Louisiana hospitals employ more than 95,352 people and pumped $27.4 billion into the economy, but the industry's future is threatened by cuts to government programs and a national recession, a new study shows.
Roughly 57 percent of the state's hospitals had an operating margin of less than 1 percent, said John Matessino, president and chief executive officer of the Louisiana Hospital Association, which released the study, Hospitals: Economic Agents in the Louisiana Economy. Nearly 25 percent of the hospitals are losing money.
"Hospitals are not an endless pit of money," Matessino said. "People think they are. But they're not, and some are really struggling right now."
Earlier this year, the state Legislature cut hospital Medicaid reimbursements by around $100 million, Matessino said. The cuts meant that Medicaid only covered around 60 percent, on average, of what it cost a hospital to provide those services. Last year, Medicaid reimbursements covered about 83 percent of hospitals' costs.
"What that means is that you and I with our health insurance, we have to make up that difference," Matessino said.
Basically what the government, whether state or federal, does by cutting reimbursements is to pass a hidden tax on people with insurance, Matessino said. Commercial insurance is now paying around 133 percent of hospitals' cost to provide services.
The situation is unlikely to improve in the short term, Matessino said. Hospitals also face mid-year cuts to the Medicaid program.
If things don't change, in two years when the Hospital Association does the next study, the number of hospital employees will fall, as will hospital expenditures, estimated at $12.9 billion, Matessino said.
One major reason that Matessino fears the worst is the scheduled cut of $480 million in the federal match for Medicaid. The disproportionate share hospital program is set to be slashed by $200 million. Alan Levine, secretary of the state Department of Health and Hospitals, has said if Louisiana is to maintain its current level of services, the state will need an additional $600 million from its general fund.
Matessino said if hospitals have to absorb half the budget cuts, as they did this year, some hospitals will close.
The federal cuts are coming in large part because of the hurricanes of 2005, Levine said. The formulas are calculated using income levels following the storms, and the levels were inflated by the people who came in after the storm and got paid wonderful salaries, largely from federal funds.
"Now they're gone. The money's gone. The salaries are gone," Matessino said. "But the way these regulations are written into law … only Congress can change it."
It literally takes an act of Congress for Louisiana to get relief, and Washington, DC is still suffering from Katrina fatigue, Matessino said. With health reform looming and few other states in as serious a situation as Louisiana, it will be difficult for Louisiana's Congressional delegation to gather enough allies to carry a relief bill.
Matessino said he fears the worst: Louisiana forced to make massive cuts to Medicaid's optional programs, which is basically everything except hospitals, physicians, nursing homes and early periodic screening and detection programs for infants.
In the meantime, every hospital in the state is looking at every possible avenue to reduce costs, Matessino said. The association's members have curtailed services, and many have instituted hiring freezes.
"I don't think people in hospitals can expect pay increases next year," Matessino said.
And none of those steps even involve national healthcare reform, which is going to be funded in part by slashing huge amounts of money from the Medicare program over the next decade, Matessino said.
"We're kind of in a perfect storm situation, where we have all these different pressures building on hospitals," Matessino said.
Those pressures will put the squeeze on some of the LHA-funded report's more positive indicators, such as Louisiana hospitals averaging about $827.7 million in building construction from 2007 to 2008, leading to the creation of more than 14,175 new jobs yearly in sectors other than healthcare.
The overall economic activity supported by hospital expenditures, including payroll, supplies and other services, leads to $794 million in state tax collections and $598 million in local tax collections, the report shows.
One of the things the LHA wants to do is show the public that healthcare, often seen as an economic burden, is an integral part of the state's business community, Matessino said.
There are indications that the economic activity is slowing, according to the report. Some 55 percent of hospitals surveyed this year froze or reduced capital purchases. Some 32 percent of hospitals halted construction projects, equipment purchases or other projects, and 40 percent reduced staff by eliminating vacant positions.
Nineteen percent of hospitals reported reducing patient care services, and 17 percent have reduced community benefit programs.
In addition, the report also found that of the Hospital Association members who responded to a survey:
- 69 percent have seen a drop in patient account collections.
- 50 percent have seen a decrease in elective surgeries.
- 56 percent have seen an increase in emergency room visits for the uninsured.