An upbeat analysis of for-profit hospitals' financial outlook has caused a big headache for hospital lobbyists in Washington, who are trying to persuade Congress to repeal some Medicare payment restraints imposed under the Balanced Budget Act of 1997.
Without the approval of its author, opponents of payment relief for hospitals have used the report to rebut the lobbyists' position that hospitals deserve another $25 billion in assistance on top of the $16.1 billion they got last year.
Goldman Sachs, the New York-based investment banking firm, produced the report in March to give investors an outlook on the investment landscape for for-profit hospitals. Goldman Sachs analyst Edmund Driggs wrote the report in his first-ever review of hospital equity markets.
The use of the Goldman Sachs report on Capitol Hill forced the Federation of American Health Systems, which represents for-profit hospitals, into a damage-control effort, which included inviting Driggs to Washington to explain his report to congressional policymakers.
"It's rare to see Wall Street stuff floating around (Capitol) Hill," said Thomas Scully, the federation's president and chief executive officer. "This time, it was done with political motivation."
A one-page summary of the 167-page report was distributed earlier this month to some Capitol Hill aides. Although the source is unknown, many believe it came from the office of Senate Majority Leader Trent Lott (R-Miss.).
Keith Hennessey, Lott's healthcare adviser, did not return a phone call seeking comment about the source of the summary.
Hospital lobbyists also pointed to the American Association of Health Plans, with whom hospital groups have feuded over an AAHP advertising campaign that highlights the problem of medical errors, as a source of the summary. AAHP officials deny that the association is the source.
Among other points, the summary portrayed Medicare as for-profit hospitals' best payer, and said those hospitals were poised for rapid growth in the next 10 years (See box).
The report has slowed the momentum of hospital lobbyists seeking further rollbacks to the balanced-budget law.
Until now, the federation, the American Hospital Association and other hospital groups have held the rhetorical upper hand in their lobbying campaign, and few on Capitol Hill have been willing to rebut industry claims that the budget law is responsible for a financial crisis in the healthcare industry.
The appearance of the summary is the first sign that not everyone is buying the hospital industry's argument.
Federation officials said they sponsored a May 19 briefing for congressional staff members at which Driggs attempted to clarify his report, saying the summary had taken his report out of context. About a dozen congressional aides, from the offices of individual members, leadership figures and committees, attended the lunch meeting at a restaurant less than a mile from the Capitol.
In an interview last week with MODERN HEALTHCARE, Driggs said he emphasized to the briefing's attendees that the report was for an investor audience and shouldn't be used as a policymaking reference.
"Its relevance to the discussion of whether Medicare (payment) rates are sufficient is limited," Driggs said. "You can't infer from this report that there is no reason to give money back.
"You've got Washington talking about the hospital industry in general, and you've got Wall Street talking about the for-profit sector to investors. Those are two different conversations," he said.
Driggs said he came to Washington on his own, without compensation from the federation, and that he was not pressured to retract or rebut any assertion made in the report.
Driggs added that his report said nothing about not-for-profit hospitals. While the report portrays a stable revenue outlook for all hospitals, any hospital losing money now will continue to lose money under balanced-budget law payment policies, he said.
Hospitals this year are asking for $25 billion in Medicare payment increases during the next five years.
That request follows legislation enacted in 1999 that gave $16.1 billion in increased Medicare, Medicaid and state children's health insurance payments to providers between now and 2003.
Among hospitals' requests this year is $9.5 billion from updating Medicare inpatient payments equal to an inflation factor known as the hospital "marketbasket." Under the balanced-budget law, Medicare inpatient payments are to be increased at 1.1 percentage points below the marketbasket in 2001 and 2002, when the law expires.
The Goldman Sachs report notes, however, that hospitals have received updates of less than the marketbasket for years and offset them with productivity increases. It said they should be able to continue to do so through adoption of information technology and administrative cost cuts.
The report also said 85% to 90% of the effects of the Balanced Budget Act payment restraints had been factored into hospitals' financial structures, meaning no more surprises await hospital executives in the final two years of the law.
"In our view, the next few years will afford providers an opportunity to catch up with adapting care delivery and cost structures to the (post-balanced-budget law) reimbursement environment, resulting in more stable earnings than have been possible since before the (law) took effect," the report said.