On The Brink Business And Medical Leaders Sound The Alarm On State’s Health Care System

Health care, one of the most vital engines in the state’s economy, is leaking some oil and is now in serious danger of breakdown. 

That’s the crux of a new report, Why Care? Massachusetts Health Care: On the Brink, which states that despite its powerful impact on the state’s economic health, the health care system in the Commonwealth is losing its competitive edge due to its financial instability, the loss of key medical personnel, and diminished hospital capacity.
Authored by economist James Howell and supported by a number of business and health care organizations, the report has spurred the formation of a business-health alliance to facilitate a dialogue about health care and to develop a multi-year strategy to ensure that the state’s health care system is able to meet the needs of its residents and also remain a key economic force which currently supplies one job in seven in the Commonwealth.

The initial coalition includes several organizations, including the Mass. Bankers Assoc., Mass. Business Round-table, Mass. High technology Council, Mass. Hospital Assoc., Mass. Medical Society, and Mass. Organization of Nurse Executives.

“Unfortunately, our health care delivery system is in critical condition,” wrote Howell, “and requires serious and focused attention by all the stake holders if its is going to meet current and future health care needs and support continued economic growth.”

Alarming Statistics

The report, available online at www.whycare.info, attempts to raise awareness of the importance of health care to the Commonwealth’s economy, sound an alarm about its current poor health, and identify some areas that need to be addressed by business and elected leaders, said Mark Tolosky, president and CEO of Baystate Medical Center and current chairman of the Mass. Hospital Assoc.

He told The Healthcare News that the report could become a key motivator in efforts to bring about reforms that will make it easier for physicians and health care systems to do business in Massachusetts.

The first segment of the report outlines the powerful contribtion that the health care industry makes to the state’s economy, while the second details the many factors that are undermining the system.

“The Massachusetts health care system is under great financial stress; medical personnel are leaving, and the capacity of the system to adjust to new and growing demands is being severely tested. If these problems are not addressed, the ability to maintain continuing economic growth as well as to provide meaningful care will be significantly diminished,” Howell wrote.

Among the many contributions to the state’s economic vitality, Howell found that the health care sector accounts for 440,400 jobs, slightly more than the 436,000 jobs in manufacturing, and twice the number of jobs in the financial services sector. Among the other findings:

• The annual wage and salary payments for those employed in the health care industry amount to $18 billion — roughly 12.4{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of state wages and salaries. The comparable figure for the country as a whole is 10.9{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5};

• Massachusetts health care expenditures in 1998 totaled $30 billion, with three categories of spending accounting for three-quarters of that total: Hospital care, 38{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}; physician services and other professionals, 28{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}; and nursing home care, 12{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5};

• The biotech industry in the state is becoming an increasingly potent contributor to the economy. There are now 275 biotech companies in the commonwealth , including 54 in the Boston-Cambridge corridor alone, giving the state the highest number of firms per capita in the country. And the potential for the biotech sector is enormous, and it is expected to reach all parts of the state, including Western Mass., which is expected to benefit greatly from the recent opening of the Baystate Medical Center-University of Massachusetts-Amherst Biomedical Research Center ;

• The state’s 50 community hospitals are not only a vital source of health care, but key contributors to the economic health and well-being of the cities and towns in which they are located.

But these economic benefits — not to mention the quality of care being provided by the state’s health care providers — are being threatened by a number of factors that are eroding the state’s competitive edge. These factors, as outlined by Howell, are:

• Financial Instability: The state’s hospitals were among those in only four states that had both negative operating margins and negative total margins in 2000, and in 1999, Massachusetts was the only state where Medicare, Medicaid, and private-payer reimbursements to hospitals were less than 100 cents on the dollar for the cost of patient care. What’s more, Massachusetts-based physician Medicare reimbursement rates for the years 1998-2002 were determined to be below the 50th percentile for managed care in 17 of the 25 CPT codes analyzed.

“These unfavorable price-cost factors have hit many Massachusetts hospitals particularly hard,” said Howell. “Today, they are in serious financial distress — considerably worse than the rest of the country. In 1980, this system included 115 non-federal, short-term, general and specialty hospitals with 103 emergency departments. By 2000, the system had lost 32 hospitals and 25 emergency departments as a result of closure or conversions.

Also, for the six-year period ending in 2000, the average operating margin for all U.S. hospitals was +3.3{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}, he noted, while
for Massachusetts hospitals it was —1.8{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}.

The poor fiscal health of the state’s hospitals has made it more difficult to access capital markets at competitive costs, said Howell. “Whenever margins are lower, capital markets will demand higher interest rate premiums on the debt issues,” he said. “A review of the current financial condition of Massachusetts hospitals over the period from 1996 to 2001 shows that only four hospitals out of 68 would meet this criteria.”

• Loss of Key Medical Personnel: Increasingly, Massachusetts is becoming a less attractive state for physicians and other medical professionals to do business in, said Howell. Over the decade of the ’90s, the Mass. Medical Society Physician Practice Environment Index, which monitors the environment for physician practices in the Common-wealth, has dropped 22.5{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}, while the comparable U.S. Index declined 15.6{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}. Factors contributing to that decline are many, he said, but the leading causes are the ratio of housing prices to physician income and the spiraling cost of malpractice insurance.

The bottom line is that among the 14 physician specialties, eight are experiencing critical shortages: anesthesiology, cardiology, emergency medicine, gastroenterology, orthopedics, neurosurgery, radiology, and general surgery. These shortages inevitably lead to access issues for patients and additional stress for physicians in those fields, he said.Likewise, the highly documented nursing shortage is having a negative impact on patient care and on those nurses currently in the field, Howell said.

Diminished Hospital Capacity: Perhaps the most alarming statistics in the report, says Howell, concern bed capacity at the state’s hospitals. If current trends continue, the existing hospital system will likely run out of bed capacity as early as 2006 or 2007.

“The current financial crisis in many hospitals will prevent them from accessing capital markets to add capacity, and those that can will most likely pay a higher interest rate premium to do so,” he said. “Moreover, new facility construction — if started today — would not likely come on stream for another three or four years. Whether or not this scenario becomes reality is problematic; however, it must be recognized that a number of hospital executives are already reporting severe capacity constraints.”

Call to Arms

Given the pressures that these many factors are bringing to the state’s health care system, Howell concluded that it is critical that the state’s business and health care leaders come together to bring attention the problem, create a broad-based coalition to embrace a strategy for moving forward, and draft an agenda for a health care system that works for everyone in the state.

“The ultimate responsibility to rebalance this system rests with all us,” he wrote. “No one group, no government agency, no private payer, no business firm alone can solve our crisis … we all must work collaboratively to address the problems ahead.”

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