Report: System hospitals paid more by insurers

A new report confirms what Rhode Island health care leaders have long suspected: Insurers pay dramatically different rates to hospitals across the state for similar services, and Lifespan and Care New England members generally do better than independent facilities.
The report, based on 2008 data supplied by Blue Cross & Blue Shield of Rhode Island and UnitedHealthcare of New England, shows they paid hospitals for inpatient medical/surgical stays, on average, 116 percent of what Medicare would have paid.
But while Lifespan members got 117 percent of Medicare’s rates, Care New England hospitals got 149 percent, the report shows, and unaffiliated hospitals, 97 percent.
Looking hospital by hospital, the differences are even more stark: Roger Williams Medical Center got paid at 79 percent of Medicare levels, The Westerly Hospital at 96 percent, Rhode Island Hospital at 112 percent – and Kent Hospital at 167 percent.
The analysis, produced by Health Insurance Commissioner Christopher F. Koller’s office, has many limitations, most of which are freely acknowledged:
It focuses only on inpatient medical/surgical stays, excluding outpatient services, which make up, on average, 50 percent of Rhode Island hospitals’ revenue, and as much as 70 percent at Westerly. And it excludes mental health, obstetrics and neonatal cases, which eliminates Butler Hospital and Bradley Hospital entirely and skews the Women & Infants Hospital data.
Less obviously, the Medicare comparisons – which carry particular weight because Medicare’s pay system is publicly known and adjusts for cost of living, case severity, and the cost of training new doctors – use estimates that omit direct medical-education payments.
Still, the study finds that the pay differences are substantial and consistent enough to conclude that independent hospitals are getting the short end of the stick, and that it’s unfair.
Not surprisingly, hospitals’ responses to the analysis varied depending on their own position. Kenneth H. Belcher, president and CEO of Roger Williams Medical Center and of the new CharterCARE Health Partners, which includes Roger Williams and St. Joseph Health Services, said the study “raises a tremendous amount of questions,” but it also confirms what “everyone recognizes” – that “systems have greater clout in negotiations.”
Care New England and Lifespan executives questioned the study’s methodology and findings.
“It’s not that we’re saying they’re wrong – we’re just saying there’s not nearly enough information to support them,” said Domenic Delmonico, senior vice president for managed care contracting and network development at Care New England. Lifespan President and CEO George A. Vecchione raised similar concerns, noting, for example, that the Medicare ratios for some hospitals were skewed upward by several percentage points by excluding direct medical-education payments.
Still, he said, “This report, even with its flaws, supports the notion that Lifespan as a corporation has been very respectful and appropriate at the negotiating table.”
Independent hospital leaders, meanwhile, felt vindicated by the findings.
“This report shows a system that’s in need of repair,” said Charles S. Kinney, president and CEO of The Westerly Hospital. “It points out that here are significant differences that have no valid basis or reason – just whether one has negotiating strength.”
Louis R. Giancola, president and CEO of South County Hospital, praised the report for providing “probably the most transparency we’ve had to date” on this topic. It’s not the final word, he said, but “it’s a start” for discussions.
“We need to evolve to a different methodology … that results in a more rational payment system,” he said. “There clearly should not be this much disparity.”
Both Blue Cross and United, meanwhile, stressed the study’s limitations – Blue Cross, for example, said omitting outpatient data may have exaggerated the pay differences – but also said the system is, indeed, flawed and fails to reward quality as it should.
“This report raises interesting policy questions as to whether we can improve upon the current hospital payment system,” said United President and CEO Stephen J. Farrell. “We look forward to participating in discussions on how to most equitably compensate our state’s hospitals.”
Blue Cross President and CEO James E. Purcell noted that, as the report warns, transparency and a more even playing field won’t achieve one key goal: more affordable health care. The report suggests discarding the fee-for-service model used by Medicare, and Purcell agreed.
“The current reimbursement system encourages more tests, more procedures and more costly technology,” Purcell said. Instead, Blue Cross is shifting to a new model that “would allow hospitals that meet agreed-upon quality standards and operational efficiencies to become more profitable,” he said. &#8226