Opinion Piece

July 2002

"How low can you go?" Children of the 60s will remember that line from the Limbo, a popular party game in which participants tried to dance beneath an increasingly lower bar without falling. Three decades later, however, a new, less entertaining and higher-stakes game of "reimbursement limbo" has emerged in California's health care arena. The losers are more than 100 hospitals throughout the state that closed their doors since 1990, and the communities they served that lost access to vital health care services.

A primary reason: for years, the rates paid by the government (Medi-Cal and Medicare) and private health plans (HMOs) failed to cover the costs of providing care. In essence, these hospitals simply couldn't squeeze under a reimbursement bar that was set so low.

In light of this destructive trend, San Joaquin County residents are particularly fortunate to still have access to high-quality health care. As cost pressures continue to mount, not-for-profits, such as Sutter Tracy Community Hospital are playing an increasingly important role in the delivery of care in our community and throughout the state. That's because not-for-profits don't have to return profits to private investors. Instead, Sutter Tracy Community Hospital and other not-for-profit hospitals reinvest whatever limited resources they have directly back into our communities by improving facilities and enhancing care.

But, while Sutter Tracy and the health care consumers of this community are among the fortunate, there are no winners in the game of hospital limbo - only struggling survivors. The majority of California's hospitals reported operating deficits in 2000. More than 50 emergency departments have closed since 1990. In the past, Sutter Tracy has also suffered from financial challenges. Our financial performance has been strong and solid in the recent years, and we are committed to preserving and enhancing care in the face of these mounting financial pressures. But, great challenges remain. The bottom line: our ability to continue providing care requires government and private reimbursement rates that cover our costs.

Unfortunately, California's woefully inadequate Medi-Cal payments to hospitals are among the lowest of all the 50 states. Adding insult to injury, the Governor recently proposed to cut back Medi-Cal reimbursement rates even further and also proposed nearly a billion dollars in additional funding cuts to hospitals and health care services as a means of closing the state's budget deficit. The California Medical Association warns that these reductions will be the "last straw for many doctors and many hospitals."

On the federal level, the Federal Government's Balanced Budget Act of 1997 reduced federal Medicare payments to health care organizations by an estimated $224 billion in the first five years alone. Depending on the health of the federal budget, hospitals may suffer from more federal cuts in the near future.

The threat of even lower reimbursement rates from the government comes at a time when a number of other factors are adding to hospitals' financial pressures. A serious shortage of nurses and other health care professionals has contributed to significant increases in wages. Aging populations and cost of caring for uninsured pose additional financial challenges for hospitals. In addition, hospitals must also spend millions of dollars to upgrade their facilities to meet new state mandated earthquake safety laws. At Sutter Tracy, we are expanding to meet the needs of the rapidly growing community. The expansion includes major renovations to Obstetrics and the Emergency Department, building a new surgical center and infrastructure improvements.

While Sutter Tracy is committed to meeting the health care needs of this community, there was a time when we were at risk of closing our doors and being another casualty of "reimbursement limbo."

In response to mounting financial challenges and in order to ensure that consumers in our community continue to have access to high quality care, Sutter Tracy chose to join the not-for-profit, community-based Sutter Health network in 1993. Joining the Sutter Health network has allowed Sutter Tracy Community Hospital to better withstand challenging economic times so that we can keep our doors open and continue to enhance the quality of care we provide. By pooling our financial and administrative resources with Sutter Health and its many affiliates, we have been able to achieve economies of scale and improved efficiencies. Most importantly, being part of the Sutter network also allows us to share in clinical best practices with physicians and hospitals throughout Northern California to improve patient outcomes.

Even with all of the benefits gained by being part of a not-for-profit network, at the end of the day the only way to ensure hospital survival is to put a stop to the high-risk game of "reimbursement limbo." The government and private HMOs must not be allowed to pay hospitals less than the actual cost of care. Reimbursement rates from HMOs and government sources must reflect reality.

It won't be easy. The federal and state governments are experiencing huge budget deficits and for-profit HMO’s are being pressured to increase profits by paying hospitals less than what they need and by charging consumers more.

This community and health care consumers statewide deserve better. Health care policy and reimbursements must be based on reality, not games.

-- Dennis O'Connell serves on the Board of Directors for Sutter Health, one of California's leading not-for-profit networks of community-based health care providers, delivering care in more than 100 Northern California communities.

-- Robert Matthews is the Chairman of the Board of Sutter Tracy Community Hospital, a not-for-profit community hospital in Tracy.