The Economy, Your Patients, and You
How the Recession Affects Hospitals & Contract Negotiations
Negotiating a new contract is never easy, but since 2008, there’s been an added challenge – the worst economic recession in recent memory. Before you sit at the negotiating table, it’s worth familiarizing yourself with how the economy impacts your hospital – and, as a direct result, how it impacts your ability to bargain for the strong contract you deserve!
If you’re in a safety-net hospital (and this includes most CIR hospitals), you’ve doubtlessly noted the uptick in patients, particularly in the ER. It’s not hard to figure out why. With 10% unemployment reported in December 2009, many people lost their benefits at the same time as their jobs. Others are caught in a decades-long trend in which their employers are unable or unwilling to keep up with the skyrocketing costs of health insurance. In October 2009, Families USA projected state-by-state totals for how many people have been hit by the one-two punch of unemployment and being uninsured.
As you know, ER traffic often spikes because uninsured patients have literally nowhere else to go. But the economic problems don’t end there. Those with insurance are more likely to put off expensive elective procedures, and those are the big money-makers for hospitals.
An increase in the uninsured also changes the mix of reimbursement rates coming into the hospital for the same services. In place of private insurance, which pays higher reimbursement rates (presuming the insurance company doesn’t seek to deny the claim or egregiously delay payment), more patients are on Medicaid, which offers much lower compensation, especially for primary care. Additionally, patients who are ineligible for Medicaid receive uncompensated care. In 2008 alone, the American Hospital Association reported a total of $36.4 billion in uncompensated care – and that only covers the beginning of the recession.
A fraction of uncompensated care is offset by Medicaid Disproportionate Share (or DSH) payments to hospitals, but only a fraction.
States Cut Back
However, the recession also hurts the financial stability of these public programs. In all states, the costs for Medicaid are shared by the state and federal government. Additionally, states like New York, New Jersey, and California cover more people through Medicaid. They do so entirely with state dollars, without a matching contribution from the federal government.
As a result, health care costs are either the first or second largest line item in their states’ budgets. But what was affordable when times were good becomes a problem when times are bad. State governments usually cannot run deficits – they must balance the budget each year. No matter how the state generates revenue, they have less of it in a recession: personal income, capital gains, and property values all decline. Balancing the budget then requires either new taxes or budget cuts or both. Since health care costs for existing programs continue to rise at several times the rate of inflation, most states find cutting health care commitments unavoidable. In dire situations like California, the state has made cuts to health care even when doing so meant forfeiting matching dollars from the federal government!
Hospitals Take the Hit
For hospitals, this means fewer public dollars flowing in precisely at the moment when they are more dependent on public programs. The American Reinvestment and Recovery Act (aka “the stimulus”) had a number of provisions that infused cash into states and safety net programs like Medicaid and COBRA, but that boost was temporary. Although health care reform would ultimately help this predicament, many provisions that would benefit hospitals will not phase in for three or four years should the bill become law.
For hospitals, that means costs continue to surge as much of their revenue goes down. Some hospitals are blessed with strong leadership or business models and will weather the recession. But for others, this will only exacerbate their normal dysfunction. In the most extreme situation, hospitals will close. Indeed, CIR saw both Mary Immaculate and St. John’s Queens in New York close in early 2009. These hospitals had been financially troubled for a long time, and were unable to survive a decrease in aid from the state.
CIR Contract Challenges
A more typical response from a hospital will be to cut back on the items that always come up in negotiations: obviously wages and benefits, but also safe staffing levels, equipment maintenance and purchases.
As you head into negotiations, try to read up on the budget situation and pass along information about how your hospital is dealing with it. Talk with your CIR staffmember and your fellow residents about what impact that has on your hospital and on the parts of your contract you’re most concerned about. As always, knowledge is power!