Spokane Journal of Business

Health care here faces surgery

Medicare, Medicaid cuts from 1998 through 2002 to total $172.5 million

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Health care in Spokane is about to go under the federal budget-balancing knife.

Medicare and Medicaid spending in the county will be slashed by $172.5 million from 1998 through 2002 as a result of the 1998 Congressional Budget Resolution and Reconciliation acts, says a University of Washington Fiscal Policy Center report. Overall, the federal government will cut spending in the countyincluding in defense and areas such as housing assistance and educationby $376 million, the report says.

In Spokane County, where the health-care industry is an important economic force and Medicare and Medicaid payments provide more than half of hospital revenues, the federal cuts likely will have a greater impact than in other parts of Washington state, say the study and Spokane health-care executives.

Those are really significant dollar cuts, says Garman Lutz, senior vice president of finance at Empire Health Services, of Spokane, which owns and operates Deaconess Medical Center and Valley Hospital & Medical Center, as well as other medical services. The impact on the economy could be large. Health care is a big industry in Spokane.

Ryland Skip Davis, CEO at Sacred Heart Medical Center, says, Spokane enjoys outstanding medical care. We hope to sustain that, (but) we may see some erosion.

Lutz and Davis say the cuts could affect the ability to bring new health-care technology to the Spokane area, to do health research here, and to provide training for new doctors. Davis says Sacred Hearts current relationship with the UW medical school enables it to bring new doctors here for training and improves the areas ability to recruit physicians.

The cuts also could result in fewer jobs in health care here. Sacred Heart, for example, now closely evaluates every position that comes open before filling it. We dont replace any vacated job automatically, Davis says, adding, Well see a decline in full-time employees.

Throughout the nation, federal spending will be cut by $281.3 billion during the five-year period, with most of the reductions occurring in health care, according to the UW report.

The report asserts that the cuts in Medicare will increase recipients premiums and co-payments and may indirectly pass on more financial responsibility to the states. More significantly, decreased provider revenues may have ripple effects in the economy as well as in the availability and delivery of health care to the elderly and in the fee structure for non-Medicare patients.

As dramatic as the cuts and their projected impacts are, however, Dan Kirschner, public affairs manager at the Spokane Area Chamber of Commerce, says its important to remember that balancing the federal budget also is beneficial for the U.S. economy and Spokanes. We do want a balanced budget, he says.Biggest recipientsSpokane Countys hospitals receive the lions share of Medicare and Medicaid dollars that flow into the county, at 70 percent and 58 percent, respectively, the UW report says.

In 1995, some $257 millionor nearly 56 percentof the hospitals total revenues came from Medicare and Medicaid, the report says. This dependency on federal funds for area hospital operations is higher than the state average of 48 percent, it says. The countys hospitals include Deaconess, Valley, Sacred Heart, Holy Family Hospital, St. Lukes Rehabilitation Institute, and Deer Park Health Center & Hospital.

Empire Healths Lutz says there are a couple of reasons for the hospitals high dependence on those federal funds. We are a heavy poverty area, Lutz says, leading to the greater use of Medicaid. Also, he says, the use of Medicaid has been going up recently, probably due to welfare reform, which is bringing welfare recipients from rural counties into Spokane County where there are more jobs.

Meanwhile, Medicare, which provides health-care benefits to senior citizens, is used heavily here, in part because people from the Inland Northwest are drawn here for treatment, Lutz says. Also, Spokane has a higher percentage of seniors than other areas of the state, says Davis.

The Medicare and Medicaid cuts from 1998 through 2002 will amount to a reduction in total hospital revenues of around 4.5 percent, according to the UW report. The majority of the cuts are backloaded so they occur in the last two years of the five-year period.

Lutz estimates that Empires share of those cuts will total between $25 million and $30 million over the five years, and Davis says Sacred Heart will lose $18 million in Medicare monies alone.

Those cuts are on top of previous cuts in the federal programs and other budget tightening that has occurred at the countys hospitals due to demands placed on providers by health insurers. The hospitals budget woes are compounded by the fact that their inpatients today include a higher percentage of sicker patientswhose care is more expensive.

I think were stretching the rubber band pretty tight, says Davis. Its not an easy problem, and it could get a lot worse before it gets better.Squeezing out dimesThe hospitals have plans to squeeze more money out of their operations and lower their costs. The government isnt an easy customer to negotiate with, says Lutz, so that means the hospitals simply have to deal with the reductions.

Both Lutz and Davis say the most important cost cutter in the Spokane hospitals arsenal is collaboration. Davis says collaborative efforts already in place between the hospitalsincluding the air ambulance service, health-education services, and St. Lukes joint venturesave in the neighborhood of $12 million in operational expenses and $16 million in deferred capital expenses annually.

Spokane is unique in that weve been able to go farther and last longer with collaborative efforts, he contends. More such efforts are expected, including the closer alliance between Sacred Heart and the Dominican Network, which includes Holy Family and three other hospitals.

Then, the hospitals simply must run as lean as possible. Lutz says that hed like to see complex medical billingespecially for Medicare and Medicaidsimplified, which could lower costs.

At some point, though, if such high cuts in health-care spending continue, care will be impacted, Lutz says, and that may make increased federal health-care spending a priority.

He says some of the reductions have corresponded with tax cuts. Consumers may say they will be willing to give (those tax cuts) back, he says. There are a lot of societal questions there.

  • Marlene Mehlhaff

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