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A New Government-Run Plan Would Impose Significant Financial Losses on California Hospitals
Date:7/16/2009

WASHINGTON, July 16 /PRNewswire-USNewswire/ -- Many California hospitals would face substantial net losses if there were a large scale shift of individuals with private coverage to a government-run plan that reimburses providers at Medicare rates or Medicare rates plus 10 percent, according to a new hospital-by-hospital analysis released today by America's Health Insurance Plans (AHIP), based on data from California's Office of Statewide Health Planning and Development (OSHPD).

"California hospitals have long supported the goal of comprehensive health care reform," said C. Duane Dauner, President and CEO of the California Hospital Association. "Hospitals know firsthand the high cost of today's fractured health care financing and delivery systems, and the uninsured. The AHIP report, however, demonstrates the risks of a health care reform proposal that does not protect the availability and stability of health care providers.

"Both Medicare and Medi-Cal already severely underpay health care providers in California," Dauner continued. "These governmental payment shortfalls leave hospitals with difficult choices between reducing services and providing care to patients who need it. California hospitals cannot afford a new government-run plan that would expand the underpayments to providers. A new government-run program that adopts Medicare rates is not a solution."

The OSHPD data were used to examine the financial impact a government-run plan would have on hospitals in the state if patients with private coverage moved to a government-run plan. The AHIP analysis evaluated four potential scenarios: the impact on hospitals if 50 percent or 100 percent of patients moved to a government-run plan that paid Medicare fee-for-service (FFS) rates, as well as the impact if 50 or 100 percent of patients moved to a government-run plan that paid rates at Medicare FFS plus 10 percent. For each scenario, the study also examined the impact on hospitals if their costs for uncompensated care were eliminated or stayed the same.

Impact of a government-run plan that pays Medicare FFS rates

According to the new analysis, if half of patients with private coverage moved to a government-run plan that paid Medicare FFS rates, many California hospitals would be forced to operate at a net loss -- even if the current losses incurred by hospitals for uncompensated care were eliminated. Some hospitals would face a loss of as much as nine percent.

If all patients moved to a government-run plan that paid Medicare FFS rates and still assuming uncompensated care costs were eliminated, virtually every hospital in California would be forced to operate at a net loss, with some hospitals facing losses of as much as 34 percent.

Impact of a government-run plan that pays Medicare FFS rates plus 10 percent

According to the AHIP analysis, even if a government-run plan paid providers at Medicare FFS rates plus 10 percent, California hospitals would still face significant losses. If only half of patients moved to a government-run plan that paid Medicare FFS rates plus 10 percent, and assuming the losses incurred by hospitals for uncompensated care were eliminated, some hospitals would face a loss of as much as seven percent.

If all patients moved to a government-run plan that paid Medicare FFS rates plus 10 percent and still assuming uncompensated care costs were eliminated, virtually every hospital in California would be forced to operate at a net loss.

Impact of uncompensated care costs

If universal coverage is not achieved and hospitals are still burdened by uncompensated care costs, the impact of a government-run plan would be even worse. Under all four scenarios, acute care hospitals in California would face significantly higher losses if patients switched to a government-run plan and the costs incurred for uncompensated care were unchanged. For example, some hospitals in California would face losses of more than 30 percent if all patients switched to a government-run plan that paid Medicare rates.

Government-run plan would exacerbate cost-shifting

Government programs, such as Medicare and Medicaid, currently underpay providers for services. In California, Medicare reimbursements only cover approximately 83 percent of hospital costs, and Medi-Cal only covers 81 percent. Those shortfalls get passed through the health care system, and consumers and employers end up paying higher premiums as a result. According to a study by Milliman, Inc., an average family of four is paying $1,500 -- or an additional 10 percent -- on their premiums to offset the under-reimbursements from government programs. As more people move to a government-run plan, there would be fewer people with private coverage to offset these costs, causing premiums to increase even further. This would ultimately lead to a "death spiral", resulting in everyone moving to the new government-run plan.

AHIP used the California OSHPD data, a unique source of publicly available information on hospital finances, to examine the financial impact a government-run plan would have on hospitals in the state if patients with private coverage moved to a government-run plan. Similar data are not widely available in other states across the country. To view the full report, visit http://www.ahipresearch.org/OSHPDanalysisWP.html.

For the latest news and information on health care reform, visit www.americanhealthsolution.org/blog.

America's Health Insurance Plans -- Providing Health Benefits to More Than 200 Million Americans


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SOURCE America's Health Insurance Plans
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