SCHIP Wreck: The Destruction of Community Hospitals

Nina Owcharenko has an excellent post at the Health Affairs blog, in which she points out one of the most egregious features of the proposed SCHIP legislation:

The bills would inevitably encourage those with private coverage to drop it in favor of SCHIP. Today, families at all income levels enjoy private coverage. The Congressional Budget Office has warned that this “crowding out� would be extensive.

For not-for-profit community hospitals, the implications of this crowd out effect are dire indeed. If either SCHIP bill is signed into law as currently written, the legislation would amount to a death warrant for many hospitals.

In most states, SCHIP pays Medicaid rates. That means payment for SCHIP patients falls somewhere between 80% and 90% of cost (not charges—cost). Thus, every time a SCHIP patient is admitted, the hospital incurs a 10% to 20% loss.

Under the “new and improved� SCHIP, millions of such patients will have been lured away from private insurance plans whose payment rates would have covered costs. The effect of the proposed changes, then, will be to replace marginally profitable patients with unprofitable ones.

The designation “not-for-profit� doesn’t endow a hospital with magical powers. Not-for-profit community hospitals cannot operate in the red and survive. Apparently oblivious to this fact, our masters in Washington are doing their best to send many hospitals into bankruptcy.

Comments 2

  1. Dr Scott wrote:

    Even if crowd-out were at 100% (and most estimates are 25-50% at most), non-profit hospitals would not be in horrible danger. First, an SCHIP expansion would cover only a few million children nationwide, meaning a small number in each community. Second, pediatrics is never a money-maker for community hospitals, many of which already have to get by on 50-80% Medicaid patients (an additional 5% pediatric Medicaid would not break the bank). Third, community not-for-profit hospitals can tap into many resources that private institutions cannot, such as public funding and potential grants (e.g. HPSA designation, critical access status, etc). Again, this won’t be the straw that breaks the camel’s back.

    Finally, many of those wonderful private plans that are supposedly threatened by crowd-out are no treat to hospitals. Increasing numbers of high-deductible plans create logistical difficulties collecting from patients, and many other patients simply go without because they can’t afford the high premiums of their employer-sponsored plans. What percent do hospitals actually collect on the uninsured? A number that’s inevitably lower than the 80-90% of cost you mention.

    SCHIP isn’t perfect, but it’s better than nothing, and it’s better than the current so-called “free market.”

    Posted 29 Aug 2007 at 8:30 am
  2. Catron wrote:

    Community not-for-profit hospitals can tap into many resources that private institutions cannot, such as public funding and potential grants (e.g. HPSA designation, critical access status, etc).

    This is a classic “not-for-profits have magical powers� claim. The notion that a lot of extra money is available to not-for-profits via public funding is largely a myth.

    And the actual cash an institution gets via HPSA and/or CA designation is pretty insignificant. The ironic thing about your HPSA and CA comment is that the provider shortages such programs address are caused by the kind of government meddling that SCHIP represents.

    This won’t be the straw that breaks the camel’s back.

    Oh really? How many industries do you think can remain viable with trends like this?

    Posted 29 Aug 2007 at 10:47 am

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