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Published on March 01, 2006

Understanding the Complex Nature of Healthcare Spending

March 2006 - NI Business - By Kevin Poorten

KishHealth System, like our communities, has experienced steady growth, but we are not immune to the demographic trends and economic realities facing the healthcare industry nationally.

Discussed below are a few of the factors that impact decisions on a daily basis and as we plan for the future.

Our citizens are living longer. At the turn of the century, life expectancy was 48.7 years. Today it is 77.3 years. A person born in 2000, can expect to live 3.3 years longer than one born in 1980.

In the 1980s, the trend in health care was a shortening of the hospital stay and shift from inpatient to outpatient services. The government and other regulatory agencies responded, and some would say, overreacted, and started limiting the number of hospital beds serving a community or region. Some hospitals were forced to close. When I started in the profession 20 years ago, there were more than 7,000 hospitals in the U.S. Today there are 5,729, according to the American Hospital Association.
With Baby Boomers turning 60 in 2006, there are new concerns. Will we have enough beds and enough clinical staff to meet the needs of the aging population?
While Americans are living longer, they’re not necessarily living healthier. One half of all American suffer from a chronic disease and one in four from multiple chronic diseases.

Here at home, we have seen a surge, for example, in the number of patients using our diabetes education services. And hospital stays are starting to go up again as we treat more and more elderly people with serious illnesses that require longer hospitalization.

The demand for physician and hospital services will only get stronger, driving up costs. Who will pay those costs? Government? Unlikely. Employers? Probably. Consumers? Most definitely.

As consumers start paying more of the cost of their health care, they may be more selective and judicious in their health care choices, on the one hand. On the other hand, they may not address chronic illnesses in the early, less costly stages, and require more costly hospitalization later on. As a society, if we accept the premise that everyone has a right to affordable health care, then all most play a role in paying for it.

More factors are affecting KishHealth System.

Competition. The local marketplace is changing with surrounding hospitals, local physician offices and other providers offering more and more services in DeKalb and Sycamore.

Quality and patient safety. Important and welcome initiatives to improve hospital care will soon become the basis for government reimbursement. Hospitals that don’t measure up to standards will get less reimbursement than those who do.
The uninsured. KCH and VWCH are feeling the impact of the growing population of uninsured, especially with fewer and fewer doctors accepting new Medicaid patients. As a non-profit community hospital, we refuse care to no one. Our Emergency Departments are the safety net for the poor and uninsured. Medicaid charges have risen 39 percent at Kishwaukee Community Hospital over past year and 53 percent at Valley West in Sandwich. This trend also will increase our levels of charity care and bad debt.

Medical malpractice insurance. In 1996, we paid $250,000 in malpractice premiums. In 2006, that has risen to $2.2 million.

Staff shortages. While KCH enjoys a nurse to patient ratio that exceeds the national average, we still have openings for RNs, physical therapists and imaging technicians.

Rising wages. As a result of staff shortages, wages and benefits have gone up to enable our facilities to compete within the limited talent pool. The high paying jobs may be good for the local economy, but they account for the single highest expense for hospitals and, thus, what consumers perceive as the high cost of health care.
Managed care. Local employers are seeking lower-cost health plans that in turn demand deeply discounted rates from the hospital and local physicians.
Medicare and Medicaid funding. The federal budget for FY 07 proposes a $19 billion cut in hospital Medicare over 5 years. In addition, the state is woefully under funding Medicaid, and new programs being proposed would put even more financial responsibility on hospitals for providing care to the poor and uninsured.
With all these demographic and financial pressures, some may ask how a non-profit hospital can continue to make enough money to reinvest in services, technology, facilities and the community?

KishHealth System has done it for 30 years by carefully balancing all the demands and needs and making adjustments when necessary. That will continue to be the case as we grow with the communities we serve.

We hope to continue this discussion of healthcare economics in future issues of NI Business and would be happy to address your questions. Email me at

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