Can Hospitals Survive a $155 Billion Dollar Haircut?

The hospitals have agreed to not get paid $155 billion dollars from Medicare/Medicaid over the next ten years as part of an agreement with Obameconomics. Let's do a quick math scan on the numbers.

How much will this cost the hospitals?

• $155 Billion dollars over ten years
• That's 15.5 Billion dollars per year
• There are about 7,500 hospitals nation wide
• On average that means the average hospital will forego 2.1 million dollars a year in payments.
• Operating margins of hospitals run about 4%. That means while your care is horribly expensive, they only make 4% on your the insurance cash they are paid.
• That means a hospital would have to generate 51.6 million dollars a year in revenue to just break even for losing their 2.1 million dollars a year.
• 
  

Let's look at it another way. Total health care expenditures in the US are about 2.4 trillion dollars. 35% of that is spent on hospitals. That's 840 billion. Government insurance (Medicare/Medicaid) is about 1/2 (let's assume 50% for easy math) of that expense. That's 420 billion dollars a year spent on hospital care by your government (state and local). If hospital margins run about 4%, that means hospitals profit to the tune of 16.8 billion dollars a year.

ADDENDUM (math error) Math Correction: Let's assume they profit 4% on their revenues of 840 billion dollars. That means yearly hospital profits on 4% margins is 33.6 billion dollars. Cut 15.5 billion from government cuts and you're left with profits of 18.1 billion dollars or 2.1%, assuming private insurance pays the same as public, which we all know it doesn't.

You can't cut 15.5 billion dollars of profit a year out of hospital care when they are only making 33.6 billion a year. Your margins would be cut from 4% to 2.1% percent.


One of two things will happen.

1. Hospitals must reduce costs to increase their operating margins.
   
2. Increase other sources of revenue (private insurance will go up, which means all our premiums will go up, which means private insurance will not be able to compete with any government plan that pays less than cost.)

How do you reduce costs?

1. You fire people and make those that remain work harder, perhaps increasing the work load of understaffed nurses, respiratory therapists and lab technicians trying to operate under an ever larger bureaucratic mess.
   
2. You pay them less, there by guaranteeing a mass exodus out of the medical field for everyone who works in hospitals, making the situation even worse.
3. You reduce services. Can't run that MRI? Can't do that lab in house? No RT in the middle of the night? No echo on week end nights? Need an endoscopy tech in the middle of the night, you'll have to transfer 300 miles down the road.
   
4. You delay capital expenditures. It's too bad that CT scanner broke again. Your head bleed cannot be confirmed tonight.
   
5. You cut corners on maintenance. No oxygen for the third and fifth floors. We haven't gotten around to fixing the lines.
   
6. You offer fewer drugs. I'm sorry sir, we don't offer that chemotherapy at this hospital.
   
7. Less research and development. This factor alone will kill medicine in the US.
   
8. Fewer quality initiatives. It takes money to generate quality. If you don't pay for quality, you get what you pay for.
   

Unless you can reduce the cost of doing business (deregulate the hospital industry) there is no way I see hospitals surviving a 15.5 billion dollar per year haircut, leaving operating margins of only 2% per year. With out deregulation, the hospital industry will screw all of us because they will have to just to survive. Unless they increase their revenues from other sources.

What does that mean to me and you? It means all of us not on the take with government health insurance will surely see higher premiums as hospitals look to the private insurance companies to survive. In essence, what Obama has done is increase the tax on all Americans who get their health insurance from private industry. He has, once again, created a stealth tax on every middle class American in this country. Because every additional dollar your employer spends on your health insurance is one less dollar you get in wages.

Eventually, once the government has undercut the true cost of health care by defraying more and more real costs onto the private industry, Americans will eventually revolt, calling for a take over of their health care by the "cheaper" government options. Cheaper not because the government can provide cheaper care, but because they defray the true cost onto private industry. But what happens when there is no private industry left to shoulder the burden of lowballing government care? We will be left with Obameconomics, where the true cost of health care will present itself. If there is no private industry left to subsidize the false economies of Obameconomics, we are all screwed. Because American health care cannot surivie on Medicare/Medicaid for all.

And folks, the only way a hospital can survive on a Medicare/Medicaid for all, in this current regulator environement is to do any of the the eight things I talked about. If you want Medicare/Medicaid for all, and the false cost that comes with it, be prepared to

1. Wait for your care
2. Not get your care at all
   
3. Or get crappy care for all.

And that's a fact. There is no way around it. 4% margins tell the story. 2% margins cannot survive without a private industry bailout (me and you through higher premiums tax

The government give ith and the government taketh away.