Insurance reimbursement rates to Rhode Island hospitals were the eighth lowest
in the nation, based on a review of 2002 figures by the state Department of
Health.
Physicians and other providers have long said they too are under-reimbursed by health insurers, a situation Blue Cross & Blue Shield of Rhode Island has said it recognized.
Rhode Island ranked 43rd in the nation with the amount of reimbursement hospitals received per hospital admission by patients or third-party payors like Blue Cross. The admission figure is based on in-patient and out-patient admissions. The nation averaged $6,261 per adjusted admission and Alaska had the highest reimbursement levels at $9,654. The lowest reimbursements were in West Virginia, which saw rates of $5,743 per adjusted admission.
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With health insurers poised to pay more to the health care provider, will the financial burden pendulum swing toward the payer of the insurance premiums?
“One should be careful in encouraging high reimbursements because that’s inflationary on insurance premiums. It’s a fine line,” said Bruce Cryan, author of the Department of Health report titled “Hospital Costs in Rhode Island,” which was released last month.
Scott Fraser, spokesman at Blue Cross, said his company in December 2003 took $21 million from its roughly $250 million in reserves and split the money in three: $7 million each for physicians, hospitals and premium holders.
The company also approved a plan to reimburse providers at the same rate as Medicare or better starting in August, which could cost $100 million.
“The first three quarters could be paid for through reserves, but down the line they may be covered through premiums,” Fraser said. “The board of directors still hasn’t made a decision.”
He added that the company’s reserves are not easily accessible to increase pay to providers or lower premiums.
“Considering we pay a little less than $2 billion in claims a year, $250 million is not a lot of money,” he said. “Take the (Station) nightclub fire for example. If all of the injured had Blue Cross and we didn’t have the reserves to pay for care, we would be vilified.”
Debora Spano, spokesperson at UnitedHealthcare of New England, said her company has no immediate plans to raise reimbursement rates across the board for hospitals or doctors at this time.
James G. Hagan, president of the Greater Providence Chamber of Commerce, said he is sensitive to the financial stability of insurers as well as providers, but says health care coverage is increasingly becoming a major expense.
“The Chamber is sensitive, but not at the expense of businesses paying the premiums,” he said. “I don’t know where the money to pay for increased reimbursements will come from, but insurers have to be very very cautious on how to proceed.”
Michael Dumas, managing director and vice president of medical benefits consultant and broker Park Row Associates in Providence, a subsidiary of Delta Dental of Rhode Island, said he is confident health insurer reserves will be left alone as reimbursements rise.
“I feel the money in rate developments today provide enough of a load that health insurers will not have to raise rates for a while,” he said.
He added that over time, however, the higher payouts to doctors will be reflected in the employer group experience – a component of the formulas used to create insurance rates that will rise as providers and hospitals are paid more money.
“When they increase reimbursements, the money will have to come from somewhere,” he said. “It will have to affect rates at some point.”
Jim Claffey, a partner at Cranston-based Benefits Unlimited and president of the Rhode Island Business Health Care Advisors Council, agreed that eventually premiums will have to be increased to handle higher reimbursements.
“There’s no doubt in my mind,” he said. “There’s only a limited amount of time reserves will cover increased reimbursements.”
The Department of Health report also looked at several other financial aspects of hospitals in the state. The findings say that:
• Rhode Island hospitals were the second-least expensive in New England and received the lowest reimbursement rates in New England.
• Compared nationally, Rhode Island hospitals have the 19th lowest expense per unit of service (the cost incurred from providing one unit of service) and 18th highest per-capita hospital expenses (the total hospital expenses on a per-person basis).
• Unit reimbursement increased 19 percent, 21st fastest in the nation.
• From 1999 to 2002, hospital unit expenses in the state increased 19 percent, the 19th fastest in the nation.
“Hospitals in the state are spending more on care and getting less in reimbursement,” Cryan said.
Other Department of Health data not in the report show that in 2002 hospitals on aggregate lost 0.8 percent in profit, according to Cryan. The rest of the nation saw an average profit hike of 2.6 percent and in the Northeast hospitals on average saw an increase of 0.8 percent.
Spano said that analysis of the report by people at her company showed that if one takes away Medicare and Medicaid reimbursements, commercial insurers pay more than health insurers in other states.
Edward J. Quinlan, president of the Hospital Association of Rhode Island, said although this study shows a disparity in insurer and hospital finances, the burden to reduce the gap doesn’t necessarily have to shift to those paying premiums. “There are other areas to find the savings,” he said, adding that updating information systems would simplify billing procedures and save money.
Quinlan said Blue Cross has recognized the gap between what they and hospitals make has to decrease.
“Reimbursements have to be at or above costs, although they are not there yet,” he said. “There has been significant public discussion about the relationship provider payments, insurer profits and employer premiums in the state and General Assembly. With all the discussions, I think better days are ahead for all three of these interests.”
Dumas said he is not inspired by the health care legislation being heard in the General Assembly, saying it is provider-driven and anti-consumer. “A lot of legislation spends too much time focusing on the administration at Blue Cross,” he said. “But when it comes to the problems with health care, a lot of focus has been on the doughnut hole and not the doughnut.”
