While the fate of California health care reform continues to be debated, one topic is not up for debate: Where goes California health care goes the rest of the nation. California has the largest U.S. population (36.5 million) and the most hospitals; it’s the incubator for clinical advances, technological breakthroughs, innovative payment vehicles, regulatory requirements and multi-cultural approaches to disease; and at 6.8 million has the highest number of uninsured, most from working families.
“When 47 percent of hospitals in Orange County and 54 percent in Los Angeles County operate in the red, and positive margins for the remaining average just 2.5 percent, we all share responsibility for understanding the business of health care, creating reforms that cover the uninsured, protecting long-term stability of hospitals and safeguarding access to care,” says Barry Arbuckle, Ph.D., president and CEO of MemorialCare Medical Centers, a five-hospital system in Los Angeles and Orange Counties.
Smart Business spoke to Arbuckle about the state of Southland health care and how health care is unlike other businesses.
What is the status of California health care?
We are home to world-class physicians, nurses and health professionals. Many innovative, pioneering preventive, diagnostic, treatment and rehabilitative care were started by our own medical pioneers. We have the newest and best technologies and treatments that detect disease earlier, provide an array of treatment modalities, and offer best-practice medicine and superior clinical outcomes.
What is the status of emergency care?
During the last decade, 70 hospitals and 65 emergency rooms in California closed. Only 16 trauma centers in Los Angeles and Orange Counties from the original 30 remain. Paramedics often scramble to identify a hospital for the critically ill and injured. Many hospitals cannot afford high costs of emergency services, and we will see continued diminution of services and more ERs close in the coming years.
Why are California hospitals vulnerable?
In addition to low government reimbursement from Medi-Cal and Medicare 40 percent or more of the average hospital’s business significant labor shortages drive up costs, forcing hospitals to pay premiums of 150 percent or more of average salaries to secure temporary personnel.
Unfunded mandates like seismic safety retrofit requirements cost California hospitals billions of dollars. Payments to hospitals from Medi-Cal California’s Medicaid health insurance program for 6.5 million low-income and disabled people are lowest among the 50 states. With average payments 77 percent of what it costs hospitals to provide care, providers accepting Medi-Cal are decreasing, taxing a fragile system. Hospitals fare little better with Medicare with payments covering only about 82 percent of the costs to provide care. In 2007, California’s hospitals provided $8.8 billion of uncompen-sated care, including a $2.1 billion Medi-Cal shortfall and a $3.3 billion Medicare shortfall.
Why is hospital pricing unique?
In a typical business model, an item is priced on actual cost, plus a markup to produce a profit. Businesses expect to be paid for each item. For hospitals, upwards of 50 percent of their volume is paid at rates dictated by the government rates that often do not even approach the actual cost of providing the service. Moreover, hospitals very willingly provide services to patients who are unable to pay. This issue is exacerbated in that California ranks dead last for Medi-Cal reimbursement nationally and up to one-third of state residents have inadequate or no health insurance. Hospitals, though, still bear labor, pharmaceutical, medical equipment and supply costs that increase annually. For a hospital to make a margin necessary for any business to maintain its facilities they must either attempt to achieve higher profitability from other payers (namely private health plans) or risk falling behind on routine maintenance and up-to-date technology.
What can we expect next?
We continue to seek comprehensive reforms covering more Californians and securing adequate reimbursement for patients on government programs. Simultaneously, we are pioneering best practice, evidence-based medicine that identifies the best diagnostic, treatment and preventive techniques and achieves clinical outcomes surpassing national benchmarks. Implementing Electronic Health Records helps clinicians make decisions with as much information as possible at the point of care through secure patient and medical data online in real time. And notfor-profit hospitals like ours are fortunate to have philanthropic support of corporations, granting organizations and individuals to help fund facility expansion, programs, services, education and research.
What can employers do?
Partner with hospitals to learn more about the health care business and how to lower your health benefits expenditures, support health initiatives, and offer programs and incentives that improve employee wellness, reduce absenteeism and increase productivity.
BARRY ARBUCKLE, Ph.D., is president and CEO of MemorialCare Medical Centers (www.memorialcare.org) and chair of California Hospital Association. He can be reached at firstname.lastname@example.org or (562) 933-9708.