Derailed Health Care Reform Effort Will Not Mean Business as Usual for ARM Industry

Most health care industry analysts say that the health care reform bill passed by the U.S. Senate on Christmas Eve will lower bad debt and provide better identification and tracking of patients with bad debt.

So if health care reform is stalled or killed because Republican Scott Brown will soon occupy the Senate seat held for 46 years by Edward “Ted” Kennedy,  will it be business as usual for the ARM industry?

Probably not, says Kaulkin Ginsberg Analyst Michael Klozotsky. “Some in the ARM industry are probably breathing a sigh of relief right now at the thought that federal healthcare reform might fail.  It would be wise, I think, not to breathe too deep,” Klozotsky said.

If current Federal healthcare reform efforts fail, the news is unlikely to be welcomed by the universe of healthcare providers, many of whom were trying to sustain a financial house of cards even before the perfect economic storm descended in mid-2008, Klozotsky said.

“In the absence of reform and in the protracted wake of a recession, providers will be in as bad —or worse— financial shape than they were before any real shot at reform was on the docket,” Klozotsky said.

Although margins at for-profit hospitals improved last year with the help of labor and administrative cost cuts, uncompensated care expense as a percentage of revenue topped 21 percent in the third quarter (“Bad Debt Expense Up at For-Profit Hospitals,” Dec. 4, 2009).  Many hospital analysts expect uncompensated care expense to increase again this year, even if health care reform passes and eventually insures millions more people.  But without it, offsetting bad debt expense through more cost controls, such as labor cuts, will be challenging in future years.

“Bad debt will remain a concern.  It’s not going to go away,” said Jeffrey Englander, health care facilities analyst with Standard and Poor’s.  

Beltway insiders say health care reform could still pass even after Brown is seated if House Democrats adopt the Senate bill and make changes to how the reform is financed through the budget reconciliation process. But some liberal and conservative Democrats don’t like key parts of the Senate bill, including how reform is financed and how to structure a health care coverage exchange.  Neither of those issues can be addressed through the reconciliation process. Many Democrats also fear political backlash from passing a bill that voters many not want or fully support.

Nonetheless, health care reform is not dead, Englander said, partly because Democrats and Republications agree on several issues.

“They both want quality measures. They both are looking for ways to eliminate waste and looking to reduce the pace of growth in health care expenditures,” Englander said.

Democrats have conceded they will have to scale back their ambitious plans.  House Speakers Nancy Pelosi said Wednesday during a press conference that Congress heard the particular concerns of Massachusetts voters. But she vowed that Congress would move forward on health care reform.  “We heard, we will heed, we will move forward with their considerations in mind, but we will move forward with health care reform,” Pelosi said.

Meanwhile, President Barack Obama on Wednesday urged party members to not try and force a bill through, but rather scale the proposal down to “those elements of the package that people agree on,” such as prohibiting the ability of insurance companies to deny coverage for pre-existing conditions, allowing young adults coverage through their parents’ policies, helping small businesses and low-income people pay premiums, and changing Medicare to pay more for quality care versus volume of services.

Klozotsky said it’s unfortunate that recent popular and legislative debates have focused on “politics and polemics”, instead of the economic shaky ground that lies beneath the U.S. healthcare system. “If the current legislation is derailed, its failure will stem from politics, not economic policy,” he said.

Regardless of what happens with Federal health insurance reform, other changes in the healthcare industry, including the expansion of healthcare IT, are certain to change the way healthcare providers and their ARM industry service partners do business, Klozotsky said.

“Changes like these are systemic, impacting multiple interactions from patient registration to transfer of health records to coding and billing to account receivables. More importantly for ARM companies, they’re not dependent on any specific legislative mandate,” Klozotsky said. “The simple message for ARM professionals is not to rest on your laurels.  Whether Federal reform eventually passes or has already received its fatal wound, forces that impact the basic structure of healthcare collections will continue to surface.”