For three of the last four years, Landmark Medical Center has lost money on its operations: $1.86 million in 2002; $166,000 in 2003 and $1.62 million in 2005. Even the one profitable year was weak, with only a $170,000 net operating profit.
There are many reasons why Landmark has struggled, its leaders say, and President and CEO Gary J. Gaube and his team have worked hard to correct most of them.
But one, they say, can’t be fixed – at least, not by Landmark alone: For several years now, the hospital has been losing money on the services it provides to Blue Cross & Blue Shield of Rhode Island subscribers, especially those in Medicare managed-care plans.
Even after $6.12 million worth of extra payments from Blue Cross, the hospital says its reimbursements still fall $4.24 million short for 2002 through 2004 alone.
And although Landmark made a small profit on its Blue Cross business in 2005, and the hospital’s contract provides for annual rate increases, Gaube said that this year, another deficit has built up. By 2008, the Woonsocket-based hospital expects its cumulative shortfall to be almost $5 million.
On Monday, after months of discussions with Blue Cross, Gaube asked Landmark’s board of directors to authorize him to take “all the steps necessary,” at his discretion – including legal action – to get retroactive payments from the insurer and a “fair margin” for the future.
“We need fair and equitable rates,” John St. Sauveur, chairman of Landmark’s board, said in an interview. The hospital has done all it can to cut costs, he said. “If we cut any more, we cut into quality of care. And that is not something we can accept.”
Health care providers have a long history of fighting it out with insurers, and in Rhode Island, Blue Cross’ market dominance is such that its pay scale can make a major impact.
But with rare exceptions, contracts are negotiated in private and are kept private – to the point that, when state Health Insurance Commissioner Christopher F. Koller this year pushed for legislation to make the agreed-upon prices public, both sides resisted fiercely.
So although it’s unclear what grounds, if any, Landmark could find for suing Blue Cross, just the fact that Gaube is openly discussing the situation, inviting elected officials to get involved and sharing correspondence he’s exchanged with Blue Cross is a dramatic shift.
U.S. Rep. Patrick J. Kennedy, D-R.I., has come out in support of the hospital, saying he stands behind Landmark’s efforts to obtain higher reimbursements. Gov. Donald L. Carcieri – often a harsh critic of Blue Cross – hasn’t been so vocal, but his deputy chief of staff, Clark Greene, did meet with hospital officials last week.
Koller and Dr. David R. Gifford, the state health director, have so far declined to get involved in the conflict, however. A recent report on hospital finances did raise “some concerns” about Landmark, Gifford’s spokeswoman Maria Wah-Fitta said, but “in terms of the situation between Blue Cross and Landmark, we really don’t get involved in contract negotiations.”
Blue Cross, for its part, is being circumspect, saying it doesn’t believe in conducting business in the media. But spokeswoman Kim Keough did dismiss, in broad terms, the notion of Landmark being underpaid – adding that Blue Cross has an obligation to protect its subscribers’ interests, as well as the providers’.
“If you look at it in terms of affordability, it would be so easy for us to go in and agree with increase requests and then pass that on to our members,” Keough said, “but we’re not willing to do that. We believe that affordable health care is too important.”
Hospitals don’t make money on all the services they provide, and they get different levels of reimbursement from different payers, losing money on some and breaking even or making a profit on others. Landmark breaks even on Medicare, Gaube said. But while hospitals generally make more from private payers, Blue Cross now pays Landmark only about 94 percent of the Medicare standard rate.
Blue Cross subscribers – including Medicare managed-care plan members – account for 33 percent of Landmark’s patient volume, according to figures provided by the hospital.
Traditional Medicare patients account for 21 percent, she said, while UnitedHealthcare of New England subscribers accounts for 13 percent. (The rest include patients covered by Medicaid, other private insurers and workers’ compensation, and 7 percent who are uninsured.)
As Keough sees it, being just one-third of Landmark’s business, Blue Cross can’t possibly be blamed for the hospital’s financial difficulties. But Gaube, the hospital CEO, said losing money on such a critical part of the business is devastating to Landmark.
Gaube has been fighting this battle with Blue Cross since the days when CEO Ronald A. Battista ran the insurance company. In 2003, Battista forced the hospital to undergo an extensive and highly invasive audit before agreeing to any rate hikes, Gaube noted, and after the audit found Landmark was, indeed, due some extra money, he pushed the hospital into merger talks with Roger Williams Medical Center, in Providence, which was in a similar situation.
“Without this merger, both institutions are likely candidates for insolvency,” Battista once wrote in a letter to Gaube, adding that Blue Cross couldn’t be expected to help them survive.
Landmark did, ultimately, get extra money from Blue Cross, but most of it came in the form of one-time payments that didn’t alter the existing fee structure, Gaube said.
A letter he provided shows there are several factual disagreements on how much of the hospital’s shortfall Blue Cross covered and about the adequacy of the current rates. But in an interview, Keough said the company still expects to resolve the dispute amicably.
That’s the nature of negotiations, she said – both sides come in with their positions, they talk, and they reach a compromise.
