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Financing Surge Capacity and Preparedness

The following is a white paper prepared for the June 10–11, 2009, workshop on medical surge capacity, hosted by the Institute of Medicine Forum on Medical and Public Health Preparedness for Catastrophic Events. All opinions expressed in this paper are those of the author and not necessarily of the Institute of Medicine.


By William M. Smith

Senior Director

Emergency Preparedness

University of Pittsburgh Medical Center

INTRODUCTION

The fact that hospitals and health systems face numerous financial pressures relating to everyday operations is well documented. The dawn of less advantageous private third-party payor agreements and reductions in federal reimbursements, along with increasing human resource, supply, and technology costs and an aging infrastructure, have created significant hardships. In addition to this economic stress, hospital emergency departments and inpatient facilities are routinely operating at or near 100 percent of capacity on a daily basis. Given all of this, the unilateral investment in surge capacity has been minimal.

In the face of an emergent surge condition, whether occasioned by a sentinel incident such as Hurricane Katrina or a slower growing event such as pandemic influenza, hospitals’ already stretched resources are stressed even further. (However, actual evidence from Toronto in 2003



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I Financing Surge Capacity and Preparedness The following is a white paper prepared for the June 10–11, 2009, work- shop on medical surge capacity, hosted by the Institute of Medicine Fo- rum on Medical and Public Health Preparedness for Catastrophic Events. All opinions expressed in this paper are those of the author and not necessarily of the Institute of Medicine. By William M. Smith Senior Director Emergency Preparedness University of Pittsburgh Medical Center INTRODUCTION The fact that hospitals and health systems face numerous financial pressures relating to everyday operations is well documented. The dawn of less advantageous private third-party payor agreements and reductions in federal reimbursements, along with increasing human resource, sup- ply, and technology costs and an aging infrastructure, have created sig- nificant hardships. In addition to this economic stress, hospital emergency departments and inpatient facilities are routinely operating at or near 100 percent of capacity on a daily basis. Given all of this, the uni- lateral investment in surge capacity has been minimal. In the face of an emergent surge condition, whether occasioned by a sentinel incident such as Hurricane Katrina or a slower growing event such as pandemic influenza, hospitals’ already stretched resources are stressed even further. (However, actual evidence from Toronto in 2003 157

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158 MEDICAL SURGE CAPACITY shows that hospital inpatient admissions may actually decrease during such an event.1) Federal funding for hospitals and public health entities has been pro- vided through the Hospital Preparedness Program and the Centers for Disease Control and Prevention to date. These have served to improve the position of hospitals and other health entities in relation to equipment and supplies. The restrictions in these programs, however, have discour- aged investments in other surge-sensitive areas such as infrastructure, alternative care site planning, or staffing. Another facet of the surge dilemma is the need for care providers to be able to provide adequate documentation and support to third-party payors. The requirement for fiscal responsibility extends to these entities so they can continue their mission in the maintenance of the healthcare system. The goal of the Institute of Medicine (IOM) Forum on Medical and Public Health Preparedness for Catastrophic Events Financing Surge Ca- pacity and Preparedness section is to “identify funding mechanisms that could be utilized to ensure effective and efficient medical surge capacity preparedness and response.”2 PROJECTED SURGE IMPACT ISSUES The effects of an acute or extended surge event on hospitals include numerous factors. Staffing may be compromised for a variety of reasons: ill employees, transit impacts, staff reticence to “bring something home,” or a feeling of need to remain home with their families. Supplies (includ- ing pharmaceuticals and durable medical equipment) could be negatively affected due to supply chain interruptions, competing demands from all other providers, international transportation interruptions, or raw material shortages. Physical facilities may also be insufficient to support an influx of large numbers of injured or ill persons. In the wake of Katrina the following access-to-service issues were identified: • Closure of most acute care hospitals, including Charity Hospital – Loss of Level 1 Trauma, mental health beds, other specialty care – Open hospitals operating at reduced capacity, but almost full • Open safety-net clinics decreased from 90 to 19

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159 APPENDIX I • Doctors and other health workforce relocated • Pharmacies closed, including Charity’s low-cost pharmacy • Half of nursing homes closed • 49 percent of New Orleans residents surveyed reported no usual place of care prior to storm; greater impacts later • 27 percent were uninsured 18 percent reported mental health challenges3 • An added detrimental effect on the profitability of the institutions, and hence, their ability to remain in operation as a support resource, is also projected. “HHS has advised hospitals in a pandemic to ‘Defer elec- tive admissions and procedures until local epidemic wanes,’ freeing ca- pacity for influenza patients.”4 Deferring higher profit surgical cases for lower margin flu cases will result in diminished revenues. In addition, issues relating to increased numbers of uninsured patients requiring care would surface. “Using U.S. pandemic planning assumptions and national data on healthcare costs and revenues, a 1918-like pandemic would cause U.S. hospitals to absorb a net loss of $3.9 billion, or an average $784,592 per hospital.”5 DISCUSSION The discussion of what key elements must be considered in future funding initiatives should be multipronged: 1. Funding Use Restrictions Current grant programs used by healthcare facilities to improve surge capacity include significant restrictions on the use of the funds. What is the process by which future grant guidelines should be evaluated in terms of the most efficacious use of these funds to promote true surge capacity enhancements? 2. Partnerships on Reimbursement Strategies The need for collaborative planning relating to disaster condition workable reimbursement strategies is great. The success of a health plan or other insurer in timely restoration of normal busi- ness operations relies on collaboration with “employees, ven- dors, health care providers, government agencies, and other community organizations.”6 Should public and private stake- holders be able to readily identify the approved courses of action

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160 MEDICAL SURGE CAPACITY in designated emergencies so that the payor process continues in an uninterrupted manner? 3. Regional Initiatives As available monies for preparedness become more restricted, the need for cooperative regional uses of the funds becomes greater. To date, the bulk of preparedness support for hospitals to address surge capacity has been managed primarily at the local institutional or health-system level. Should future grant guide- lines mandate the development of coordinated regional projects? 4. Regulatory Activity The U.S. House of Representatives Committee on Oversight and Government Reform conducted an analysis of U.S. hospital surge capacity compared to the post-bombing experience in Ma- drid in 2004. The report, titled Hospital Emergency Surge Ca- pacity: Not Ready for the ‘Predictable Surprise,’ stated: After conducting the “snapshot” survey on March 25 at 4:30 p.m., the Committee staff sent follow-up question- naires to the hospitals surveyed. Twenty-three of the hospitals responded to the questionnaire. Their re- sponses indicate that the level of emergency care they can provide is likely to be further compromised by three new Medicaid regulations, the first of which takes effect on May 26, 2008. According to these hospitals, the new Medicaid regulations will reduce federal payments to their facilities by $623 million per year. If the states choose to withdraw their matching funds, the hospitals could face a reduction of about $1.2 billion. The hospi- tals told the Committee that these funding cuts will force them “to significantly reduce services” in the future and that “loss of resources of this magnitude inevitably will lead to curtailing of critical health care safety net ser- vices such as emergency, trauma, burn, HIV/AIDS, neo- natology, asthma care, diabetes care, and many others.7 What are the regulatory efforts that could assist in improvement of insti- tutions’ pre-incident preparation for catastrophic events and ensure vi- ability after the incident?

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161 APPENDIX I 5. Recovery Strategies A piece of the emergency surge continuum that has not been ad- dressed adequately in funding strategies to date is the formaliza- tion of recovery efforts. Returning the healthcare system to “green” status is vital to the restoration of public health support. Should emphasis on investment in the recovery processes for hospitals and insurers be part of future funding considerations? 6. Gap Analyses and Measurement The ability to conduct gap analyses of the current versus desired states of surge capacity funding may dictate that some sort of “metrics of preparedness” be developed. What are the best met- rics to assess surge success: regulatory compliance, exercise per- formance, other elements? CONCLUSION Today’s financial realities are clearly reflected in the healthcare sec- tor. Investment in surge capacity as a “what if” hedge is increasingly weighed as a lesser priority in the face of other difficult decisions im- pinging on the day-to-day solvency of the institutions. The growing time lapse since the most recent September 11–like event has also promoted an “it can’t happen again” attitude. The work of groups like the IOM in formulating policy discussions on fiscally responsible ways to address the issue of surge capacity in health care is vital to the ability of the healthcare system to face future threats, both natural and from humans. REFERENCES 1. Schull, et al. Surge capacity associated with restrictions on nonurgent hospital utilization and expected admission during an influenza pan- demic: Lessons learned for the Toronto severe acute respiratory syn- drome outbreak. Acad Emerg Med 2(11):1228–1231, E-pub 2006 Jun 28. 2. Institute of Medicine Forum on Medical and Public Health Prepared- ness for Catastrophic Events Draft Agenda, June 2009.

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162 MEDICAL SURGE CAPACITY 3. Kaiser Commission on Medicaid and the Uninsured. August 2006. Voices of the Storm: Health Experiences for Low-Income Katrina Survivors (KCMU publication #7538). 4. Matheny, J., Toner, E., Waldhorn, R. 2007. Financial Effects of an Influenza Pandemic on U.S. Hospitals. Healthcare Finance 58. 5. Ibid., 62. 6. Armstrong, S., Cutler, B. 2007. Preparing the Way: Disaster Readi- ness Planning for Health Insurance Plans. P. 12. 7. U.S. House of Representatives Committee on Oversight and Gov- ernment Reform, majority staff, Hospital Emergency Surge Capac- ity: Not Ready for the “Predictable Surprise.” May 2008. Washington, DC: GPO. P. iii.