Hospitals’ “Triple Whammy” Demands Reform – Pacific Research Institute

Hospitals’ “Triple Whammy” Demands Reform

The Los Angeles Times reports that California hospitals are suffering a fiscal “triple whammy”: their investments are in the tank; they cannot borrow money in today’s frozen credit markets; and operating revenues have collapsed.

Like I wrote in my analysis of Gov. Schwarzenegger’s failed health reform, hospitals’ finances are not as bad as they often claim. Nevertheless, today’s story rings true. There’s not much a health-policy analyst can recommend with respect to hospitals’ bad investments or inability to borrow money, but the problem of declining operating revenues offers two lessons (neither of which the LA Times introduces).

First: government health-care spending is not a solution to inadequate revenues. Rather, it is a cause. Hospitals’ dependency on Medi-Cal (Medicaid) will always lead them to financial distress, because this program will always underpay the hospitals, forcing them to shift costs to private payers.

Second: the private payers are giving up on taking up the slack. The LA Times is generally critical of consumer-driven health care, so the article slams policies with high deductibles. The article repeats the myth that “employers have slowed the rate of increase in their healthcare expenses through higher deductibles and reduced benefits”. In fact, employees already pay for all their health costs themselves, through decreased wages, as I wrote about in my analysis of Sen. McCain and then Sen. Obama’s health-reform proposals.

High-deductible health plans have lower premiums, so their real effect is to put more health-care dollars under the command of patients, rather than insurance companies or the state. If those patients are increasingly choosing not to undergo elective surgery, as the article accuses, that choice demands that California hospitals figure out better ways of helping patients finance their procedures. That is what every other vendor of big-ticket items has to do, in order to serve its public.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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