Will travel nursing survive Obamacare?

cosmicmama, BSN, RN · Nov 12, 2012

Can you describe how hospitals are going to be "hit hard"? Seems to me that hospitals who used to provide a lot of care to uninsured people will benefit. I don't think Obamacare is going to affect travel nursing, people still get sick and hospitals are still going to need nurses. The population is aging, too.

Mitts78 · Nov 13, 2012

I am in agreement. I think the hospitals will make out because of the current uninsured. The only way I see hospitals not making out is that people will now have follow up care, medications, etc therefore less likely to have exacerbations that land them in the hospitals. Of course this is baring that 1) people actually do f/u care and 2) people listen and 3) even if they have preventative help, this will not take into effect for awhile (once the ball is rolling).

The people that lose out in this are the insurance companies. What is sad is that you can call up a place (hospital, radiologist for xrays, etc) and negotiate fees. I did not know this. I thought there was always a set standard. I only heard about this while this topic was a heated debate. Of course insurance companies nor hospitals nor lab wants you to know this...

kellygurl64 · Nov 13, 2012

I attended the Travelers' Conference in Vegas. The smart people who crunch numbers said Obamacare will be great for travel nursing: everyone will have insurance and use it. Hospitals would also rather have a temporary fix (eg, traveler), until they are sure what their financial situations will be, etc. All in all, it seemed very positive and promising, regardless of what you may hear from doctors and administators, or what your political affiliation is...

NedRN · Nov 13, 2012

Umm... I think adding 30 million people to the ranks of healthcare insurance will mean many more healthcare customers. That can only add business to hospitals and up the need for providers. And travelers. ERs might lose business, but that is good for hospitals too as most ERs lose money. I don't think it is a question of surviving Obamacare, the healthcare business will be thriving under Obamacare. And so will Americans.

Janethenurse · Nov 13, 2012

I've read a bit into Obama care. The most recent articles I read that led me to ask this question are here:

Obamacare Part II: The Great Hospital Squeeze - Seeking Alpha

and here

Obamacare Part I - Will Insurance Companies Survive? - Seeking Alpha

Janethenurse · Nov 13, 2012

Making Money Off of Obamacare

Part II

On the heels of the Supreme Court decision upholding Obamacare, hospital stocks shot higher. The conventional wisdom is that hospitals, which swallow a significant share of cost of the cost of caring for the uninsured today, will benefit from having a larger number of insured patients and a lesser number of uninsured patients. They are expected to benefit from reduced ER visits and increased compensation for ER visits.

My thesis is that, in the near future, hospitals and hospital chain holding companies are going to be subject to a tremendous financial squeeze that they are ill prepared for. I would suggest shorting HCA Holdings (HCA), Community Health Systems (CYH), Universal Health Services (UHS), Tenet Healthcare Corp (THC), and Lifepoint Hospitals (LPNT).

Doubtful Revenues from the ER and Uninsured

I explained in "Obamacare Part I - Will Insurance Companies Survive", the number of insured people is actually expected to drop significantly as people realize that they can now protect themselves from catastrophic medical bills by purchasing insurance when they need it. Hence I don't see a huge uptick in people with insurance coming to the ER. Indeed, as the people drop insurance, the number of people without insurance who show up at the ER, fail to give their identity and stroll off with free treatment will very likely increase significantly.

Currently, the average fully employed person has health insurance and is likely to use the Urgent Care or a regular provider much more than an ER. However, as fully employed people drop health coverage due to the reinforcing spiral (see part I), these people can and will utilize the ER since a) the ER has a limited ability to collect what's owed b) these people will be unwilling to pay the full market price for care or c) will not want to purchase coverage that may run into thousands d) when the care can be got for free at an ER without showing any ID.

Accountable Care Organizations (ACOs)

As I explained above, the case for increased revenue is iffy at best and decreased revenues are more likely. But the more existential threat to hospitals comes from the Accountable Care Organizations structure.

What is an ACO? Currently this is a program being piloted for Medicare beneficiaries that comes in two main flavors, (the various ACO models are outlined in this excellent paper from the Brookings institution, see page 14). The first flavor, called the Utilization Risk ACO, is a plan whereby Medicare bears all the financial risk, continuing to pay hospitals for volume of services rendered. In this model, if the hospital meets certain cost, quality and patient satisfaction criteria, it gets to share in the cost savings.

The second model is called the Financial Risk ACO or Global Capitation ACO. In this model, a hospital or physician group accepts a fixed payment per head per year for each patient and agrees to supply all the medical services to that patient. This is a zero sum model. For every dollar a hospital or doctor spends more on the patient, that is one dollar less in the pocket of the hospital or doctor. If the patient needs more care than the fixed payment, then the hospital or doctor would be paying for that care out of their pockets.

As I pointed out in Part I, the department of Health and Human Services is busy pushing out regulations that for the Global Capitation ACO model. Pilot implementation has already started, with full expansion plans mandated by the ACA in 2016.

What will be the results of these ACOs being formed?

Absorption of Private Practices and Rapid Growth of ACO Hospitals

The first effect of the ACO structure will be initially beneficial to the hospital's top line revenues, though not the bottom line. The Global Capitation ACO model requires the health provider to take complete financial responsibility for medical treatment of the pool of patients they are allotted A small medical practice with a couple of hundred patients will easily be bankrupted if one or two patients develop complex conditions that require extensive medical care. A bankrupt practice means patients who suddenly no longer have any type of medical care.

Recognizing this the Congress has set the minimum threshold for ACO participation at 5000 Medicare beneficiaries (ACA, Section 3022 amending 1899(b)(2)(D)). However this is intended mainly for the Utilization Risk ACO where the provider has little or no financial risk except forgone incentives. For a Global Capitation ACO a safer size may be closer to 50,000 enrollees so that the costs of a caring for a few very expensive patients is spread out over a wide enough base.

What does this mean for hospitals and hospital chains? This means that the tens of thousands of small medical practices distributed over every city, suburb and small town will most likely have to close since they do not have a pool of patients big enough to form an ACO. Existing large hospitals and hospital chains are the only entities most likely to survive under the Global Capitation ACO structure.

The future of medical care in the US will probably look vastly different. There likely will be a very large hospital in each region and not much else. Most of the physicians who work for small practices will be absorbed by the large hospitals. This may sound like great news for hospital chains that their smaller competition is going hobbled by the government. But there is a price to pay for gobbbling up the smaller practices.

Shock Transition to Fixed Fee Model

Currently, the hospitals get reimbursed for the volume of services they provide. But with the ACO model, their revenues are capped by the formula [Revenue = Payment per Capita X Total Number of Patients in the ACO.] Today, the average hospital's goal is to provide quality medical care and it possesses little infrastructure to ration care. Indeed, most hospitals now try to maximize the care delivered because they get paid more when they do.

The question will come down to who will ration the care in each large ACO hospital? Will it be the doctors? Remember the doctors will be salaried employees and won't get a direct benefit from denying care but could incur a lawsuit. Secondly, even if one doctor carefully rations care, the next doctor could increase the expenses by performing additional medical procedures, a classic case of "when everyone is responsible, no one is responsible". Third and most important, the ACA prohibits the hospitals from providing any incentives to physicians to reduce care to the patients (see page 10, center column, item no. 5) says that cost savings may be shared with a physician provided -

"payments of shared savings distributions made directly or indirectly

from a hospital to a physician are not made knowingly to induce the

physician to reduce or limit medically necessary items or services to patients under the direct care of the physician"

Will it be hospital management? On a professional level they do not possess the expertise to question the physicians on individual cases. On a management level, they do not have the processes to micromanage care. On the legal front, the hospital management could incur significant liabilities if they overrule the physician's advice and restrict care. So, though management will want to restrict care for profits, they'll be up against the physicians, who will have little incentive to restrict care.

It won't be Medicare or the insurance companies, which have functioned as the gatekeepers and cost controllers by imposing an array of rules. Under the Global Capitation ACO structure, since the risk is fully transferred to the ACO hospital, they will not impose any rules on what is allowed or not. This means each hospital will have to function as a miniature insurance company analyzing which treatments cost more and developing rules on which treatments will be allowed or not. To do this ACO hospitals will have to hire benefits analysts, risk analysts, actuaries, statisticians and internalize the expertise of health insurance companies.

The problem is that that ACO hospitals will be paid only the fixed per capita fee for the patient care. Where's the money and management skills going to come from, to recreate miniature insurance companies inside thousands of hospitals?

Will ACO Hospitals Achieve Cost Savings?

There's this implicit assumption that doctors and hospitals completely control the health outcomes of provided care. But in reality, they do not. If a patient does not take his or her medication and requires readmission, if a patient does not exercise or eat healthy, if a patient does not show up for a follow up appointment, it's the hospital that will get hit with financial penalties.

Thus, many of the cost savings demanded by the Global Capitation ACO model are based on factors the hospitals cannot control. The ACO model transfers responsibility and consequences for personal behavior choices from the patient to the provider. Given the propensity of patients to make unhealthy choices and given that there are few incentives for them to change their behavior, the ACO hospitals are unlikely to meet the guidelines for any quality or cost savings.

Another profit risk is that as the baby boomer generation hits retirement the population mix will skew towards older people. The quantity and costs of medical care will balloon while ACOs hospitals will be constrained by fixed payments, thus squeezing margins.

In the current system, insurance companies and Medicare play a never ending game with hospitals over costs, by imposing an ever changing set of rules for reimbursement. The hospitals respond by finding new ways to bill. The beauty of the ACO model is that government has a simple mechanism to control its own costs by a single simple payment per year per patient. That's the only metric the government needs to control and none of the current rules for reimbursement will be needed. Quite simply, it's game over, the government wins. Whenever the government wants to save money, they can simply cut or refuse to increase the fixed payment. The hospitals lose, having to provide care, irrespective of budget burdens.

Past Cost Cutting Experience is Not Encouraging

Given the structural reasons outlined above it's likely that ACO hospitals will spend much more than they get as a fixed payment. Romneycare in Massachusetts provides a canary in the coal mine as to what will happen. In a joint study by University of North Carolina and the Center for Health Innovation, Education and Research, the authors found that -

"Massachusetts' coverage mandates lead to a significant drop in hospitals' productivity relative to comparable facilities in other states. In 2008, Massachusetts functioned 3.53% below its 2005 level, whereas facilities across the United States have seen a 4.06% increase over the same period"

A look at the ACO pilot program results is sobering. Most of them failed to meet cost savings goals and this was the Utilization Risk ACO where the government had the financial risk. President Obama spoke glowingly about the ACO program at Cleveland Clinic, yet even the marquee participants did not want to participate further. If Global Capitation ACO model (where hospitals bear the financial risk) is put into effect, then ACO hospitals and ACO hospital chains are likely to face a very significant financial squeeze. Unfortunately because of the factors outlined above, it's a squeeze that they are structurally unprepared for.

Conclusion

The ACO hospitals and hospital chains are unprepared to a) create internal insurance companies b) while providing medical care to tens of thousands, c) while expanding enormously, d) while harboring a host of unmotivated, unaligned doctors whose practices they have taken over e) while also transitioning to a fixed fee model.

These large ACO hospitals and hospital chains will be the primary source of medical care in their respective communities following the absorption of small medical practices. They'll likely deemed "Too Essential To Fail" (TETF) and will be propped up by the government, if they are unable manage their finances. However, shareholders can hardly expect to be bailed out.

The key risk factor is a radically changing business model that leads from growing revenues to fixed revenues. I expect many of the hospital chains that take part in the Global Capitation ACO to face severe financial difficulties within a year or two of the ACO model being fully implemented. Once the current euphoria over the ACA being upheld subsides and analysts start looking into the implementation of the ACO model, I believe that sentiment will turn negative towards hospital chains in the coming months.

NedRN · Nov 14, 2012

Whew! Third paragraph: "my thesis". That should be enough. But if not, scroll all the way to the bottom to find out the real purpose of this drivel: what stocks to buy or short if Obama is re-elected. If you care to look at actual stock performance since then, you can determine whether the resulting advice from the blah-blah-blah analysis was credible or not. You don't need our opinion.

Janethenurse · Nov 14, 2012

To Ned RN: True, but I trust nurses opinions on this more because we are in the hospitals and hearing how Obamacare will affect the industry. So hence my reason for asking.

cosmicmama, BSN, RN · Nov 15, 2012

I agree with Ned, this sounds like a bunch of extremist drivel, at the very least it is very biased and meant to scare people into buying stock or thinking Obamacare is going to cause a health care apocalypse or whatever. After reading all that, I stand by original opinion that health care and the general public are going to be better off, and the billion dollar insurance companies are going to suffer because they are finally have to follow some rules. I'm in my third decade of nursing, and I am actually excited for the future of healthcare for the first time in my career.

Sage1111 · Nov 16, 2012

I just finished an assignment in California. The Director of Surgery mentioned at a staff meeting that with ObamaCare, each surgical procedure will have a set fee payed by the government health plan. All people involved will take their portion of this fee, surgeon,anesth.., nursing, etc.. This should be interesting...

cosmicmama, BSN, RN · Nov 16, 2012

Sage, I'm pretty sure that's how it already works with Medicaid in North Carolina, anyway.