To Slow Costs, Slow Revenue, Says Healthcare Economist

The government is not going to increase its reimbursement rates, says Stuart Altman, PhD. "There's a general feeling that the gap is about as wide as it can go."

After years of working on the federal level, Stuart Altman, PhD, a Brandeis University healthcare economist, is now head of the Massachusetts Health Policy Commission. In the second of a two-part conversation, he talks about issues facing community hospitals.

Read part 1.

HLM: You said that cost-shifting is over, that patients and private payers can no longer bear the costs of what hospitals say are shortfalls in government spending. Can you talk about how that might play out?

ALTMAN: Everyone is trying to function in this new world because they think it is the right thing to do. There is also fear that if inflation were to really jump out again, these systems couldn't afford it anymore.

The government is not going to increase its rates. Therefore, the only way the hospitals could get more money is to continue to jack up private rates.

Cost Control Efforts Working 'So Far' in MA

There's a general feeling that the gap is about as wide as it can go. I think most hospitals realize that their ability to generate more revenue from the private sector is really limited.

HLM: They argue that the public programs like Medicare and Medicaid are not paying enough to cover costs.

ALTMAN: The question is, what are the costs? From the hospitals' point of view—and I can very much appreciate it—the costs are what the costs are.

The government isn't paying its share, and therefore it has to get [it's money] from the private (payers). The government is saying, 'this is all we can pay.'

It's already a much higher amount than every other country. You mean to tell me that you can't provide good quality care with less?

The government is saying, 'we can't and we won't pay.'

[Healthcare] is already the biggest item in every state budget. It's already a big item on the federal level. It's the main reason why we have a deficit.

You're just not going to get more money from the government. I don't say the hospitals are inherently wrong, if you accept the cost structure. The government people and the analysts are saying the cost structure is too high.

HLM: The Health Policy Commission just published a report on community hospitals. Can you talk about the issues smaller, independent facilities face?

ALTMAN: It is extremely difficult in this era for community hospitals to stay independent. [They] are facing a whole set of problems. They do not have the bargaining power, vis-à-vis the insurance companies, that the big systems do.

They face the perception that they are lower quality because they don't have the fancy new equipment and they don't have the high priced doctors.

They are perceived as lower quality and they get less money.

If you have an insurance policy that will pay you whether you go to a [less expensive hospital or a] hospital that costs 50% more, and you perceive that the [one that charges] 50% more means higher quality, and it doesn't cost you anything, why go to the lower costs facility?

So, these community hospitals are facing declining patient loads, reduced occupancy, and [the perception of] lower quality.

I say perceived—in many case the quality of the institutions is good, if not better for certain types of illness. You go into these big academic institutions, while they may be great for very exotic things, for basic things, they often don't do as good a job. The quality measure back that up.

Bigness does have some advantages. That's the argument being made by these big systems. They are the only ones that can really put together these needed organizations that can make ACOs work and so on.

The problem is whether they really use their bigness to make things better, or if they just use it to generate higher revenue.

There is a lot of evidence that they are just using it to make revenue, that they are not that much more efficient or efficient at all because they are tied into a big mother shop that needs to be fed.

HLM: A lot of people are very optimistic about ACOs, value-based payments, and other changes built into the ACA. You don't sound optimistic.

ALTMAN: I'm not super negative, but I've been around a long time. I don't want to be too cynical. I believe ultimately the only way to slow the costs is to slow the revenue.

The healthcare system in America is a big money machine. I don't blame the hospitals; I don't blame anyone alone. But we are all a part of the big money machine and it is very expensive on a lot of levels.

If you compare American to other countries, it's not that we use too much healthcare. It's that the prices are much too high.

If anything, I think the American system is more efficient than Europe in many respects. We don't go to the hospital as often. We have shorter lengths of stay; we don't go to the doctor as much. But, what we do do is very expensive.

This is the second of two parts. Read part 1.