2005 Industry Report: Healthcare

Crisis has not passed for medical providers

Current Prognosis

TREND: Rising costs, including those caused by uninsured and underinsured patients, are squeezing the bottom lines of providers.

OUTLOOK: A slight easing in the rate of health-care cost increases, from about 12% in 2004 to about 9% in 2005.

Bob Burgin, stepping down recently after nearly 24 years as CEO of Mission Hospitals and its forerunners in Asheville, sizes up the past year in health care in a word: tumultuous. It might sum up the coming one, too. Consider cost squeezes. Unpaid hospital bills at Mission jumped from about 2.5% of revenue to about 5%, a trend reflected at many hospitals, analysts say. “We’re talking about $10 million to $12 million we’re not going to collect that we expected to.”

Swelling ranks of the uninsured got the lion’s share of blame for high health-care costs, but in the larger scheme, nearly everyone had a hand. “People smoke, eat or whatever with the assumption somebody will take care of it,” Burgin says. “Some studies show 50% of what goes wrong with us before age 60 is self-induced.”

Accommodating intemperate lifestyles is a weighty issue at Rex Healthcare in Raleigh, which spent $50,000 for floor-mounted toilets after administrators fretted that wall-mounted models no longer could stand the strain of burgeoning butts. Elsewhere in Raleigh, WakeMed spent $22,000 to replace chairs with wider ones that can accommodate 450-pound patients.

And as long as blame is being cast, it wouldn’t seem right to neglect lawyers. Tar Heel doctors and hospitals insist that malpractice premiums are being driven up by big-dollar judgments against health-care providers and are overwhelming the medical community. They’ve asked legislators for a $250,000 cap on pain-and-suffering awards, plus other tort reform. Their argument took a hit when the largest insurer in Texas, which adopted such a ceiling in 2003, asked for a 19% rate increase and conceded to regulators that capping malpractice awards has little effect on insurance costs there.

Lawyers counter that doctors and hospitals refuse to police themselves or admit mistakes, which cause hundreds of thousands of deaths and injuries a year. Nevertheless, Tar Heel doctors cite cases such as that of Bernice Redmond. The Lincoln County ob-gyn specialist said in September she would halt deliveries because she couldn’t afford coverage. “When doctors and hospitals quit delivering babies, you’ve got a problem,” says Robert Seligson, CEO of the 11,000-member North Carolina Medical Association.

Whatever their cause, fear of rising health-care costs extends well beyond the industry. In a national survey of chief financial officers, 89% said that’s their biggest concern for the next four years.

There was a glimmer of hope in 2004, says David Garbrick, president of Garbrick & Associates health-care consultants in Charlotte. But it might not last long. “Last year was the first good year in four or five years for health care. Surveys indicate only single-digit increases, in the 8% to 9% range, in 2005.” But there’s a catch. One reason increases are leveling off is that insurers raised rates excessively for 2004. Garbrick offers a warning: “Nothing else has changed. As long as there are sick people and we’re not into rationing health care, you’ll never see costs go down.”

Financially, hospitals and doctors are increasingly being forced to act as discounters. At Mission, Burgin says, Medicare and Medicaid patients, plus charity care and bad-debt patients, made up 67% of the system’s billings in 2004, up several percentage points from 2000. The Medicare discount alone — providers collect 93 cents on every dollar they spend — will cost Tar Heel hospitals $600 million this year, says Don Dalton, vice president of the 135-member North Carolina Hospital Association.

Despite the cost pressures, the health-care system is expanding. Craig Smith, assistant chief of the state agency that vets health-care projects, reports many hospitals are expanding emergency rooms to accommodate walk-in patients, many of them uninsured. Among major projects under way, planned or sought were a $60 million stroke center and $150 million heart hospital at Pitt Memorial and East Carolina University in Greenville, a $161 million, five-story addition to Forsyth Memorial in Winston-Salem, a $65 million children’s hospital at Carolinas Medical Center in Charlotte and an $80 million surgery building and other improvements at Mission Hospitals in Asheville.