Pre­par­ing for the debt fall­out

Re­gard­less of debt deal, health­care likely to suf­fer

Modern Healthcare - - Front Page - Paul Barr

The pro­tracted fight in Wash­ing­ton over rais­ing the coun­try’s debt ceil­ing and cut­ting its bud­get has shined a light on a poor fed­eral re­im­burse­ment out­look for U.S. hos­pi­tals and health sys­tems, re­gard­less of how ne­go­ti­a­tions un­fold.

Health­care pro­grams are seen as a likely tar­get for of­fi­cials ne­go­ti­at­ing a long-term deal to cut fed­eral spend­ing, mean­ing hos­pi­tals and health sys­tems may bear a big chunk of the re­duc­tions man­dated by any deals that are reached. Congress and Pres­i­dent Barack Obama strug­gled to reach a deal be­fore Aug. 2 on rais­ing the gov­ern­ment’s bor­row­ing limit to keep its flow of cash com­ing and pre­vent a se­lec­tive de­fault, a sit­u­a­tion where the gov­ern­ment was un­able to pay all of its cred­i­tors.

The pos­si­bil­ity that Med­i­caid and Medi­care re­im­burse­ment could fall has not been lost on in­dus­try ex­ec­u­tives.

“They’re go­ing to bal­ance the bud­get on re­duc­tions in pay­ments to providers: doc­tors, hos­pi­tals,” said Henry Franey, ex­ec­u­tive vice pres­i­dent and chief fi­nan­cial of­fi­cer for Univer­sity of Mary­land Med­i­cal Sys­tem, Bal­ti­more. The sys­tem re­ceives about $500 mil­lion of its roughly $2.5 bil­lion in op­er­at­ing rev­enue from Med­i­caid, he said.

“We are build­ing con­tin­gency plans if (cuts) were to oc­cur,” he said. Given that much of the Mary­land sys­tem’s costs are fixed, Franey said, con­tin­gen­cies mainly cen­ter on how the sys­tem might cut its big­gest vari­able cost: la­bor.

Sys­tem ex­ec­u­tives are still de­vel­op­ing the con­tin­gency plan, but should the gov­ern­ment not reach an agree­ment on rais­ing the debt ceil­ing, de­fault on its debt and po­ten­tially not be able to pay Medi­care and Med­i­caid providers, the Uni- ver­sity of Mary­land sys­tem would work to en­act the con­tin­gency plan quickly, Franey said.

It’s un­clear as to where Medi­care and Med­i­caid would fall in the peck­ing or­der among the gov­ern­ment’s cred­i­tors should a de­fault oc­cur. “What we’re look­ing at is un­prece­dented,” said John Nel­son, a man­ag­ing di­rec­tor for Moody’s In­vestors Ser­vice, New York.

Even if a deal is reached that avoids that sce­nario and sal­vages the fed­eral gov­ern­ment’s triple-A rat­ing, such an agree­ment would prob­a­bly in­clude at least some re­duced fed­eral pay­ments to those pro­grams, said Martin Ar­rick, man­ag­ing di­rec­tor for Stan­dard & Poor’s. “It’s very clear that Medi­care and Med­i­caid cuts are on the ta­ble,” he said.

How that would play out for hos­pi­tals’ op­er­a­tions and abil­ity to bor­row will de­pend on the level and tim­ing of cuts.

The added cuts would come as the in­dus­try al­ready strains to di­gest health­care re­form’s pro­vi­sions and still is suf­fer­ing from the af­ter­ef­fects of a re­ces­sion. “Our out­look for the not-for-profit mar­ket has been neg­a­tive for the past two years,” Nel­son said. The in­dus­try likely is fac­ing a fu­ture where hos­pi­tals and health sys­tems will be fo­cused on be­ing more

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