You may have health care coverage under the new health care law, but what happens if you can’t get medical care? We cannot simply take for granted that hospitals and care providers can meet the need. Moreover, what happens if government enacts new health care regulations?
The Kaiser Family Foundation estimates that there will be 1.86 million more MediCal enrollees and 1.42 million more privately insured individuals in California because of the new law. For medicine, the fundamental rule is, “First, do no harm.” Since 63 percent of all hospital services in California are provided by private nonprofit hospitals, that means don’t do anything that cuts those hospitals’ capacity. That’s the only way to accommodate the 3.2 million people who will need care.
Regrettably, legislation currently pending at the Capitol would reduce the capacity of nonprofit hospitals. These bills always sound appealing. The most common approaches would require a higher percentage of services to be provided by hospitals without compensation.
While that may sound good, the truth is that all Californians pay when hospitals are compelled to give care for free.
A nonprofit is a legal, not an economic, concept. Profits occur in nonprofits. But when revenue exceeds costs in a “nonprofit,” the excess must be reinvested in the hospital or for health care benefit. Nonprofit hospitals provide a critical service to California even for patients who are not poor.
The fact is: Our state health infrastructure relies on them. They provide value just by taking on patients who would otherwise have to go to state-run hospitals. In the case of nonprofits in other economic sectors, we do not measure their benefit solely in terms of poor people served – though the nonprofit hospitals hold their own on such a measure. All people benefit from nonprofit health care investments, including cancer research, health and wellness programs, burn units, trauma centers, neonatal intensive care, physician/nurse training and charity care for those who cannot afford coverage.
An economic consulting firm of which I am a part, the Berkeley Research Group, was retained by the California Hospital Association to measure how much this effect would be. There is a well-respected rule in health care economics that for every dollar increase in cost, health care services drop by 20 cents. The Berkeley Research Group did its own analysis to validate that number, and came up with a very close estimate: 24 cents. So, to be conservative, using the estimate of a 20-cent drop in services, the Berkeley Research Group then concluded that a law that cuts down on a nonprofit hospital’s revenue in excess of cost by 10 percent (either by capping revenue or by increasing cost – as in requiring more uncompensated care), will cause a drop of 280,000 patient days by nonprofit hospitals in California.
If state law restricts hospital revenue surpluses, by capping revenue or by increasing cost, there will be less access to care. That’s a law of economics, and no government can repeal it. Another effect is on state revenue: As nonprofits cut back on services, hospital wages will be reduced by $413 million. That will result in a loss of $24 million in income tax revenue to the state of California.
Unions that negotiate with the nonprofit hospitals are trying to apply pressure by claiming the hospitals don’t serve predominantly poor people. Neither do publicly owned municipal utilities, which are also nonprofit. Electricity and water are supplied to the homes of many millionaires in Palo Alto, yet the Palo Alto municipal utility is a nonprofit. Credit unions are analogous; they are nonprofits, and there is no means test on the income of their members. Ironically, labor unions, too, are nonprofits. If a union wants to be measured by the number of its members who are below the poverty line, very few would justify their nonprofit status.
The lesson is to analyze every bill purporting to compel nonprofit hospitals to do more good for no pay. Superficially attractive, the unintended consequence is to reduce the amount of hospital service provided in our state, at a time when we need it to grow.
Tom Campbell is an economist with the Berkeley Research Group, and has been compensated by the California Hospital Association for his work on this matter. He is a former director of finance for California, a former state senator and five-term U.S. congressman. He is dean of the Fowler School of Law at Chapman University in Orange. These views are his own.