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How to keep healthcare on track in New York State

March 13th, 2018

“Discourage litigation. Persuade your neighbors to compromise whenever you can.”
—Abraham Lincoln

Last summer’s avoidance of the assassination and potential massacre of congressional members was indeed a result of heroism. The fact that the two Capitol Police officers involved were African-American and protecting a predominantly Caucasian baseball practice certainly had a touch of irony for me. More ironic than that was the fact that gunfire prompted a spirit of bipartisan unity between Republicans and Democrats.

We couldn’t expect the emotionally driven bipartisan unity to last very long, which I believe is the definition of hypocrisy. With that being said, we now know that Senate and House Republicans were bound and determined to disrupt a service sector that represents close to 20 percent of the U.S. economy. Health and human service providers, both tax-exempt and for-profit, could not have sustained the proposed health care spending cuts and related reforms contained in the House of Representatives bill that passed in May. The Senate bill, which was developed in secret, single-party backroom negotiations, was comparable in meanness to the House bill.

Regardless of whether Republicans in Congress are able to deliver on their promise to repeal and replace Obamacare in 2018, virtually every health and human service provider in New York State will be in an accelerated state of Darwinian evolution. This evolution, or as I refer to it, the revolution, will initiate a three-to-five-year process, similar to Darwin’s survival of the fittest competition among providers. Some might say it’s a reality version of The Hunger Games.

Fear not, for I have the strategic road map of topical issues that need to be addressed by almost all health and human service providers, particularly those that rely on Medicaid funding. The New York State Medicaid program is a $60 billion annual expenditure that provides safety net support services to six million Medicaid eligibles. That level of per capita spending represents $10,000 for each Medicaid client. And, it is not surprising to note that New York spends more than twice per capita than any other state. Keep in mind that the federal government pays roughly 57 cents of every dollar expended by the New York State Medicaid program.

In order to effectively address the paradigm shift described above, health and human service providers must effectively evaluate and address each of the following Top 10 topics.

Mandated minimum wage increases
Governor Cuomo has done something remarkable in passing the mandated increases to New York’s minimum wage. Establishing $15 per hour and a “living wage” was a major accomplishment. However, since most health and human service providers spend 60 to 70 percent of total costs on wages and fringe benefits, the resulting inflation, without additional state funding, is a recipe for fiscal distress, particularly for those organizations with annual revenue of less than $10 million, and minimal reserve funds.

Reduction in overtime thresholds and salary compression
The recent federal mandate to obligate employers to pay overtime to any employees making less than $47,500 annually is another incremental un- funded mandate. Both the overtime threshold and minimum wage requirements result in what is known as “salary compression.” Simply put, if you are going to increase compensation for those employees on the lower end of the salary scale, every employer must address the salary administration structure for employees who do not receive any additional compensation from this mandate. It is fortunate that New York State has adopted a phased transition approach for implementation purposes.

Technology, technology, technology
For many organizations in the health and human services sector, it will be virtually impossible to individually achieve the level of technology sophistication that will be required.

The ever-shrinking qualified labor pool
Approximately 17 million baby boomers are retiring between 2010 and 2025. Technology advances will absorb and have absorbed many of these employees’ duties and responsibilities (e.g., robotics). The failure of our urban public school districts to adequately educate more than half of our future leaders has inevitably resulted in a serious lack of prospective employees with adequate skills and experience.

Medicaid managed care reforms
New York State initiated a monumental Medicaid reform initiative in 2012 with the report of the Medicaid Redesign Team and its 79 recommendations. These reforms have, as a primary objective, the full integration of disparate health and human service providers while, at the same time, reimbursing those providers based on service quality and outcomes as op- posed to a payment for each and every unit of service provided. A true paradigm shift in management for providers.

Aggressive care management
The fundamental objective of Medicaid reform is cost efficiency, elimination of unnecessary services coupled with improved service quality and out- comes. At the same time that reform initiatives are promoting regional collaboration and integration of providers, the changes implemented are stimulating more competition that will ultimately decide the provider survivors.

Increased competition from other industry service sectors
Health and human services in New York State have been historically dominated by tax-exempt providers. The innovation and creativity that result from for-profit entrepreneurial initiatives will represent a major challenge to those tax-exempt service providers that are unwilling or unable to change.

Increased regulatory compliance requirements
Even though President Trump has mandated that every new regulation be accompanied by the elimination of two existing regulations, the bottom line is that providers must increase expenditures to enforce regulatory compliance and mitigate organizational risks.

Satisfying individuals served
Individuals receiving health and human services are the best judges of service quality and outcomes. Imagine, if you will, that we will have health care websites similar to Yelp, Zagat, TripAdvisor, Angie’s List, etc. The availability of quality measures and service outcomes will influence how, when, and where individual consumers will access health and human services.

Provider measurement on service quality, outcomes and cost efficiency
All of the foregoing topics inevitably lead to a new requirement for health and human service providers. The process of truly measuring and evaluating providers is in its infancy. The available hospital ratings based on diagnoses, and nursing homes evaluated on quality and outcomes, will ultimately lead to every consumer being able to quickly evaluate preferred providers that have demonstrated success in service quality and outcomes. In the final phase of the survival of the fi transition, there will continue to be a substantial number of mergers and affiliations of nonprofit service providers. This “Walmart-ing” of the health and human service sector will parallel the past 30 years of retail, transportation, hospitals, utilities and banking consolidation.

If you need a practical example of the service sector impact resulting from the 10 topics described above, take a look at the number of independent, autonomous hospitals that operated in your area in 1990 compared to today.

In writing this column focused on compromise and strategies, I was re- minded of the following quote: “Just as they did in Philadelphia when they were writing the Constitution, sooner or later, you’ve got to compromise. You’ve got to start making the com- promises that arrive at a consensus and move the country forward,” by none other than Colin Powell, who is a perfect complement to the Abraham Lincoln quote above.

Gerald Archibald is a partner serving both of our Rochester, NY, and New York City offices.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.

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