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2006 Industry Report: Health Care

Costs leave providers with a squeezy feeling

Current Prognosis

TREND: Cuts in Medicare payments the next seven years will make an unprofitable source of revenue even less palatable for doctors.

OUTLOOK: As many as a third of Tar Heel doctors might start refusing to take new Medicare patients.

Trying to evaluate the health-care industry is like trying to explain a high blood-pressure reading: Something is wrong, but it’s hard to pinpoint the cause. One thing is certain: Rising costs and falling revenue are putting the squeeze on health-care providers.

Tar Heel doctors complain that stingier private health plans and rising expenses, including malpractice premiums, have them in a bind. Payment for Medicare, the federal health-insurance program for the elderly, will be reduced this year — the first of a series of cuts scheduled to total 26% through 2012. Greenville pediatrician Charles Willson, president of the North Carolina Medical Society, says the cuts could spur a third of the state’s 28,000 physicians to refuse new Medicare patients.

Hospital administrators are sweating, too. The number of uninsured Tar Heels rose 17% to 1.4 million last year, Willson says. The uninsured tend to avoid doctors until illnesses become acute, then use emergency rooms, where care is costly and inefficient. Many can’t pay their bills.

Health-care costs for employers are going up, too, though not as much as before. They increased 8% to 10% in 2005, compared with increases of about 15% in each of the several years before, says Will Sneden, Carolinas health-care practice director for Hewitt Associates human-resources consultants in Charlotte. He expects increases of about 10% this year and next.

Despite the cost pressures on hospitals, some are building to meet increased demand. Duke University Hospital in Durham announced in December a $70.5 million expansion to add operating rooms and waiting rooms. Construction would be in phases over about six years. Two Raleigh hospitals, Rex and WakeMed, are expanding. Rex initially opposed WakeMed’s $49 million addition of 102 beds in Raleigh and Cary but backed off. It’s moving ahead with its own $19 million plan to add 45 beds. Both projects will be completed by 2008. In Charlotte, executives of Presbyterian Healthcare breathed easier after the state Supreme Court ruled they could continue operating their $57 million Presbyterian Hospital Huntersville, which opened in 2002. Lake Norman Regional Medical Center had challenged the state’s approval of the hospital, and the N.C. Court of Appeals had upheld its objection.

Experts say health systems will continue to grow as administrators seek economies of scale and the muscle to negotiate with insurers. In December, Brunswick County chose Winston-Salem-based Novant Health to operate its 60-bed Brunswick Community Hospital near Shallotte. Novant is the second-largest health-care system in the state, owning or managing eight hospitals, 114 clinics and two nursing homes. Its size — and that of even larger Charlotte- based Carolinas HealthCare Sys-tem — concerns some. Willson fears consolidation of insurers and hospitals will give them so much control over the state’s $56 billion health-care economy that all physicians eventually will work for hospitals or the government. “The ability of a doctor to hang out a shingle and run a practice he calls his own could be lost.”

While doctors’ options might be shrinking, those of other health-care professionals are growing. “We’ve got a crisis in just about every allied-health field — nurses, pharmacists, respiratory therapists, dietitians,” says Don Dalton, vice president of the 133-member North Carolina Hospital Association. He hopes lawmakers will allocate money to expand nursing schools. “We’ve got thousands of people on waiting lists eager to get into that as a career.”

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