This is the Healthcare Marketplace Specialization. Healthcare Marketplace Overview. I'm Steve Parente and we're going to be discussing 2.4.1, Hospital Future Trends. So we look out over the coming period ahead. Financial outlook for hospitals is probably pretty good. I mean, you need to have hospitals to get your care. And when you think about the finances of these institutions, you need to take into consideration two things, your total and operating margins. Total being all of the revenues that have come in, including selling of assets, selling land, maybe selling stocks. People donate if they think the institution's really wonderful. But we really need to look at what's going to affect the bottom line. And that's going to be more of a focus on the operating margin, because it nets out those additional assets. So what is going to help a lot or hurt a lot is going to be whatever the negotiated rates are with private insurers as well as Medicare payment rates that are really controlled by the government. And overhead, what is it going to cost to have labor. Will labor get more expensive. Increasingly, hospitals are buying physicians practices so that can really make your labor costs a lot more expensive. Then we have the issue of uncompensated care. Institutions generally have to cover this. It is technically the sum of charity care where no payment is expected and bad debt, where payment's expected but not received. The presence of high deductible health plans more recently have actually increased the concerns about bad debt that have there. Hill-Burton does actually give some money still back for doing that, and could provide some of the operating costs for an institution, but not that much money. There's also the issue of what needs to be done to conform to not-for-profit tax status, meaning that there has to be some amount of revenue that is actually coming in that actually it is uncompensated to maintain your non-profit tax status. Otherwise, the revenues will be taxed, which actually is the case for non-profit health insurers. And so if institutions such as hospitals have to face that, it could be much more expensive for them. So this is intrinsically thus linked to the uninsured in terms of the uncompensated care issue. And there's cross-subsidization. Well, what do we mean by that? Here's two exhibits that give you some sense of what cross-subsidization might mean in terms of where things might fall. In scenario one, this is where, let's say Medicare and Medicaid say, you know, we're going to take this fee and we're just only going to pay a certain rate and we're going to tie it to inflation. And that's it. It's good for years. It's going to start here, and we're going to go all the way out for the next two decades. And so then as far as cross subsidization means that the hospital knows that there's a certain amount of its money it can't actually afford. 100% is pretty much paying for where it needs to be for payments to cost, and it's just below that for Medicare and Medicaid. And so it basically makes up for that by charging private payers a little bit more. But what if, on the other hand, Medicare and Medicaid go, you know, we just can't afford this stuff anymore. We're going to actually start lowering our reimbursement rates. I mean, that's going to be good for the federal government to lower how much we pay. So we're going to lower government prices, basically. And the hospital has to take that for those populations. The response from the hospitals are probably going to be, well, we need to make it up someplace. Otherwise we're going to go out of business. So we're going to charge private payers more. And whether those private payers can handle it or not is a different question. If you look at this graph, we're talking about going from, say, 120 to, say, 160. That's about a 40%, increase, and you might say, is that even possible? Actually, if you look at private health insurance premiums from that same period of, say, 2000 to 2010, we've seen private insurance premiums go up by almost threefold. So it is possible to see this happen, in part because of the compensation differences that need to happen for institutions if they feel particularly squeezed by government payment rate. Another factor is competition, that's going to be a major issue in the future. Previously, there was patient driven competition and now it's going to payer driven competition. If you're not part of a certain insurer's panel, then you might be really in trouble. We're actually now going back to the future. Doc Brown. So, why? Because we have these new high deductible health plans that have very high deductibles and are making patients much more conscientious about the first dollars they have to pay out of their own pockets. And so now we're going to be seeing patients maybe looking more carefully at institutions, even looking at prices. Hospitals compete today, right now, at different levels. They usually compete on the basis of the different specialties that are out there and what are the best specialties for that hospital that are there. They also compete in terms of access and how quickly you're going to get in and what's the better quality. So, another thing to keep in mind sort of as a follow up question is, under what conditions is competition a good thing for hospital markets? And are there any circumstances when competition is not a good thing? And then finally, when we look at competition, there's the other providers that are out there. We have general hospitals, but then they're competing against all these other specialty hospitals, whether they be orthopedic or cardiac facilities. A lot of these are owned by physicians. There have been hospitals that have been already there, the incumbent hospitals that are basically trying to compete. They'll either build their own orthopedic or cardiac facilities, they might try to hire the physicians that are operating there and bring them in and merge with them. There's also been the policymaker response, which is to say, well, if there's just too much money coming in, say, for cardiac, what we're going to do is actually lower the cardiac reimbursement rate to make it much less lucrative for cardiology to make money at this. And this actually happened in Medicare about five to ten years ago for major cardiac treatment centers. The other thing is ambulatory surgical centers. That's what ASC stands for. There are a tremendous number of them. There's also outpatient hospital surgery departments. And what's great about these is that there's relatively low barriers to entry for them to get in. Generally, they can come and compete pretty aggressively. And in some research I've done recently and published in the Journal of Health Affairs with a colleague at Bethany at the University of Kentucky, we find that actually the costs are far less for this for identical or very similar quality. So big question is, is the presence of these specialty hospitals and ASCs in the market a good thing for consumers or not? I'd venture to say yes, but I'd be curious to hear your own opinions. This concludes our module on looking at future healthcare trends in a provider market space.
