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Think Tank

Pre-Reform Pressures Mount for California Hospitals

The California Hospital Association released a dire forecast for this year, predicting that most hospitals in the Golden State will face significant financial obstacles in 2012 and that some may be forced to close.

According to the forecast, “California hospitals are facing pressures from every direction.” The report cites the stalled economy, increasing dependence on government health insurance programs and implementation of the federal health reform law as the root of some of the most significant financial pressures. CHA also predicted that hospitals could lose outpatient business to retail clinics and physician-operated ambulatory care centers.

Add two more pressure points:

Service Employees International Union-United Healthcare Workers West is collecting signatures for two ballot initiatives to increase the amount of charity care some California hospitals provide and to limit how much any hospital can charge for health care services.

The Charity Care Act of 2012 would establish for the first time a threshold of charity care not-for-profit California hospitals would need to meet to qualify for tax breaks. The initiative would, according to SEIU officials, require “about 80% of the state’s hospital systems” to provide charity care services equal to 5% of net revenue from patients. A couple of big statewide hospital systems — Kaiser Permanente and Dignity Health (formerly Catholic Healthcare West) — would be exempt.

Under the Fair Healthcare Pricing Act of 2012, all hospitals in the state would be prohibited from charging more than 25% above the actual cost of providing care. According to SEIU-UHW, California hospitals charge patients between 450% and 1,000% more than what it costs to provide care. The fair pricing measure would expire five years after implementation once larger provisions of the federal health reform law take effect.

We asked stakeholders to identify the best ways to keep the health care system intact and to prevent Californians from being left without a local hospital or unable to afford care.

We got responses from:

Initiatives Target Some Hospitals, Exempt Others

California’s health care system performs well across many areas, including care management, overall costs and cost trends. Our state’s consistently lower levels of utilization have been a major driver of lower per capita health care costs. For every major measure of hospital utilization, care provided in California’s hospitals ranks among the most efficient in the nation. As a result, California’s average per capita spending is well below the national average, despite a significantly higher cost of doing business in the state.

As we move toward implementation of national health care reform, an even greater emphasis is being placed on care coordination and financial alignment among all providers, with the twin goals of improving the quality of patient care and lowering costs.

Now, as we are on the precipice of health care reform, comes an attempt by the Service Employees International Union-United Healthcare Workers West to use the ballot box to target certain hospitals in order to leverage them to be neutral in union organizing campaigns. SEIU is attempting to qualify two initiatives for the November 2012 general election ballot. One measure is called the Charity Care Act of 2012 and the other initiative is known as the Fair Healthcare Pricing Act of 2012.

These measures are discriminatory in that the initiatives target some hospitals while exempting others. The initiatives exempt most SEIU-organized hospitals, including public hospitals, children’s hospitals, certain hospitals operated by health care plan providers (e.g., Kaiser) and certain not-for-profit hospitals based on arbitrary criteria (e.g., Dignity Health).

Only one-third of California hospitals would be affected by the charity care initiative. This means that two-thirds of hospitals are exempted from the requirements of the CCA. And only one-half of hospitals in California would be affected by the FHPA.

The FHPA would impose artificial price caps on targeted hospitals while not requiring this same mandate on exempted facilities. The same is true for the CCA, which would require targeted hospitals to provide a specified percentage of charity care (narrowly defined), while no such mandate exists for exempted hospitals. By targeting some hospitals and exempting others, these measures create a “double-standard” on hospitals across the state.

At a time when everyone is working together to implement the provisions of health care reform, these measures are counterproductive and will cause cutbacks and closures of services.

The measures also have the potential to force some hospitals to shut down entirely.

These measures have nothing to do with lowering health care costs. Rather, they are two initiatives sponsored by one labor union with its own agenda at play.

Californians Caught in the Middle

What if your hospital charged you $21 per aspirin? And what if the same hospital charged a patient hit by a drunk driver more than the value of her house because she had no insurance?

Well, that’s California. We are caught in the middle of two injustices: hospitals that routinely charge outrageous prices for basic services and then turn around and provide a tiny fraction of their profits in charity care for the needy. This drives up the cost of health care for everyone.

SEIU-United Healthcare Workers West, the largest union of health care workers in California, wants to improve health care here. Part of our plan is submitting two November ballot initiatives that will bring balance and fairness to the system.

The Fair Healthcare Pricing Act would require hospitals to limit charges to no more than 25% above a hospital’s total patient care expenses, which hospitals can adjust to account for Medi-Cal, California’s Medicaid program, and other qualifying losses. Right now, on average, California hospitals charge 450% and as much as 1,000% of the actual cost of providing care when they treat patients in their facilities.

The Charity Care Act would require not-for-profit hospitals to apply at least 5% of net patient revenue each year to charity care for the needy. That means nearly $1 billion in new hospital resources for the most vulnerable residents of our state. These hospitals have more than $42 billion in reserves (nearly half the state’s general fund budget), yet they are granted tax-exempt status for the purpose of treating the needy. In 2010, they applied less than 2% of net patient revenue to charity care.

Californians have tremendous anxiety about medical bills, and they lack the tools to properly evaluate their hospital bills. Hospitals know this, and they also know that when it comes to matters of life and death, patients don’t have a choice.

While other industries have suffered during the country’s recession, in 2010 the hospital industry had a net income of more than $4.1 billion (according to the California Office of Statewide Health Planning and Development). Its operating margins were more than 575% higher than 2006. Hospitals in California can afford to rationalize their prices and they can afford to provide additional charity and still be profitable.

An aspirin should not cost as much as lunch for two. Crutches don’t cost $600. Eye drops aren’t $151 and lotion doesn’t cost $44. If you are in a life-threatening accident, you shouldn’t be nearly assured personal bankruptcy.

It’s no wonder there is overwhelming public support for both initiatives. They are good public policy that will help consumers. We look forward to the debate this fall.