Next step in hospital evolution? Preferred networks

By Richard Asinof
Contributing Writer
The prognosis for the financial health of acute-care hospitals in Rhode Island is not encouraging. Reimbursements from the federal Medicare program are shrinking, demand for inpatient services is declining, and uncertainty hovers over the final shape of federal health care reform initiatives. More

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Focus: HEALTH CARE

Next step in hospital evolution? Preferred networks

By Richard Asinof
Contributing Writer
Posted 9/5/11

The prognosis for the financial health of acute-care hospitals in Rhode Island is not encouraging. Reimbursements from the federal Medicare program are shrinking, demand for inpatient services is declining, and uncertainty hovers over the final shape of federal health care reform initiatives.

“Our hospitals are under tremendous stress; a majority of hospitals are losing money this year,” said Edward J. Quinlan, president of the Hospital Association of Rhode Island. There have been considerable Medicare reductions in payments, Quinlan continued, and the potential for further cuts. “If the [Congressional Super] Committee of 12 does not reach agreement [on reductions in spending by the end of 2011], it will result in another 2 percent cut in Medicare spending across the board,” he said.

Unrelenting pressure to generate increased revenue streams has led local hospitals to adopt a variety of survival strategies to keep the cash flowing and shrink operating costs. These include: partnerships with larger hospital systems, clinical affiliations with Boston hospitals, and the establishment of preferred networks of health care delivery for hospital employees.

The leaders of Lifespan, the state’s largest hospital system, say that the “current fee-for-service environment must shift its focus from volume to value,” presaging its development of an integrated network of doctors and hospitals known as an accountable care organization, or ACO. Beginning in 2012, Medicare will undertake a number of pilot programs that seek to tie provider reimbursements to quality metrics and reductions in the total cost of care, something that ACOs are designed to accomplish.

At the same time, Lifespan, the state’s largest private employer, appears to be hedging its bet on the payment reform model, developing its own preferred network for employees. An analysis of Rhode Island’s numbers reveals why: it is a zero-sum game for hospitals when it comes to capturing, securing or even just maintaining their market share of paying customers. Rhode Island has roughly 1 million residents, with little population growth projected. Some 200,000 residents receive health services through Medicaid; about 140,000 Rhode Islanders are uninsured; and more than 140,000 residents are over the age of 65 and eligible for Medicare. The number of residents receiving health coverage through commercial health insurance coverage through the workplace is declining.

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