Hospitals See $16 Billion Windfall From Overhaul Deal

Hospitals may gain as much as $16 billion over a decade from the Obama administration’s proposals to overhaul the health-care system, according to a previously undisclosed analysis by the American Hospital Association.

Community Health Systems Inc., HCA Inc. and other hospital groups would receive $171 billion over 10 years in reimbursements for the newly insured under legislation to provide medical coverage for all U.S. citizens, the AHA said in a report to industry and lawmakers. The benefit would more than offset $155 billion in proposed cost cuts during the same period that hospitals promised in a deal with the White House.

Hospitals are among six interest groups that pledged in May to cut $2 trillion over 10 years to support President Barack Obama’s top domestic goal of reducing health-care costs and covering the nation’s 46 million uninsured. Hospitals will benefit from the elimination of bad debt for treating those without insurance, said Ira Loss, a senior health analyst at Washington Analysis, a Washington, D.C.-based company that examines the effects of public policy decisions.

“If you look at any hospital company’s statements, they have huge bad debt,” of up to 10 percent, Loss said yesterday in a telephone interview. “There’s no question that’s a plus for them.”

The AHA, the Federation of American Hospitals and the Catholic Health Association pledged to cut costs at a May 11 event with Obama, insurers, drugmakers, a major union and doctors.

Cost-Cut Agreement

Hospitals agreed to the gradual reduction of $50 billion in government payments they receive for treating the uninsured. Another $2 billion in cuts would be made assuming the number of patients being readmitted to hospitals would fall because of procedural changes pushed by the administration. Another $103 billion would come from reduced payments from Medicare, the government’s program for the elderly and disabled.

“If all patients are covered by credible insurance, hospital revenues will increase as charity care goes away,” said Craig A. Becker, chief executive officer of the Tennessee Hospital Association in a July 9 statement, posted yesterday on the association’s Web site. “The AHA conservatively estimates that, nationally, hospitals will receive an additional $171 billion over 10 years in the form of reimbursement for the newly covered uninsured.”

Becker didn’t return a phone call seeking comment. AHA spokeswoman Elizabeth Lietz confirmed the estimate yesterday in an e-mail and said it was put together “a few months ago” for members of Congress and state hospital associations.

Becker said in the statement that while hospitals would experience no cut in payments for indirect medical education, slots for resident doctors will be increased slightly and redistributed. He also noted that from 1996 to 2003, the industry saw Medicare payment reductions similar to the proposed $103 billion cut.

“America’s hospitals put forward a significant amount of savings as part of the health insurance reform effort,” said Nicholas Papas, an administration spokesman, in an e-mail. “We’re confident insurance reform will improve health care for Americans and strengthen America’s hospitals.”

Nonbinding Deals

Lawmakers, who began their August recess without finishing health-care legislation, have cast doubt on the agreements with the interest groups. Representative Henry Waxman of California, the Democratic chairman of the House Energy and Commerce Committee, said neither Obama nor lawmakers are bound by the deals negotiated with the White House and the Democratic chairman of the Senate Finance Committee, Montana Senator Max Baucus.

House Speaker Nancy Pelosi, also a California Democrat, echoed Waxman in comments about the agreement the pharmaceutical industry made with the White House to reduce costs by $80 billion.

Five Congressional committees have jurisdiction over health. The four that have passed bills -- Energy and Commerce, Ways and Means and Education and Labor in the House, and the Health, Education, Pension and Labor panel in the Senate -- call for enrollment of the uninsured starting in 2013, Loss said.

2013 Enrollment

The estimate of $171 billion in reimbursements for the newly insured is “consistent with reality,” Les Funtleyder, a health-care analyst at Miller Tabak and Co., said yesterday in a telephone interview.

“The savings that are going to be taken from the hospital industry are likely to begin as soon as this is enacted and the enrollment of the new people under insurance reform is not going to happen until 2013, so there’s going to be a lag until they see the benefits,” Loss said.

Many of the cuts pledged by the hospital industry will be lower in the first few years after the overhaul is enacted and increase later in the decade, Becker said in his statement.

Hospitals account for about 31 percent of annual U.S. health-care spending and will produce $11 trillion in revenue over 10 years, Princeton University economist Uwe Reinhardt said in a July interview.

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