Next step in hospital evolution? Preferred networks

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. “Hospitals are strategizing how they can outlast their competitors,” said Rick Brooks, director of the United Nurses & Allied Professionals union. “They are positioning themselves to survive in an increasingly competitive and vulnerable marketplace, to maintain their volume.”
The strategy of a preferred network for hospital employees is now being deployed at Lifespan’s Rhode Island Hospital in Providence, at Landmark Medical Center in Woonsocket and at Memorial Hospital of Rhode Island in Pawtucket.
Earlier this year, Steward Health Care System, the for-profit hospital system based in Boston, agreed to buy the nonprofit Landmark, three years after the financially troubled hospital went into receivership. State regulators still need to approve the acquisition under the state’s Hospital Compliance Act.
As part of the subsequent collective bargaining agreement reached with Local 5067 of UNAP and its 625 union members, Steward will require union members beginning in 2012 to use Steward facilities and providers for health care in Rhode Island and Massachusetts. Employees may seek care outside the preferred network, but there are financial disincentives to do so.
A preferred network was also established as part of the new, four-year contract reached on June 30 between Lifespan’s Rhode Island Hospital and UNAP for its 2,200 nurses and health professionals – about 18 percent of the Lifespan system’s total work force. “Our health insurance plan costs currently run about $120 million a year,” said Lou Sperling, vice president of human resources at Rhode Island Hospital, “with an increase in costs trending at about 8 percent, or $10 million a year.” For Lifespan, which is self-insured, the preferred network will enable employees to utilize the health insurance plan more effectively and intelligently to control costs, according to Sperling.
Memorial Hospital, which recently affiliated with Brigham and Women’s Hospital in Boston as part of its Cardiovascular Care Center, has maintained a preferred network for employees for a number of years to encourage them to use its health care network, according to Martin E. Tursky, Memorial’s new president and CEO.
“With the initiation of the clinical affiliation partnership with Brigham and Women’s Hospital, we’ve also added the highest-quality tertiary services,” Tursky said.
For CharterCARE Health Partners, which includes St. Joseph’s Health Services and the Roger Williams Medical Center, a preferred network is an option being explored. “We do not have a preferred network at this time but are working in that direction,” said R. Otis Brown, CharterCare’s vice president of external affairs. “We do encourage employees to use certain services within our system.”
One question that remains unresolved about hospitals establishing preferred networks is how that will mesh with the proposed rules governing ACOs, which say that a patient may choose to “seek care from another provider that is not part of the ACO,” according to Maria Tocco, a spokeswoman for Lt. Gov. Elizabeth H. Roberts.
“Most preferred networks have a way that participants can seek care outside of the network,” Roberts said in a separate interview. The question is, she continued: “How permissive is it? Is there a difference in cost?” &#8226

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