It’s not just big insurers who are sinking into the swamp these days — hospitals are slipping as well. And while it’s a little early to know for sure, the problems of health plans seem quite likely to make those of hospitals even worse.
Yesterday, Tenet Healthcare and Kaiser Permanente — a major for-profit hospital chain and a big nonprofit HMO, respectively — both reported lousy first-quarter earnings, although for very different reasons. Tenet’s $31 million loss largely reflected costs related to its legal dispute with two USC hospitals as well as an ongoing restructuring aimed at relieving bad debt and slowing revenues from patient treatment. Kaiser, meanwhile, blamed a deteriorating economy for a 64 percent slide in net income, largely because the HMO’s investments produced a $295 million loss in the quarter.
Both healthcare providers insist their underlying business is strong. Kaiser, for instance, said it gained 25,000 members during the quarter and boosted operating income, which is separate from investment-related earnings. And Tenet’s year of cost-cutting, during which it sold off “poorly performing” hospitals and cut employment, have led to two successive quarters of “positive admissions growth,” a measure of the number of patients a hospital system is treating, according to CEO Trevor Fetter:
“Our earnings have steadily grown; our margin has expanded; we’ve now had two quarters in a row of positive admissions growth. Those are the metrics that are most important for assessing that we’re in a growth path,” Fetter said.
“The kind of classic things you would expect to see if you were having a recession right now, we’re not seeing,” he said. […] “Since about the third quarter of 2007 we’ve really been doing very well.”
All this, I suspect, is so much whistling past the graveyard. WellPoint and other major insurers clearly intend to bolster their sagging businesses by raising health-insurance premiums. As insurance grows more expensive for employers, many are likely to scale back or drop coverage. That means hospitals will end up treating a greater number of underinsured or uninsured patients, leading to more bad debt, more aggressive collections procedures, and in some cases, draconian measures such as forcing patients to pay in advance for cancer care and other expensive treatments (along with the resulting bad PR).
All of which suggests, at best, another round of contraction and consolidation among both insurers and hospitals, as they struggle to shift rising healthcare costs onto consumers and businesses that are increasingly unable to pay for them. At worst, it could mean the beginning of a death spiral for the byzantine and inefficient U.S. healthcare system. Nothing seems more likely to precipitate a general healthcare crisis than the continued collapse of employer-provided health insurance, and it’s hard to see how that ends short of some form of dramatic government takeover that could shake all three industries to the core — and possibly even legislate health insurers out of business.
I don’t doubt there’s a better way, but almost no one seems to be looking for one. Instead, everyone’s intent on rearranging the deck chairs while they can.
Update: At the Health Affairs Blog, Jeff Goldsmith offers a dissenting view, albeit one that mostly suggests increased cost-shifting will hold down overall healthcare inflation — and thus delay what still looks like an inevitable crisis — for at least a few years.
Image by Flickr user thetorpedodog, CC 2.0
