On April 17 editorial writers Beth Barber and Don Sevrens sat down with Mike Murphy, CEO of Sharp Healthcare; Dan Gross, executive vice president of Sharp Healthcare; and Steve Escoboza, president and CEO of Hospital Association of San Diego and Imperial Counties, to discuss the impact of the looming 10 percent cut in reimbursements to local hospitals for patients on Medi-Cal (called Medicaid in other states). The California Hospital Association, the California Medical Association and the California Dental Association filed suit Monday to block that cut.
Q: Medi-Cal reimbursements to hospitals are going down 10 percent. What does that mean to you?
Illustration by Pedro Molina
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Dan Gross: Today, any type of governmental reimbursement decline has a dramatic impact for us. About 50 percent of the hospitals in California operate in the red today; over the past 10 years about 70 hospitals and ERs have closed and our skilled nursing beds have diminished by about 50 percent. We're at the bottom of all states in Medi-Cal reimbursement.
Steve Escoboza: In February, Gov. Schwarzenegger declared a financial fiscal emergency. Then the Legislature passed a bill, effective in July, that would reduce Medi-Cal payments to hospitals by $500 million – over $17 million just for our hospitals here in San Diego. Obviously we felt it was the responsible thing to do to alert our elected officials, the media and the public about the issue.
Mike Murphy: There's another significant impact, estimated at $1 billion, from a 10 percent reduction in physician reimbursement. Today in San Diego fewer than 50 percent of physicians accept Medi-Cal patients because of the current payment level. With an additional 10 percent cut, more physicians won't take new Medi-Cal patients, which will exacerbate the problem in the emergency rooms; Medi-Cal patients still need access to care.
The access to health care for all will be impacted based on what happens to the increase in the Medi-Cal volume in the emergency departments and what services providers will offer.
Mike Murphy
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Dan Gross
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Steve Escoboza
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Gross: Medi-Cal reimbursements for hospitals are only covering about 78 percent of the cost of care. Another 10 percent reduction just takes it further down a negative path.
Sharp Coronado Hospital has one of the largest sub-acute patient populations in this state, predominantly ventilator-dependent patients. It will lose more than $2 million by this 10 percent reduction. For smaller organizations that are not in the black, the sub-acute hit creates a real community concern in terms of who is going to take care of these patients, even though they are covered by Medi-Cal.
Murphy: If either skilled nursing facilities or sub-acute units close their beds, those patients have nowhere to go. They are stuck in the hospital, in a medical-surgical bed or an ICU bed. And the state actually will pay higher rates than it would be paying for the sub-acute or skilled-nursing care.
Moreover, it backs up the hospitals, which need these beds for services to inpatients. It backs up the emergency departments. We will not be able to build enough beds to handle all of the inpatient requirements because beds just cost too much money.
A lot of these (sub-acute) patients are young people with traumatic head injuries, or near-drowning patients, or patients with severe spinal-cord injuries. They are never going to be able to return home or even be cared for in a skilled nursing facility because of their intensive care needs.
Q: So where do we go from here?
Escoboza: Last year's effort for health-care reform showed that the governor and the state Legislature realized the financial crisis that the entire health-care arena is facing. The governor in particular acknowledged that the very low Medi-Cal payment to providers needed to be addressed as part of health-care reform. Then the effort was lost. But that whole health-care reform piece acknowledged the fact that we are at crisis. It's rather ironic that the governor now is proposing 10 percent cuts.
Murphy: One component of that health-care reform was to assist hospitals that have a disproportionate number of Medi-Cal patients by increasing the reimbursements to roughly Medicare rates. That would be a great lift. Again on the ironic side, the cuts are being disproportionately applied to those who are taking care of a higher percentage of Medi-Cal patients.
Hospitals in South Bay will get hit disproportionately from the rest. Imperial Valley hospitals are going to be hit significantly. Children's Hospital is going to be hit significantly, and disproportionately.
Escoboza: There is another barrel to this shotgun. At the federal level, the president has proposed cuts to both Medicaid and Medicare, a total of $19 billion across the country over the next five years. But we know that these state reductions are coming July 1. So our first effort is to turn our own Legislature around by educating them about the impacts.
Gross: I don't have a lot of optimism. In Sacramento earlier, it was all about let's wait until the May revise comes out and see how bad it is or isn't. Everything we're hearing now is that the May revise is going to be worse.
We've had conversations about looking elsewhere, other than the expense side of the equation, which really means tax increases. I don't think we have heard any collective bipartisan interest and support for that approach. But it is one at the end of the day if there isn't some new solution.
If the cuts do come to be, we have to start thinking about trying to balance the bottom line while continuing to meet our mission and the community's health-care needs. Sharp Healthcare is one of the few providers that has large, sub-acute patient populations and four skilled nursing facilities. It's not in our plan to move away from those services but at some point you've got to start looking at all options. Are there ways, for instance, to increase revenues in other lines of service to offset your loss leaders?
Murphy: We have to also emphasize investments. We have unfunded mandates related to building buildings, improving buildings, meeting seismic standards. If the bottom lines are decreasing, our ability to build or invest in things that this community needs is compromised.
Gross: Do you buy an upgraded CT scanner this year? That's one of many examples. Is there a way potentially to contract with our vendors and suppliers at a lower rate?
Murphy: We're always looking for cost efficiencies. But again, we will have to squeeze more. Skilled nursing, sub-acute care, outpatient services – we'll ask if this is a service our constituents need, our stakeholders need, and can we afford to stay in it. And if we don't, who's out there that might be able to do it?
Q: Who is out there? The county?
Gross: San Diego County doesn't have a county hospital, so for these vulnerable populations the only facility is the community hospital.
Murphy: County officials certainly have argued even at the court level about what they're responsible for and at what level. And County Medical Services reimbursement is worse than Medicare reimbursement.
The county's being cut like schools are being cut, like health care is being cut. What is it going to do to adjust July 1?
Gross: If we were ever to say, OK, we no longer want to provide sub-acute care, the biggest challenge is where to place those sub-acute patients. They come to us from throughout the state and the region because most communities don't provide these sub-acute services. That's why it's really a state issue, not just a local San Diego issue.
If we or others were to close these services, the patients will just back up in our hospitals. That just drives up the cost of care, number one, and, number two, worsens our challenge even today of getting patients out of emergency department and into beds. It has this continuum-of-care impact. So it's not just about sub-acute and skilled; it really is about the whole health-care delivery system and access.
Q: Is there an easier long-term answer?
Gross: A major health-care reform package. The hospitals signed up to be a big supporter of the governor's reform plan, including our paying a 4 percent “sponsor fee” that could be matched by additional federal dollars. That would start a new revenue stream into the state's health care.
Murphy: One of the principles was to actually get Medi-Cal reimbursement up to Medicare rates, a little bit of cost-shifting: If a hospital is paying a 4 percent tax and has no Medi-Cal patients, it isn't going to recover its tax. Its tax is going to support a hospital that is providing a disproportionate share of Medi-Cal. Again, that's ironic. Now we are looking at taking 10 percent away from hospitals serving the Medi-Cal population.
For the longer term, we have to deal collectively with the 18 percent of our nation's population that is uninsured, with the Medicaid program that shorts us on reimbursements by 22 percent. So it's cost-shifting or failing hospitals.
Escoboza: There's a $2.7 billion shortfall for Medicaid, a $3.5 billion shortfall for Medicare. And we're looking at the federal level at a 10 percent cut in Medicare reimbursements for physicians. We are seeing doctors just opting out of the Medicare and Medicaid en masse. The hospitals don't have that option.
Gross: Every time Medi-Cal patients show up in our ERs, we have to find a physician who will care for them. As this pool of doctors decreases, we try “ER Call Panel Reimbursement Incentives,” which increase the cost of care to us. This Medi-Cal cut will only worsen that downward spiral.
We have to have our governmental payers increase reimbursement more commensurately with our cost of care.
Murphy: Everybody needs to recognize they're subsidizing the uninsured and the underpayment of Medi-Cal in their premiums today. As a country, we need to ask what we are going to do about the uninsured, about the government underfunding, about who is responsible. But there needs to be a comprehensive solution, not just piecemeal.
Q: Does that mean putting everybody in a government program?
Murphy: Everybody should be covered. The health-care industry, the hospital industry have been consistent on that. As a society, as a country, we must decide whether that is through universal coverage by the federal government or a state government, or a mandate to employers to provide insurance or to individuals to buy it.
Gross: What we believe in as a health-care industry is universal coverage, meaning that all people have access to care and are covered by some type of reimbursement program. That's a lot different than a single-payer system. We support models such as the governor's reform plan, not that his is the only model. But it has to be an intricately woven reform package that covers all of our uninsured today.
Murphy: With basic policy coverage.
Q: What's in basic policy coverage?
Gross: You need to have some form of primary care coverage. You need to have some type of catastrophic care coverage. How broad or how narrow that is would depend on the funding stream. But primary and catastrophic care must be covered.
Escoboza: The scope of benefits within each of the 50 states varies. California has a pretty generous scope of benefits under the Medi-Cal program. But again, it's up to elected officials to figure out the will of the constituency and then enact the law. Certainly some basic things belong in any Medicaid program and certainly on the commercial-policy side. It's all about what you can afford to pay.
The hospital industry here has not supported a single-payer Canadian-style system of care. There needs to be a private, market-based approach to health-care reform. Individuals and communities think a little bit differently. It's really finding the middle ground that I think will turn the tide.
Q: Can there be a middle ground? Unfortunately single-payer systems reduce care for everybody.
Murphy: I was just going to say you'd have that same problem if you were to go to Canada or England. They're just going to say sorry, we're not going to pay for that; you're in the wheelchair (for life). It's a system that doesn't cover everything either.
Escoboza: The most expensive part of health-care delivery is the 11th hour, old people who are taking up a bed but frankly have no likelihood of surviving whatever illness they face. The question is, do you want your parent's, your grandparent's care to be rationed at that point? Everyone wants to see as much care as possible at that time.
Gross: The issue of palliative care is not only cost of care but efficacy of care delivery. How do we start identifying those individuals before they're hospice-care level? How do we start focusing on that last year or two of life and develop a plan of care, be it inside or outside the hospital?
Palliative care is not about just writing somebody off. It's thinking about how you treat the advanced heart failure patient at home so they don't go back into congestive heart failure and end up back in the hospital with a myocardial infarction, on a ventilator, etc. Those programs are really starting to come to the forefront of most of your medical centers and health-care systems. It's a lot of work. But I think it's cheaper than beds.
Escoboza: Palliative care is where we all need to go, given the aging population. But it's a just a piece on the larger continuum of care.
Q: Does Sharp want to expand presumably upward in Chula Vista? Do you have specific plans?
Murphy: We are working on a master plan to see (1) what the community needs, (2) what that theoretically might cost, and (3) what we can afford to invest in. Clearly, our most cost-effective option for expansion would be building up an existing building because we don't have unlimited land.
Actually, we couldn't build our existing facility today. The two towers at Chula Vista were built in the '70s and '80s. Today you need 16, 18, 20 feet between every floor to get all the pipes and gases in, to have the technology drop from the ceiling to the right floor space in the operating rooms. And at 84 feet, you're talking a pretty limited height level.
In two to three years we would be having architectural designs submitted. But it will come back to what can we afford to invest.
Q: Does the organization have any formal opinion on this political height-limit initiative?
Murphy: We don't think Sharp Chula Vista should be limited to an 84-foot height. And though we can go to the voters to change the limit, that's expensive and only delays the construction and planning process.
Gross: At the Sharp Memorial campus we're building a new facility. At the beginning everyone wondered if that was just for seismic requirements. No, we did it more for what I call clinical obsolescence. We have to take semi-private rooms and convert them into private rooms just to accommodate all the equipment and technology.
Most hospitals have only around 35 percent to 50 percent of the square footage required by building codes today. And we need different rooms, different types of ventilation systems, more isolation rooms. Our OR suites have 375 to maybe 450 square feet; Most ORs today have become a major radiology suite laden with big robots and other equipment. You need today around 650 square feet at a minimum. We're going to have to move the endoscopy suite to create another ER pod or add to the four we have, all spread out. So you don't have efficiency of care, the type of communications systems you want.
So indeed hospitals have to replace their infrastructure based upon clinical need in addition to seismic requirements. Which all ties back to extraordinary costs, about $800 per construction square foot. You hear $2 million a bed if you're doing a complete facility replacement. It all ties back into the uninsured, the Medi-Cal cuts, Medicare underfunding. It's tough.
Q: What needs to happen next in California?
Gross: I would advocate that we not receive a cut.
Escoboza: I agree.
