UPDATED: Money makes the hospital go round

Different payments for the same services at different hospitals

By Will Collette

UPDATE: The Westerly Sun reports that Sen. Dennis Algiere (Westerly, Charlestown, SK) has introduced legislation to require more transparency about the way health insurers pay hospitals. When I wrote the original of this story, I knew about Algiere's bill, but didn't include it because, as the leader of the Senate Republicans, I figured Algiere's bill has no chance of passage. But since his bill is certainly relevant to the issues in this article, it is worth mentioning. Algiere's bill is not listed in the General Assembly's database as of today, January 24.

As I wrote recently, we’re lucky to have one of the best hospitals in New England nearby at South County Hospital. Our other South County hospital, Westerly Hospital, is rated far, far lower and has also begun to cut vital community services, such as obstetrics, as its financial woes take its toll.

One thing Westerly and South County Hospitals have in common is discrimination in the way that insurers – commercial, Medicaid and Medicare – pay them, compared to hospitals in the Providence metro area.

According to a recent RI Health Department report, Westerly, Newport, South County and Landmark (Woonsocket) Hospitals received the lowest share of Rhode Island’s $1.65 million most recent annual hospital expenditures. Obviously, the size of the hospital, the number of patients it sees and the scope of sciences it offers are key factors.

But so is rate discrimination. Actual payment rates show that South County Hospital is paid at a rate that is between 25% and 33% lower than Rhode Island Hospital, depending on the insurer. Westerly, Newport and Landmark are also paid similarly low rates.

South County Hospital CEO Lou Giancola recently told state legislators that the burdens placed on smaller independent hospitals and disparity in reimbursement rates make it difficult for a community-centered hospital to survive. While South County has run in the black for the past three years, Westerly Hospital, which faces similar challenges will probably close if its pending sale to Connecticut-based Lawrence & Memorial Hospital fails.

RI Health Insurance Commissioner Christopher Koller described the problems the Health Department study uncovered as threefold:

1. Payment alignment. “Commercial and public hospital payment methodologies should be aligned to encourage high value (high quality and low cost) services. Payment reinforces behavior.” My earlier article highlighted how South County provides the best service in Rhode Island while the Health Department report reveals that it gets paid at a rate near the bottom. Rhode Island Hospital, while rated near the bottom for service, gets the second highest payment rate.
2. Payment Parity. “Commercial and public payments, to the greatest extent possible, should pay similarly across hospitals and payers in method and in level for similar services of similar value.”
3. Payment Accountability. “Payment policies for commercial insurers should promote public accountability for care outcomes and costs, rather than the payment disparities that result from the current system of private negotiation.”

No correlation between patient satisfaction and rates

Anyone who has had to pay out of pocket for hospital services runs into the “sticker shock” that comes from our negotiated system of health care rates. It’s no secret that the government and commercial insurers negotiate discounted rates with health care providers – while the uninsured pay “retail” – but those negotiated rates depend a lot on negotiating clout, which puts smaller hospitals at a distinct disadvantage.

South County Hospital says that it is constantly refining its financial planning to reflect conditions that could directly impact the hospital’s survival. Even the “fiscal cliff” manufactured crisis in Congress put a scare into the hospital as it would have cut Medicare reimbursement rates well below the rate of inflation.

Obviously, these issues are nationwide and affect the quality and quantity of health care. The chokehold insurers hold over communities, especially in rural America, contributes to the poor standing the US has among industrialized nations of the world in caring for our people.

Despite conservative attacks against President Obama’s health care reform legislation, so-called “Obamacare” is the opposite of “socialized medicine.” It actually strengthens the power of insurers in the system, rather than take us toward the kind of single-payer medical systems that most of other industrialized countries have adopted.