The Biggest Risk for Hospitals In Biden’s Healthcare Plan

By Ken Perez, vice president of healthcare policy, Omnicell, Inc.

If one asks the average American what is former Vice President Joe Biden’s healthcare plan, it’s likely that they will say it is about restoring the Affordable Care Act (ACA), and some may mention the idea of a public option —Medicare or something like Medicare made available to more people.

Those high-level impressions are certainly accurate. Biden’s official campaign website quotes the presidential candidate as saying, “We have to protect and build on Obamacare,” and Biden’s current policy stances touch upon the ACA’s three main areas of focus: access, quality and cost.

Biden’s plan for healthcare has been best articulated in two documents. First, negotiations during June with representatives of Sen. Bernie Sanders (D-Vt.) produced the “Biden-Sanders Unity Task Force Recommendations,” a 110-page document which was released in early July. Second, the 2020 Democratic Party Platform, a 92-page document, was approved by the Democratic National Committee’s Platform Committee on July 27 and adopted during the 2020 Democratic National Convention in mid-August.

As was the case with the ACA, both documents affirm healthcare as a human right, advocating “free or low-cost healthcare coverage for every American, including by expanding Medicaid, subsidizing employer health insurance for people who lose their jobs, and offering a high-quality low or no-cost public option available without a deductible and with automatic enrollment for those who qualify throughout the COVID-19 crisis.”1

In general, expanding coverage benefits hospitals by reducing bad debt expense, which for U.S. hospitals averaged 1.73% of revenue in 2018.2 According to Rich Umbdenstock, former president and CEO of the American Hospital Association (AHA), the hospital industry agreed to support the ACA because the Obama administration and Congress promised that at least 97% of Americans would have healthcare coverage.3 In like manner, the Biden healthcare plan’s promise to increase access and expand coverage make it attractive to the hospital industry.

But some of the proposed policies go much further than the ACA, reflecting the influence of the more progressive representatives of Sanders.

Buried deep within both documents is unionization of healthcare workers, which could pose a material risk to hospital finances. The Biden-Sanders task force recommendations state, “Any (healthcare) employer funded by taxpayer dollars must allow workers to join together in a union and collectively bargain.…”4 Also, the Democratic Party Platform echoes that, declaring, “We believe all employers’ funded by taxpayer dollars must pay their workers at least $15 an hour and protect workers’ rights to organize.”5

Biden underscored his commitment to unionization during a Labor Day webstream with AFL-CIO president Richard Trumka. Biden said, “I’m going to hold company executives personally liable for interfering with workers who are attempting to unionize. It’s not enough just to have their corporations pay a fine. If they’re part of the problem, they are going to pay a personal price.” He added, “I’m going to be the strongest labor president you have ever had.”6

Since a majority of hospitals receive Medicare or Medicaid payment and, with the COVID-19 pandemic, most have received grants or loans from the federal government, the unionization policy would apply to virtually all hospitals.

According to the U.S. Bureau of Labor Statistics, in 2019, only 11.8% of healthcare practitioners and technical occupations and 7.4% of healthcare support occupations were members of unions, so requiring unionization would fundamentally change the nature of labor-management relations for most hospitals.

Unionization, especially when combined with collective bargaining, would almost certainly lead to increased wages. University of Illinois sociology professor Tom VanHeuvelen analyzed data from the Panel Study of Income Dynamics, a longitudinal study of over 18,000 individuals in more than 5,000 families that began in 1968. Because he was able to work with data rom individuals over time, VanHeuvelen was able to account for demographic factors such as educational attainment, race, gender, geographic location, and industry-switching, which some economists contend are more impactful than union status. VanHeuvelen concluded that unions associated with higher wages for workers across the demographic spectrum.7

Alex Bryson of the National Institute of Economic and Social Research in the U.K. has quantified the wage increase attributable to unions, stating, “Evidence for the U.S. and for the U.K. often points to a union membership wage premium of between 10% and 15% … .”8

In terms of healthcare industry-specific data, RegisteredNursing.org reported that “nurses in union roles are paid 20% higher than nurses in non-union facilities.”9 Similarly, an analysis of U.S. Current Population Survey data from 2000-2006 by Joanne Spetz of the University of California, San Francisco and Michael Ash of the University of Massachusetts at Amherst found that hourly earnings for union hospital nurses were 14% higher than non-union hospital nurses.10

Increased labor costs of 10% to 15% would be devastating to hospital finances, given that: 1) labor costs account for the majority of hospital expenses; 2) the median hospital operating margin was 1.7% in 2018; and 3) operating margins plummeted this spring due to sharp volume and revenue decreases coupled with flat to rising expenses at the beginning of the coronavirus pandemic.11 As Bryson concludes, “[T]he effects [of the union wage premium] will have a negative impact on firms where the premium is extracted from firms that have no ‘excess’ profits .… .”

The negative financial impact of such higher labor costs would outweigh by several times the previously mentioned benefit of bad debt expense reduction resulting from expanded coverage.

Faced with increased labor costs—not to mention more acrimonious labor-management relations—hospitals may be forced to carry out furloughs and layoffs, as well as cutbacks in other areas, such as capital budgets.

Although it is in the fine print of the two documents that detail the Biden healthcare plan, unionization constitutes a major change that could result in significant adverse impacts on hospital finances and operations.

Footnotes

1. Biden-Sanders Unity Task Force, “Biden-Sanders Unity Task Force Recommendations,” July 2020, p. 89.

2..?Shoemaker, W., “Bad debt expense benchmarks: U.S. acute care hospitals show improvements since 2015,” hfm, Oct. 1, 2019.

3.?Chaddock, G. R., “Healthcare reform: Obama cut private deals with likely foes,” Christian Science Monitor, Nov. 6, 2009.

4. Biden-Sanders Unity Task Force, op. cit, p. 95.

5. Democratic Party, “2020 Democratic Party Platform,” July 27, 2020, p. 34.

6. Nelson, Steven, “Joe Biden threatens ‘personal price’ if business leaders oppose attempts to unionize,” New York Post, Sept. 7, 2020.

7. Anzilotti, Eillie, “The economy is booming, your salary is not; Blame the decline of unions,” Fast Company, Aug. 29, 2018.

8.?Bryson, A., “What are the economic implications of union wage bargaining for workers, firms, and society?” IZA World of Labor, July 2014.

9. RegisteredNursing.org, “Do Unions Benefit of Harm Healthcare & Nursing Industries?” RegisteredNursing.org, June 28, 2020.

10. Spetz, Joanne and Ash, Michael, “The impact of hospital unions on nurse wages in the United States,” Center for the Health Professions, March 2009.

11.?Mensik, H., “Operating margins plummet at US hospitals, Kaufman Hall says,” Healthcare Dive, April 22, 2020.


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