RALEIGH Just before the turn of the century, Pungo Hospital in the one-stoplight riverfront town of Belhaven faced significant financial troubles. The rising cost of delivering hospital care in a small community, the complexities and shortfalls of health care funding mechanisms, and the accrual of suffocating debts had the facility facing insolvency. In 2001, Pungo Hospital filed for bankruptcy.Such is the struggle of rural health care facilities with small markets and even smaller sources of profitable business amid an ultra-regulated industry where procedure costs and related bill payments are separated by more than a few degrees of government programs, insurance companies and bureaucracy. Pungo limped along on grants for another decade until the persistent inability to manage mounting debts forced the board to sell the hospital to a regional operator, Vidant Health, in 2011.Even with the added scale, though, Vidant was unable to make ends meet. After incurring millions in operating losses from providing uncompensated care or net loss care, Pungo Vidant Hospital closed its doors in July 2014, leaving Belhaven residents more than 25 miles away from the nearest hospital.Unfortunately the problematic economics of health care represented in Belhaven extend to the state level as well. North Carolina’s Medicaid program in particular had been a near-constant source of unpredictable cost overruns, leading to legislative reform efforts in recent years to achieve predictability, efficiencies and quality patient outcomes. After a few failed starts in previous sessions, the N.C. General Assembly enacted the Medicaid Modernization Act in 2015.According to Katherine Restrepo, director of health care policy at the John Locke Foundation, the act is “definitely moving the needle in the right direction.”The reforms combine statewide managed care plans with regional accountable care organizations to incentivize health care providers serving Medicaid patients to reduce costs and improve care. A key component of the plan is capitation, a block payment structure partially dependent on quality outcomes in which providers are paid a certain amount per Medicaid patient. The difference in the rate of capitation and cost of provision of care represents the providers’ profit or loss.While recent reforms and proactive fiscal management have helped to rein in Medicaid’s budget-busting costs, the inherent problems in health care economics are hardly solved for good. Even insurance companies are dropping coverage in North Carolina due to added economic pressures associated with the Affordable Care Act. With Aetna being the most recent to suspend coverage in the state, 95 of 100 North Carolina counties only have one ACA health insurance option in Blue Cross Blue Shield.On the patient end, many advocate for North Carolina to exercise an Affordable Care Act incentive to expand Medicaid eligibility standards that would add an estimated 500,000 more people to Medicaid rolls, in exchange for partial and temporary funding from the federal government.Restrepo says the option is not as appealing as it seems for budget writers or patients.”It doesn’t make sense to expand a program where the value to patients is so low,” said Restrepo. The added patients, many of which are single, working adults significantly above the poverty level, would compete for care with those already in the program, reducing access and harming quality, according to Restrepo.The proliferation of government health care plans also creates significant problems for private providers that necessarily need profits to survive. While Medicaid was originated as a “cost plus” program in which providers were paid for their costs plus a premium margin, current day programs commonly represent a net loss to providers.”Private practice is dying,” said Restrepo.Restrepo believes one initiative that could help health care providers expand, thereby increasing access for patients and putting downward pressure on inflated costs, is a reform of the state’s Certificate of Need (CON) laws.Implemented by the federal government in the 1970s, federal CON laws were intended to put a lid on health care expenditures and costs via government controls on equipment purchases, hospitals expansions or surgery centers. Though, after failing to achieve goals, the federal government repealed the law.However, 35 states still have statewide CON regulations, and North Carolina is ranked as the fourth-most stringent in the country.”If the Feds admit it doesn’t work, you’d think the states would catch on,” said Restrepo, but ultimately she continued, “it’s really for keeping competitors out. Pulling them back would actually increase access to care.”Hospitals mostly enjoy the protections offered by strict CON laws, enabling them to stifle competition for their most profitable procedures by blocking approvals by surgeons, for instance, to open independent surgical facilities. But despite the monopoly advantages that claim to help keep rural hospitals in business, sometimes it can have quite the opposite affect on health care offerings in places like Belhaven.When the community fought to reopen their closed Pungo Hospital, lining up funding and encouraged that they would finally eliminate the need for seriously ill patients to travel so far for care, irony struck.”The truth is, the CON process is broken,” said Belhaven Mayor Adam O’Neal. “The state regulators for CON said we couldn’t reopen the hospital because regulations said it had to be currently operating to get approved.”Such is the struggle of providers and patients in a top-down world of health care in North Carolina.
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