Healthcare in the valley: Part 3 Paying for healthcare

In our continuing series on healthcare in the Gunnison Valley, we’ve looked at the ways local leaders hope to provide Gunnison Valley with better access to affordable, quality healthcare. But no community acts in isolation, and changes at the national level will impact the way care is provided and paid for. This week, we look at trends and developments in the finances of healthcare, both in the valley and across the nation, and the potential impact of federal mandates.

 

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In the Gunnison Nursing Home, residents in wheelchairs and their attendants cannot both fit into the bathroom at the same time. To compensate, they use a portable toilet in patients’ rooms, sometimes no more than a curtain to separate a patient from a roommate. For Dr. Bob Brickman, chairman of the Gunnison Valley Health board of trustees, that’s an unacceptable loss of dignity.
“We’re stuck with a facility designed in 1976 where the physical constraints preclude adequate care, and the fact that adequate care occurs is a miracle,” Dr. Brickman said.
Since GVH took over the management of the senior care center in 2008, it has managed to turn around an annual loss of more than $100,000 by integrating senior care into one system. But, Dr. Brickman said, that isn’t a long-term solution—a full roster and the right balance of paying patients made it possible to break even; but it’s not sustainable.
 “We’re seeing exactly what our consultants told us, that we would have a gradual increase in the need for assisted living and a diminution in the need for the nursing home,” Dr. Brickman said.
That trend is exacerbated, he said, by the intent of the federal government to keep people in their own homes. Federal funding is being funneled to home services, like transportation and Meals on Wheels. And on a local level, it’s driving the skilled nursing population into the red; as of February, there were 39 nursing home residents, with the potential of further decreases, instead of the 41 to 42 required to break even. At the same time, the assisted living facility isn’t big enough to meet projected demand.
GVH hopes to remedy the situation by replacing the nursing home, enlarging the assisted living facility and connecting the facilities. Medical personnel will be able to serve both the nursing home and the assisted living facility,  resulting in more profitable senior care.
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The plan is to go to voters with a referendum this fall, asking them to approve a sales tax levy to pay for the approximately $12 million project. Dr. Brickman said the alternatives—do nothing and lose senior care to a financial death spiral, or replace the buildings wing by wing and displace 10 residents at a time—were unpalatable. They’re banking instead on the palatability of a sales tax of .25 percent collected over a period of 20 years because it’s the only way to make senior care sustainable. GVH operates on a margin that’s too thin to absorb continued losses.

On a precipice
GVH is the only hospital on the Western Slope not funded by county tax dollars; the hospital itself is county-owned, but while GVH receives about $600,000 to support senior services, hospital operations are funded solely through its own revenues. It’s a balancing act that’s getting harder to perform.
According to Randy Phelps, GVH CEO, “Gunnison Valley Hospital… in 2011 earned $155,000 on a net revenue of $22.6 million, which represents a 0.7 percent margin. Senior Services, which receives some property tax support, earned $157,114 on a base of $5.2 million, which represents a 3.0 percent margin.”
Industry knowledge dictates that a 5 percent margin is required to maintain and replace equipment, and this year’s first quarter financials suggest that GVH will be no closer to that benchmark in 2012. Phelps said that like other valley businesses, GVH is feeling the strain of fewer winter visitors. Compared to 2011, year-to-date hospital volumes are down 2.5 percent for January and February, and “bed debt and charity care are currently running at 10.6 percent of the total hospital revenues.” In other words, the uninsured and underinsured are taking their toll.
“In response, hospital staff across the entire GVH system will be reducing costs and working hard to increase efficiency as we challenge old ways of thinking to redefine our business and still maintain the excellent care and service our community expects,” Phelps added.
But Dr. Brickman was candid—with additional expenses expected over the next five years, including hiring 2.5 new primary care physicians and implementing federally mandated medical records technology to the tune of $2 million, keeping healthcare affordable will only become harder. The way he sees it, the Affordable Healthcare Act, which seeks to increase the number of insured, needs to be upheld or the community will need to take a larger role in funding healthcare.

Increasing the number of insured
In a nutshell, the more uninsured people there are, the harder it becomes to make insurance work. Gary Shondeck, of Shondeck Financial Services & Insurance, said in the United States, 1 percent of the people account for about 28 percent of all medical costs and 5 percent of the insured account for 54 percent of all medical claims. Dr. Brickman calls the latter “frequent fliers.”
From a financial perspective, insurance works when everyone is insured—the healthy need to pay into the system to pay for the sick. It’s a principle that informs the Affordable Care Act, which expands access to coverage in many ways by requiring providers to insure people with pre-existing conditions; preventing providers from dropping policy holders after they are diagnosed with an illness; putting an end to annual and lifetime limits on benefits; and mandating preventive care without co-pays or a deductible.
Many of these mandates have already gone into effect, including a provision that guarantees coverage for children under the age of 19. Children can also stay on their parents’ insurance until the age of 26, and insurance companies are now required to spend 80 percent of collected premiums in the form of a claim. If not, they issue refunds to policyholders. For 2010, Shondeck said, 974 of his clients received refund checks from Anthem.
To make this expanded coverage possible, the Affordable Care Act mandates that everyone have insurance or pay a fee for not having it. It’s the Individual Mandate that’s garnered so much attention and is currently under scrutiny by the U.S. Supreme Court (see sidebar). If left intact, it restores balance to the current insurance system. But it also includes pilot projects that seek to reform the way insurance is paid altogether.

Paying doctors to keep people healthy
In most healthcare systems in the United States, healthcare providers are paid for each service they provide—it’s a “fee for service” model, and it rewards doctors for providing more services.
“If you’re rewarded for rendering services, you’ll render as many as you can,” Dr. Brickman said.
In no place is this more true than McAllen, Texas, which is renowned for some of the highest healthcare costs in the nation. Featured in the same article in The New Yorker that highlighted Grand Junction for its low healthcare costs, McAllen boasted Medicare expenses of $15,000 per enrollee in 2006. That’s twice the national average.
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Not so coincidentally, McAllen is home to a physician-owned, for-profit medical care system. When compared to El Paso, critically ill Medicare patients in McAllen received twice as many specialist visits between 2001 and 2005. In 2005 and 2006, they received 20 percent more abdominal ultrasounds, 30 percent more bone density tests, 60 percent more stress tests, 200 percent more nerve-conduction studies (for carpel tunnel syndrome) and 550 percent more urine flow studies (for prostate problems).
“The primary cause of McAllen’s extreme costs was, very simply, the across-the-board overuse of medicine,” wrote author Atul Gawande.
It’s an extreme example across the medical care spectrum, but the pilot programs in the Affordable Care Act seek to test integrated healthcare models at the opposite end of the spectrum. In one scenario, “accountable care organizations” would be paid a set amount to care for a population. In another, providers would be compensated for services via a bundled payment—a lump sum to be shared by everyone involved. In short, these programs would pay physicians to keep people healthy.
“The best outcomes are always the lowest cost because you don’t have to redo treatments. Patients don’t have complications,” Dr. Brickman said.
But we won’t know the status of the Affordable Care Act until the Supreme Court releases its final decisions this summer. As a result, there are currently more questions than answers. In the words of healthcare consultant Rick Huntington, as a nation, we couldn’t be more in the dark.

A host of unknowns
“We lose a few years every time we go through this… because we just don’t have direction right now. There’s a lot on the table but not a lot is actually happening,” Huntington said.
“If the mandate gets shelved, it changes the whole model,” he continued. The financial backbone of the law would be gone. And even if it is upheld, many of the law’s regulations have not been written. It calls for higher Medicare reimbursements, for example, at the same time that it calls for $.5 trillion in cuts to Medicare.
“We don’t know what the Medicare reimbursements will be. There’s a provision to up reimbursements by 10 percent, but that doesn’t mean any of that will be in the final bill,” Huntington said.
It’s a classic waiting game, and the outcome will have big consequences locally. Looking at the bigger picture, Dr. Brickman believes that healthcare is at a critical point for hospitals like GVH; without getting more people insured, they won’t be able to absorb the increasing costs of the uninsured.
If the mandates are struck down, Dr. Brickman said, “the number of uninsured will continue to rise and insurance will become unaffordable because the only people remaining are the ones who are sick.”
Dr. Brickman believes that states might fill the void with mandates of their own—in Massachusetts, according to National Public Radio coverage, only 1 percent of people forego insurance. And if states don’t fill the void, Dr. Brickman thinks the community will be forced to play a larger role in financing healthcare or accept less access to care.

Finding local solutions
For now, the one thing that remains clear is the need for increased cooperation on a local level. Both Dr. Brickman and Huntington believe that certain federal mandates are here to stay, like medical records technology. Simply getting up to speed will be costly and require integration.
“Whether the bill passes or not, the future is that the data with every patient visit is going to have to be assembled and reported to the government. It’s going to be a monumental administrative and technological challenge to do that,” Huntington said.
Dr. Brickman believes that it will also create competition in the marketplace, forcing healthcare providers to provide better patient outcomes for less money.
“If you have an electronic medical record, you can easily collect data on cost and outcomes. So when people shop around for healthcare, they’ll go to the people who cost the least and have the best outcome,” Dr. Brickman said.
Whatever the outcome, GVH is the valley’s healthcare leader; fostering that integration will fall on its shoulders. Dr. Brickman believes GVH is up to the challenge. The National Rural Health Association recently named the hospital one of the top 100 critical access hospitals in the nation. They’ve made strides in access to medical technology, and they’re embarking on a process to build those relationships.
“We have a captive population of 15,000 that we’re responsible for. They are our owners and our benefactors, so we have to provide a system of care with the lowest possible cost and the highest possible care,” Dr. Brickman said.

Join us next week for the final installment of Healthcare in the Valley, when we’ll look at the ways individuals can make the most of their health insurance coverage. We’ll conclude by looking at how valley residents can join the healthcare conversation with local healthcare providers.