New study documents payment disparity at R.I. hospitals

A NEW STUDY DOCUMENTING payment disparities between hospital systems in Rhode Island showed that commercial health insurers paid more to Lifespan and Care New England hospitals than they did to other hospitals in the state.
OF THE TOTAL $1.65 billion paid to Rhode Island hospitals in 2010, Lifespan and Care New England received 71% of total payments.
Posted 12/19/12

(Updated, 2:45 p.m.)

PROVIDENCE – A new comprehensive study released Wednesday by R.I. Health Insurance Commissioner Christopher F. Koller documents payment disparity by hospitals and payers in Rhode Island.

The study, “Variation in Payment for Hospital Care in Rhode Island,” conducted by Xerox, examined inpatient and outpatient costs at Rhode Island’s 11 acute care community hospitals as well as reimbursements by government and commercial payers for 2010.

The study’s findings found a large disparity in the commercial health insurance market, with the highest paid hospital receiving twice as much per stay as the lowest-paid hospital for similar care.

In addition, the commercial health insurers paid more to Lifespan and Care New England hospitals than to other hospitals. And, commercial plans paid more than either Medicaid or Medicare.

The study found that inpatient specialty care for maternity, mental health, orthopedic and oncology services showed similar patterns of variation.

Further, the study found that higher cost hospitals, especially Care New England and Lifespan hospitals, tended to be paid more, but that limited evidence of hospital quality, such as patient satisfaction and patient safety indicators, did not show a direct link with payment.

In a specific section written about future policy initiatives by Koller, the health insurance commissioner identified five options for policy makers to achieve payment alignment, parity and accountability, including an all-payer rate-setting system.

The policy options include:

  • Promote transparency and public accountability by repeating this study and regularly publishing rates of payment variation. The extent of rates of variation in hospital payments can become a measure of delivery system health.

  • Issue regulation or enact statute to influence the level of variation in private insurer contracts and reduce disparities among hospitals.

  • Enact legislation that sets an explicit benchmark, such as a percent of Medicare, for private insurer payments. Payment methods should closely resemble the public payer reliance on a transparent, consistent formula that is premised on appropriate allowable costs.

  • Enact legislation to require all payers to use a standard payment method, such as risk-based or global payment methods, perhaps with inflation caps but not with explicit rate setting.

  • Implement an all-payer rate-setting system that sets payments for all inpatient and outpatient services for each hospital, with adjustments for all acceptable factors of variation such as teaching status, charity care and case/service mix.

Gail Leach Carvelli, director of media relations at Lifespan, provided the following statement in response to the study:

    “We have stated many times over the past several years that we are transforming the way we deliver health care to provide the most affordable, accessible, high quality care, which the people of Rhode Island expect and deserve. We are at a time when our entire reimbursement system is being overhauled, when federal dollars are shrinking, discharges are dropping and needs are growing.

    “There are enormous differences in the services, such as regionalized stroke care, trauma care, and cardiac care, provided at the hospitals in Rhode Island, as well as the amount of charity care provided at various hospitals in the state.

    “The study does not acknowledge the cost associated with operating tertiary services or medical training programs or new buildings or technologies. We know our hospitals are lower cost than Boston’s teaching hospitals, and we also know we can do a better job of stabilizing the cost of health care, which is what we are committed to do.”

To view the study, visit:

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