spending reductions, and some hospitals are sounding the alarm on services used by non-Medicare beneficiaries, such as obstetrics and pediatric care.
Critics say the threats to non-Medicare services are proof that managed care, not Medicare, is the real cause of hospitals' woes.
Moreover, evidence shows management missteps have caused some of the problems hospitals are now blaming on Medicare.
"They've given away too much on the private side. (That) is exactly what it (the threatened cuts) mean," said John Rother, legislative director for the American Association of Retired Persons. "If I were a hospital CEO, I'd try to (subsidize) too. But it's not Medicare's job to bail hospitals out."
Hospitals are airing their financial troubles in the "Real Pain for Real People" campaign, an advertising and lobbying blitz orchestrated by the American Hospital Association to persuade Congress to roll back some of the cuts in the balanced-budget law (May 10, p. 6).
One poster child in the campaign is 66-bed Randolph County Hospital in rural Roanoke, Ala.
At the request of the AHA, Randolph County's administrator even journeyed to Washington last month to tell Congress how the recent round of Medicare cuts jeopardized care for all patients.
If budget-law cuts weren't mitigated, the hospital would have to cut back on its obstetrics unit, Administrator Moultrie Plowden told reporters at an AHA press conference May 17.
Two weeks after his trip to Washington, Plowden was fired from his top job at the hospital, said Rudy Celis, M.D., the hospital's interim administrator.
Celis said Plowden was blamed for the hospital's acrimonious relations with physicians and poor management.
Those conditions, Celis told MODERN HEALTHCARE, culminated in three years' worth of financial losses-all before the Medicare cuts in the Balanced Budget Act of 1997 took effect.
The hospital has lost money at least since 1994, according to HCIA, a Baltimore-based healthcare information company. In 1997, Randolph County lost $680,000 on net patient revenues of $9.6 million.
An actual shutdown of the obstetrics unit at Randolph County appears to be unlikely.
Celis said the hospital is still looking into "long-range possibilities" but had only a hiring freeze in place.
"My opinion is that we're going to minimize losses by doing things a little differently," Celis said. "The hospital has to work with physicians to improve relations. Right now, that's a no-win situation for anyone."
Plowden did not return calls seeking comment.
The AHA has dismissed the notion that its lobbying campaign is a "scare tactic."
"What we send to the Hill are things people have done," said Carmela Coyle, the AHA's senior vice president for policy and deputy director for government and public affairs. "Nobody's threatening to do something that's politically sensitive. These are very real, very difficult decisions."
Hospitals say that Medicare has long subsidized services that, while not directly related to senior care, benefit all patients. They say they have depended on Medicare revenues to keep some services alive.
Charles Smith, M.D., president and chief executive officer of two-hospital Christiana Care Corp. in Wilmington, Del., expressed that sentiment to the Senate Finance Committee when he testified June 10 on the impact of the budget law.
"For many hospitals, Medicare has been an anchor in choppy waters," Smith said. "It has been a major and relatively stable source of revenue that has allowed hospitals to provide the care their communities need."
At 82-bed Morris (Ill.) Hospital, a new $7.5 million women's center was put on hold after passage of the balanced-budget law, because Medicare accounts for about half of the not-for-profit hospital's income, said Cliff Corbett, hospital president. Morris is featured in the AHA-led campaign.
"That is a portion of our revenue stream that supports all services of the hospital," Corbett said. "It benefits everybody; it helps to keep the hospital functioning."
Corbett said the hospital has had to turn to fund raising to get the women's center built.
"We need to focus on philanthropy because we can't be depending on other people to help us pay the bills anymore," he said.
For a small hospital, Morris has done well financially over the years. Since 1995, the hospital's net income grew almost 40% to $1.4 million in 1997, according to HCIA.
But last year, hospital profits took a dive to $500,000, Corbett said.
Corbett doesn't blame the entire drop on budget-act cuts.
The hospital was hit with some extraordinary events in 1998, he said, including having to write off $400,000 in claims Medicare wouldn't reimburse.
This year, Corbett said, the hospital is barely breaking even.
"Without the good feeling of saying we are going to have some bottom line, you don't want to commit to a major building project unless you've got some money coming in," Corbett said.
Hospitals that consider curtailing such projects and non-Medicare services raise a much larger issue, said Uwe Reinhardt, professor of healthcare economics at Princeton University.
The question, Reinhardt said, is whether Medicare buys care for the elderly or serves as a portal for financing all sorts of other social objectives.
"Neither the healthcare system nor Congress has ever confronted that issue," he said. "I blame Congress for cooking this soup. Congress should expect to be blackmailed this way. They brought this on by refusing to cover the uninsured and left hospitals to act as catastrophic insurance companies. If I were the hospitals, I would (threaten to cut services) too."
Reinhardt, who has made that argument for years, recently joined the board of directors at Triad Hospitals, one of Columbia/HCA Healthcare Corp.'s two new for-profit hospital chain spinoffs (June 7, p. 2).
Medicare already includes substantial payments for programs that benefit non-Medicare beneficiaries, said Robert Reischauer, former director of the Congressional Budget Office, who is now with the Brookings Institute in Washington.
Those "public good" activities include funding graduate medical education, for which Medicare paid $6.2 billion in 1998, and uncompensated care, for which it paid $4.6 billion in 1998.
Hospitals are hurting, Reischauer admits, but they can't blame it all on Medicare.
"The primary pain is coming from the private sector," he said. "Medicare was one of the best payers in America. The budget law changed that, but that doesn't mean Medicare is a bad payer. It just doesn't have deep pockets anymore."
Reischauer said it's not clear whether hospitals are merely cutting more expensive services to cope with the losses or trying to attract a lot of attention by threatening programs such as maternity services.
"Looking through the best lens, you can say hospitals are losing money and cutting back to their core responsibilities," Reischauer said. "Looking at it through the worst lens, it's like closing the Washington monument if the park service's budget gets trimmed."
Another hospital in the campaign, 156-bed Brazosport Memorial Hospital in Lake Jackson, Texas, cited Medicare shortfalls for forcing the closure of a children's clinic last month.
The goal of the clinic, which the hospital subsidized to the tune of $55,000 in 1998, was to prevent children from making unnecessary visits to the hospital's emergency room.
But Brazosport can't blame Medicare reductions alone for the clinic's closing. Its problems began last year when Texas moved to Medicaid managed care and the clinic's reimbursement and patient volume dropped, said Wesley Oswald, Brazosport's CEO.
"As long as the hospital was doing as well as it was with Medicare, we could keep the clinic," Oswald said.
Brazosport had enjoyed double-digit profit margins in 1995, 1996 and 1997, according to HCIA.
In 1997, the last year for which figures were available, the hospital reported net income of $4 million on net patient revenues of $36.8 million, giving it a 10.2% profit margin. That year, 43% of the hospital's inpatient admissions were Medicare patients.
Quorum Health Group, Brentwood, Tenn., which has experienced its own financial struggles, manages Brazosport (April 19, p. 56).
Schoolcraft Memorial Hospital, a rural 20-bed facility in Manistique, Mich., also is featured in the AHA-led campaign, contending that its obstetrics unit will be first on the hit list unless there's relief from further Medicare cuts. Yet David Jahn, hospital administrator, said there is only about a 30% chance the hospital will close its obstetrics unit.
Schoolcraft's obstetrics unit, which delivers about 125 babies each year, costs the hospital as much as $300,000 annually, Jahn said. The nearest hospital with an obstetrics unit is 55 miles away.
Schoolcraft posted a net loss of $50,000 on total revenues of $8 million last year (May 10, p. 6).
"If you're looking at cutting, you certainly don't want to cut a program that affects 5,000 people," said Jahn. "You look at the smaller programs," such as obstetrics.