Getting By or Getting Better?

There are 20 billion reasons to be hopeful about the passage of the stimulus plan’s HITECH provisions. Certainly the plan will drive greater physician and hospital adoption of EHR's and will ultimately help improve coordination of care across health care settings. The CBO believes that there is a roughly 3:1 financial return on this investment. That’s all good news.

But will the stimulus plan provide the lift that hospitals and systems need to realize the full potential of EHR’s, improving outcomes and reducing costs? Or will hospitals do just enough to justify reimbursement and to avoid future fee penalties?

The investment and implementation choices that are made today will be with us for a very long time. And there is reason to be concerned with the outcome.

I recently spoke with the president of a publicly traded large healthcare tech company that does business with most hospitals in the US. I asked for his take on the stimulus program and its effect on his business. His response was that the stimulus plan was certainly needed, but was insufficient to restore hospital capital spending on technology. His view is that the US Treasury's plan for the capital markets is much more critical to financial recovery in healthcare.

The best way to test this hypothesis is with the credit rating agencies that evaluate risk and financial health of healthcare organizations. Fitch Ratings recently released their special report on 2009 Nonprofit Hospitals and Healthcare Systems Outlook which found that hospitals "will be severely tested and under intense pressure over the next 12- 18 months."

The outlook is "negative" (a very strong word for a credit ratings agency) based on "constrained access to capital, a deteriorating payor mix, elevated interest rates, severe investment losses, ... increasing uncompensated care and higher capital costs." They forecast that government reimbursement will remain constrained by the economic crisis, employers will continue to shift healthcare costs to employees and small employers will face greater challenges providing healthcare for their employees. "These factors, coupled with increasing unemployment and declining utilization will likely depress operating profitability well into 2010... Economic stimulus initiatives and healthcare reform efforts could be beneficial over the longer term but are not expected to provide significant immediate relief."

Financial market conditions including swap risk, the collapse of variable-rate demand bonds, the lack of fixed-rate debt, pension fund obligations and higher capital interest costs are all contributing to reduced liquidity for hospitals.

For many hospitals, the level of days cash on hand, a key financial operating metric, has fallen 20-30% from 2007 to 2008. In addition, hospitals are facing operating pressure related to increases in uncompensated care and declining utilization, which is expected to reduce profitability for 18-36 months. Fitch expects that hospitals will respond by "curtailing or deferring capital spending, reducing staffing, cutting costs to bolster profitability... (and) anticipates these actions to continue throughout 2009..."

Hospitals can expect "volumes to continue declining as consumers delay or postpone non-urgent procedures and as unemployment levels continue to rise." While reimbursement levels should be adequate, hospitals should anticipate "continued increases in bad debts and charity care..." A recent AMA study on the impact of the economic crisis on hospitals reinforces many of these findings.

Fitch contends that hospitals are going to need to focus more on driving revenue and productivity gains. (For examples of these initiatives, see High Margin Revenue Cycle Strategies.) Reflective of a more strategic view of healthcare technology, "the degree to which providers have invested in health information technology can also influence Fitch’s assessment of long term viability."

Fitch concludes that "while much work remains to be done in defining, funding and implementing meaningful change in the healthcare industry, a common theme of various federal and state reform proposals centers on creating payment incentives that encourage value – the delivery of effective, appropriate care in an efficient manner."

With this backdrop, it’s easy to imagine a few scenarios where hospitals treat healthcare technology as a strategic enabler, and many other scenarios where hospitals work to just get by, doing enough to reap the financial reward but no more.

In one of its few moments of inspiration, Congress gave HHS the authority to define "meaningful use" of healthcare technology. The "meaningful use" metric determines whether providers are paid for their EHR investments.

Historian Paul Johnson said that "the word 'meaningful' when used today is nearly always meaningless." Given the many pressures on hospitals to just get by, this one key definition, and the way it is operationalized, may define the trajectory, results, patient outcomes and costs that we live with for years to come.