The rapidly escalating debate over healthcare reform prompted one reader to send a poignant and sobering response to my last post. It’s a reminder to us all that this debate is still about families and their ability to secure the healthcare coverage they need.

Tracey, a New Jersey mother, shared her frustration with the current system and the worries she has for her young son, who has a rare form of leukemia. She has good insurance (for which she pays very high premiums) but knows that someday her son’s extensive care will reach the insurance company’s “lifetime maximum benefit.” She lives in fear of that day.

She writes: “I know that my insurance company is tabulating and calculating every penny expended on my son. One day, a few years from now, the insurance company’s ‘death panel’ will send me a letter that says: ‘Your son has reached his lifetime maximum benefit. He will not receive any further insurance coverage.’

And she continues: “Why won’t anyone address the real issue of the insurance companies making record profits (and they’ll continue to do so)?”

Unfortunately, concerns like Tracey’s are getting lost in the overall debate over healthcare reform. Some of that debate is vitriolic, but some of it is borne out of real concern by citizens.

In reality, Tracey raises an excellent point about the responsibilities of insurance companies when it comes to healthcare reform. Of course, no one industry is to blame for this broken system, but everyone must share in designing a better system for the future. So far, we’ve seen hospitals, physicians and pharmaceutical companies offer financial concessions to achieve healthcare reform, but not much from the insurance industry. There just doesn’t seem to be the political will to take on this interest group.

I believe healthcare reform is desperately needed and I’m frustrated that the discussion has gone so far off track. We need to get back on course because the current system remains unsustainable – for hospitals and others who provide the care, for our government, and most importantly, for people like Tracey and her son who face the crushing costs and others pressures from their insurance companies.

I wrote on this blog a while ago that I viewed the glass half full when it came to healthcare reform. I thought we might actually accomplish health reform by this fall. Well, it’s now late July, and I unfortunately have changed that outlook. A friend of mine told me she was surprised by my earlier optimism, and I guess she was right. Here are four key reasons why the prospects have dimmed:

1. Controversy over a public health insurance plan. There are several reform plans floating around Washington, D.C., but every version includes some form of a public insurance plan. The theory is that a public plan would provide another insurance option for those lacking insurance, and since it wouldn’t need to generate large profits, its medical loss ratios (a fancy way of saying how much of every dollar is spent on medical care versus overhead) would be controlled and it would have low overhead like Medicare. Insurance companies, worried about the competition, have targeted this as their number one priority to fight. Organized labor, however, wants the option. My national organization, the American Hospital Association, prefers the Senate Finance Committee’s version of the public plan, which is organized in a co-op fashion and would allow providers to negotiate rates with the co-op. But in any event, you have a clash of titans on this issue with the insurance industry versus labor.
   
   
2. The cost of healthcare reform. The President has indicated he will not sign a bill unless it is budget neutral. However, the well-respected (and nonpartisan) Congressional Budget Office came out about two weeks ago and pointed out that the bills it has been able to “score” (a Washington term for figuring out the cost of the legislation) actually cost more money. Which leads us to item 3…
   
   
3. The “Blue Dog” fight. The “Blue Dog Coalition” of the House of Representatives is made up of approximately 51 fiscally conservative Congress members. Although the Democrats control both houses of Congress, the Blue Dogs are a necessary part of that majority. The CBO determination of a couple weeks ago has made the Blue Dogs question the efforts in Congress, and they are fighting hard to cut more costs in the reform bills.
   
   
4. Medicaid expansions. Earlier drafts of the various reform bills called for Medicaid expansions. Medicaid is a program for low-income people which is jointly funded by the federal government and state governments. In New Jersey, the cost is shared 50-50. So, no surprise, the nation’s governors have raised alarms about this element, pointing out that they too have very serious budget deficits to deal with and cannot take on the added expense of Medicaid expansion.

So some serious fault lines are emerging. The President is using his bully pulpit every day to talk up the importance of healthcare reform to the American people. His goal was to have bills passed through both the Senate and the House before the August recess, but it appears that at least one of the houses won’t make that deadline. I think a great deal will be determined by what happens when members of Congress take their August recess and go home to talk to their constituents about what they think of national healthcare reform. The New Jersey delegation has done a good job of reaching out to people, holding town hall forums around the state.

I’m not sure where my glass stands right now – half full or half empty. I still ardently hope that we can achieve national healthcare reform, but we need to get it right and not rush for the sake of rushing. Far too much is at stake for New Jersey’s healthcare system and the people who depend on it.

New Jersey hospitals are hurting. Nine hospitals have closed their doors in the past two years, and six have filed for bankruptcy during that same period. This all occurred before the economic downturn. Needless to say, with the economy plummeting, the financial health of hospitals has further deteriorated. The number of uninsured is growing. According to New Jersey’s Commissioner of Health Heather Howard, the amount of free care – charity care – provided by hospitals increased by more than 4 percent in 2008. Hospitals are losing money on every charity care patient they see, and doctors get no payments from the state for the free care they provide in hospitals.

So in this climate, we were actually somewhat gratified that the Governor did not propose cuts to charity care next year, understanding that he is dealing with a freefalling economy and plummeting state revenues. But we were disheartened to learn that in order to spread the same amount of money around further (we are slated to get $605 million in charity care funding to reimburse for more than $1 billion in real care provided) the Governor chose to cut 22 hospitals that were only getting 10 cents for every dollar of care provided to just 5 cents for every dollar of care provided. We were also disheartened to learn the Governor had chosen to cut funding for essential Graduate Medical Education by $8 million. This fund helps train the doctors of tomorrow. Finally, the Governor cut $4 million from a pool of money intended to stabilize hospitals in distress, and another pot of money for hospitals that serve a high number of patients who have certain high- cost diseases. We are also concerned for our nursing homes, because the Governor proposed eliminating a Medicaid rebasing and inflationary update for these important facilities.

But rather than complain, New Jersey hospitals set about an effort in late 2008 to come up with an industry-wide position on charity care funding AND to identify new funding opportunities. We identified an existing pot of state dollars that could be put up for federal matching funds to help mitigate the cuts. The pot of money actually comes directly from hospitals. It is a 0.53 percent tax on hospital gross receipts that raises $40 million annually. That pot of money is given to federally qualified health centers to provide care to the uninsured. Our plan – which has been reviewed by consultants with expertise in this field – is to use $20 million of that money and redirect it through different channels in the state budget that would qualify for an extra $20 million in federal matching funds. We are trying to work collaboratively with our legislators and the FQHCs to assure them they will still receive their $40 million -- while at the same time bringing an added $20 million from Washington to New Jersey.

Our industry is in dire need. Commissioner of Health Howard testified that she currently has 15 of the remaining 72 acute care hospitals on a watch list because she is worried about their survival. We need the state to come together with the FQHCs to find a way to get this important initiative done, or more hospitals will close – no doubt. Hospitals must provide care to all who walk through their doors regardless of their ability to pay. They deserve fair reimbursement for that care. FQHCs are essential parts of the safety net for the uninsured, but so too are hospitals. And in this economy, no one can afford to leave federal matching dollars on the table. If we lose this opportunity, we will all pay later as we see more hospitals struggle and close.

Some days it’s hard not to be cynical, but this week I became an optimist again on the topic of healthcare reform. I was lucky enough to be invited to a forum hosted by New Jersey’s U.S. Sen. Robert Menendez to discuss the hospital industry’s perspective on healthcare reform. He invited hospital CEOs from across the state of New Jersey to the Cook College Campus Center (my alma mater, so I loved going back) to discuss key items we think lawmakers must consider as reform is debated. Sen. Menendez is a member of the Senate Finance Committee, and all roads to reform pass through his committee. Last Monday, I had the opportunity to discuss health reform with New Jersey Congressman Frank Pallone at Meridian Health System’s Jersey Shore Medical Center. Congressman Pallone is chairman of the Subcommittee on Health of the House Energy and Commerce Committee. Again, all roads to reform on the House side must make their way through his committee.

So why am I optimistic? First, we have a wonderful congressional delegation that has traditionally remained united on healthcare issues. Second, we have two committed members of Congress who will be integrally involved in the reform debate. Both have indicated that their houses are committed to passing a bill by June 2009. Third, we have a President who has made a pledge to healthcare reform (devoting more than $630 billion of his first budget as a down payment on reform), even as he faces other significant major challenges. Fourth, we have a confluence of interested parties – business, organized labor, hospitals and certainly the uninsured – that want real healthcare reform. The time is right for us to move forward.

So the timing is right; now we need the right reform package. Here are 11 essential principles that I believe must be considered as we reform the healthcare system and provide healthcare coverage for all.

1. Healthcare for all must be paid for by all. If we truly believe that healthcare is a right and not a privilege, then we must all be committed to paying for it.
   
   
2. Coverage doesn’t equal access. We must be sure that all health insurers have adequate networks of providers, including primary care physicians in all settings. For some patients today – even those with healthcare coverage – finding the healthcare they need remains a struggle. These “underinsured” often have to fight for coverage for necessary care.
   
   
3. Reform must pay attention to behavioral health, substance abuse and the mentally ill. At NJHA we are studying the charity care patient population and finding that a large part of the state’s charity care needs are related to behavioral health issues or to medical issues related to substance abuse. The hospital setting is not always the most appropriate setting for these patients. We need to be sure we provide care for the behavioral health population in appropriate community settings – it’s better for the patients, and it removes a major financial strain on our struggling hospitals.
   
   
4. If we create a new federal bureaucracy, we should get rid of existing ones or at the very least consolidate them. There is a lot of talk about the creation of a National Health Board (promoted by Sen. Tom Daschle) to review best practices and examine the “comparative effectiveness” of different medical treatment. It’s a good idea to standardize care. But if we have a National Health Board, what happens to the Centers for Medicare and Medicaid Services, the National Institutes for Health, the Agency for Healthcare Research and Quality, MedPAC and the other units in the federal government? They need to be consolidated at a minimum.
   
   
5. Training the healthcare workforce of tomorrow must be part of our reform package. We have a shortage of primary care doctors right now, and medical students today have little incentive to enter primary care. Yet if we provide coverage for all, we will need more primary care doctors, more advanced nurse practitioners, etc. We need to plan for this now. In Massachusetts, a health reform strategy has been successful in providing health coverage for more than 90 percent of its citizens. Yet there aren’t enough primary care doctors, so those citizens must often wait months for an appointment.
   
   
6. Graduate medical education must be supported – and paid for – by all. Right now, the federal government pays teaching hospitals to train the next generation of physicians through these GME payments. State government also pays for GME to a much lesser extent through Medicaid payments. (In New Jersey, Medicaid currently pays teaching hospitals $68 million for their important work, but the Governor’s proposed budget for 2010 would roll back that figure to just $60 million.) These payments are essential to provide training for doctors, yet the cost of this is borne by two public payers only. GME is a “public” good, and all payers should contribute to training the medical professionals of tomorrow.
   
   
7. Paperwork must be standardized. We should have one claims form that is used by all insurers. It makes no sense that each insurer requires a different claims form. Standardization could save a lot of time and money if everyone was operating off the same page, literally.
   
   
8. Health information technology also must be standardized so systems can talk to each other and transfer information. Right now, there is no requirement that systems be interoperable so, for example, a hospital in Pennsylvania may not be able to transmit your medical records to the Jersey Shore area if you need it during a summer vacation. Just like someone years ago made the decision that all electrical outlets would have three prongs, the federal government needs to bite this bullet and mandate that the systems be interoperable. If we don’t, all the investment in HIT may be for naught, and that would be a crying shame.
   
   
9. Payment for care must be appropriate, and the incentives must be aligned between providers. Right now, Medicaid only pays hospitals about 70 percent of what it actually costs hospitals to care for Medicaid patients. Medicare pays about 89 cents on the dollar, and charity care pays less than 50 cents on average. It’s no wonder we have seen nine N.J. acute care hospitals close and six file for bankruptcy in the past two years. Payment for physicians is equally poor. Doctors get about $16 for an office visit with a Medicaid patient. I pay more than that to have my hair cut! Payment incentives must be aligned between physicians and hospitals so they are working together to provide efficient, quality care. If we are trying to control costs it makes no sense for an insurer to deny days of care to a hospital, yet pay a doctor for care rendered on that same denied day!
   
   
10. Medical malpractice reform must be examined. It’s a difficult political issue, but something must be done to provide relief to doctors who often order tests as a form of “defensive medicine.” Again, if we are trying to drive down costs, some protection must be provided to doctors in some form.
    
    
11. Medical loss ratios must be examined and standardized. Medicare devotes approximately 3 percent of every dollar to administrative overhead. While it isn’t perfect, Medicare operates remarkably well since it is the largest insurer in America. If Medicare can devote just 3 cents out of every dollar to administrative costs and devotes the remaining 97 cents to actual medical care (what a concept!) why do Americans sit idly by as other insurers charge 15 percent, 20 percent and sometimes even higher amounts in administrative overhead? It boggles the mind really. That is a huge cost driver that contributes to rising healthcare costs. Let’s standardize it and drive the dollars back into the actual provision of healthcare services.

So stay tuned. Right now the glass looks half full on healthcare reform. Only time will tell if I am right.

I recently had the privilege of testifying before the Senate Budget Committee in Montclair, and then hopping in my car to travel the highways and byways of New Jersey (which translates to the Parkway and the Turnpike, along with Route 1) to Trenton to testify before the Assembly Budget Committee. The topic? NJHA’s position on the proposed state budget for 2010.

I handed in my detailed written testimony and spoke from scribbled notes I had made on the back of something. It is always best not to read your testimony. Try to make eye contact and engage the committee members. At the Senate hearing, there was actually a lighting system, like at the presidential debates, to tell you if you were nearing the end of your allotted five minutes. (Green indicated your time was still good, yellow meant “wrap up” and red meant you were out of time). I was still in the green when I finished up.

My message to the legislative committee members was that our hospitals appreciate that, in a budget filled with tough choices, Gov. Corzine did not propose cutting charity care funding, instead keeping it at the current funding level of $605 million. The charity care program is a vital one for hospitals; it reimburses them for a portion of the $1.3 billion in care they deliver to New Jersey’s uninsured residents. I did note that by keeping hospital funding flat, we are in no way stabilizing an essential industry that has seen nine acute care hospitals close their doors in the past two years and six hospitals file for bankruptcy. I also noted that last year, hospitals were cut by $111 million, a 15.5 percent reduction, and closures did occur – the most recent just this month when KesslerMemorialHospital closed in Hammonton. Still, when the Governor is cutting funding to the arts, higher education and to some municipalities, a word of thanks is in order.

I did, however, tell lawmakers that I’m concerned about cuts to graduate medical education (which helps cover the costs of training new physicians), the Health Care Stabilization Fund (meant to stabilize healthcare facilities in severe financial distress), the Hospital Relief Subsidy Fund (which supports hospitals that serve a high number of complex cases, such as AIDS and substance abuse) and to the nursing home industry. NJHA has been working hard to identify existing state dollars that are spent on healthcare in New Jersey that might be eligible for additional “matching funds” from the federal government. We think we may have identified something, and are working through the idea with the Corzine Administration. If we are successful we can restore or mitigate these cuts.

We are operating in difficult and perilous times. For every 1 percent increase in the unemployment figures in New Jersey, another 1.1 million New Jerseyans join the ranks of the uninsured or enroll in Medicaid. Hospitals will be there to serve this population, but each year there will likely be fewer hospitals until we address the now burgeoning number of uninsured through health reform.