What government default could mean for health finance

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The negotiations to raise the debt ceiling--a once-routine Congressional act that has occurred on average more than once a year since World War I--have brought out what I liked to call the bitter angels of our nature.

President Obama has become a metaphorical scold, telling Congress to "eat its peas," "pull the Band-Aid off," and suggesting his two daughters have better planning sense. Presidential hopeful Rep. Michele Bachmann (R-Minn.) floated the plan of defunding the Patient Protection and Affordable Care Act in exchange for her vote to raise the ceiling--an absolutely ridiculous diversion meant only to elicit titters from the room-temperature IQ voting bloc.

All the while, these games of chicken are getting a little more unnerving as the light at the end of the tunnel approaches, with some still uncertain whether it spells relief or an oncoming train.

How might a government default affect healthcare finance? There is an excellent chance there won't be enough money to pay Medicare and Medicaid providers for the care they've rendered. And since it makes more political sense to pay soldiers and Social Security recipients first, there's a good likelihood doctors and hospitals will wind up holding some form of warrant for their Medicare claims rather than actual money.

Borrowing costs will likely go up as well. Add four or five interest points to the current rates, and a lot of new patient wings, emergency rooms, oncology centers and other capital improvement projects will be shelved.

I still don't think such a scenario is likely, and some of the few remaining adults in Washington concur. One such adult is Dan Mendelson, who oversaw the healthcare division of the Office of Management and Budget during the Clinton Administration--including the time in 1995 that Republicans decided to shut down the government. Mendelson, who now runs a Washington-based healthcare consulting firm, considers the current negotiations nothing more than political posturing.

"The chances that the government defaults is extremely low," Mendelson said. Even if it should, enough contingencies would be worked out by federal agencies that "there would be at most modest cash flow interruptions to hospitals." Contingencies that included hardship exemptions occurred during the 1995 government shutdown, and would occur again in the case of default.

As for borrowing implications, Mendelson believes that it's entirely possible hospitals could benefit. "If federal bonds are seen as less safe, that might make hospitals more attractive (as an investment)," he said.

Mendelson was in the trenches the last time a political bloc decided to punish the government for the mere offense of existing. It's led to some out-of-box thinking. I just hope, if worse comes to worse, everyone else goes along with it. - Ron

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