Hospital Association Disavows $2 Trillion Savings Goal

President Obama thought the number was $2 trillion. So did The New York Times. But the American Hospital Association, seconded by American’s Health Insurance Plans, now says that that figure does not accurately represent the amount of savings that a coalition of industry groups committed to over the next decade. AHA Executive Vice President Richard Pollack told his organization’s member hospitals, “The groups did not support reducing the rate of health spending by 1.5% annually.” Instead, he said, the industry plans to reach that target gradually.

Let’s not even talk about the embarrassment this has caused the White House. Without the savings it thought the industry groups were talking about, the government projects that health costs will rise at an average of 6.2 percent annually over the next 10 years. That means that it will hit $4.4 trillion in 2018. And the cost of Medicare and Medicaid will rise commensurately. While it’s hoped that healthcare reform will limit spending growth, most experts say that the policies being proposed in Congress will actually have little effect on containing costs.

The Administration is trying to rein in Medicare spending through budget cuts. In the President’s 2010 budget, for example, funding of Medicare Advantage plans would drop $177 billion over 10 years; home health care would take a $37 billion hit; and bundling payments for acute and post-acute care is expected to save $18 billion. It was also reported recently that CMS is thinking about paring down hospitals’ pay raise for 2010 to nearly zero because many hospitals have overcharged Medicare.

The states are also chopping away. Although the economic stimulus legislation requires states to restore any Medicaid cuts they made after July 1, 2008 if they want more federal funds, the rising tide of uninsured people is swamping state programs that are trammeled by declining tax revenues. In some states, hospitals and physicians are bearing the brunt. For example, Louisiana’s Department of Health and Hospitals recently cut Medicaid provider revenues by 7 percent on an emergency basis. In Utah, hospitals are facing a 25 percent drop in Medicaid reimbursement, starting July 1. Hospital officials say these cuts are much steeper than anticipated and that they might be forced to increase fees on insured patients or scale back on charity care.

Of course, this is not the intent of the Obama Administration, which has increased support for Medicaid. But it is nevertheless true that government efforts to rein in health care spending leave hospitals and other healthcare providers with less leeway to decrease costs—if that’s what they’re really planning to do. (Richard Umbendstock, president of the AHA, said his organization joined with the other industry groups at the last minute so that it would have more influence on negotiating healthcare reform provisions.) Even though many hospitals are still reporting strong profits, others are doing poorly, and efforts to reduce the number of procedures and tests they do could push them over the edge.

The bottom line is that the Administration cannot expect providers to cut their own income significantly at the same time that the government itself is whacking away at their reimbursement. Nothing short of a complete overhaul in how hospitals and physicians are paid will produce a real drop in spending.