Obamacare's implications on the southern Oregon coast

The United States Supreme Court convened Monday for the start of its 2011 term. Many commentators expect the justices to rule on the constitutionality of the Patient Protection and Affordability Act, aka Obamacare.

The Court's decision will have wide-ranging ramifications, including on rural health care. On the southern Oregon coast, doctors and hospital officials have expressed optimism over the much ballyhooed insurance mandate. But they have already started to see benefits from a less publicized provision: adjustments to Medicare reimbursement rates.

Coos County has 63,043 residents and three hospitals. The largest one is Bay Area Hospital, a not-for-profit health district hospital that treats about 7,500 patients a year.

The area's growing retirement population means the hospital gets much of its funding from government programs. As of 2008, more than 50 percent of hospital expenses were covered by Medicare, with another 10 percent funded through Medicaid. Another 10 percent of patients don't pay for their medical services, according to a local newspaper article.

Before Congress passed the 2009 health care reform act, Bay Area Hospital was only reimbursed about 92 cents for every dollar spent on Medicare patients. The government paid only about 45 cents per dollar for Medicaid patients. To compensate, the hospital has increased the cost of services in recent years so that commercially insured patients pay the hospital about 38 percent above the cost of providing the service, leading to higher premiums.

But as part of the health care law, Congress included a provision that adjusts the formula for Medicare reimbursements, which hadn't changed since the program started in the 1960s. The law has temporarily increased Oregon doctors' reimbursement rates by between 3 and 5 percent, with a medical panel scheduled to determine a permanent reconfiguring of the formula in 2012.

This change apparently has helped Bay Area Hospital's bottom line. In 2008 and 2009, the hospital spent more than it took in. In 2010, the hospital reported $5.2 million in income from operations. Medical administrators have said the more favorable reimbursement rates should also make it easier to recruit doctors to the state.

The picture could get even rosier if the Supreme Court upholds Obamacare's insurance mandate. The provision could significantly reduce the number of patients who simply do not pay for medical care, which accounted for more than $17 million in 2010 for Bay Area Hospital.

However, a recent article in The New Yorker provides a cautionary tale about adjustments made in federal health care programs. The story focuses on a pharmacist in Montrose County, Colorado, who laments the passage of Medicare Part D, a federal program that subsidizes the cost of prescription drugs for Medicare beneficiaries. The article's author, Peter Hessler, explains the problem:

[T]he U.S. government allows private insurance plans to negotiate with drug providers. Big chains and mail-order pharmacies receive much better rates than independent stores, because of volume. Within the first two years of the program, more than five hundred rural pharmacies went out of business.

Obamacare looks like it will help southern Oregon: providing hospitals and doctors with greater reimbursement for treating patients with Medicare and reducing the number of patients who get services for free because they are uninsured. But states that have seen a decrease in population since 1960 might suffer as a result of the changes in reimbursement rates, suffering like the pharmacies that couldn't compete following enactment of Medicare Part D.

So while the early changes brought about by Obamacare appear to be helping Bay Area Hospital's bottom line, there's no guarantee that other rural areas will see similar improvements.