Union Leader: Hospitals must absorb cuts, insurer says

Hospitals must absorb aid cuts, insurer says

The state’s largest health insurer says hospitals — not its insurance customers — must absorb the loss of $250 million in state reimbursements to hospitals over the next two years.
By MICHAEL COUSINEAU
New Hampshire Sunday News
The state’s largest health insurer says hospitals — not its insurance customers — must absorb the loss of $250 million in state reimbursements to hospitals over the next two years.

“We really don’t believe that’s a problem we can step in and solve by filling that gap and adjusting our reimbursement rates,” said Lisa Guertin, president of Anthem Blue Cross and Blue Shield in New Hampshire.

Private health insurers paid the state’s 26 health care systems — hospitals and their associated businesses, such as physician practices — $800 million more than the actual cost of services in 2009, according to a report by the non-partisan New Hampshire Center for Public Policy Studies in Concord. Those payments more than covered a deficit of $664 million in costs generated from treating Medicare, Medicaid and uncompensated care patients.

In the state’s current two-year budget, which began July 1, hospitals received a $250 million reduction in reimbursement payments for Medicaid patients and uncompensated care. In recent weeks, at least seven hospitals have announced more than 600 layoffs collectively to help fill that gap.

Dartmouth-Hitchcock also said it wants to accept an unknown number of the 725 buyout deals it is offering.

Meanwhile, at least some private insurers have agreed to increase how much they pay Dover’s Wentworth-Douglass Hospital, which is hiking charges for hospital procedures by 9 percent on Oct. 1 and an additional 6 percent on Jan. 1 to help cover its $10 million loss in state aid, according to hospital spokesman Noreen Biehl.

Some insurers will absorb up to 6 percent of that total increase, as is permitted under their contract agreement with the hospital, Biehl said. She didn’t know which insurers were involved.

“When Medicaid and Medicare don’t keep up with the cost of care, that cost shifts to commercial insurers,” she said.

Bob Noonan, Anthem’s vice president of provider engagement and contracting, said Anthem has a contract for agreed-to prices with the hospital for the next few years, “so the rates are already set in stone.”

Noonan explained that Anthem, like other insurers, negotiates agreed-to reimbursement rates for services with each hospital.

“There is significant variances in those hospitals,” Noonan said.

The state Insurance Department has a website, nhhealthcost.org, that estimates how much people with and without insurance will pay at various hospitals for specific services.

For a person belonging to an HMO with no co-pay or deductible going for an MRI on the brain, Anthem is estimated to pay $1,512 to Parkland Medical Center in Derry but $4,841 to Memorial Hospital in North Conway.

The estimates are based on the median amounts paid using insurance claims data from July 2009 through September 2010. “The cost amount is often referred to as the ‘allowed rate’ of payment to health care providers,” according to the website.

Asked why there was such a spread, Anthem’s Noonan said: “That’s a real good question.”

When looking at the same MRI procedure at the same hospital for a person in an HMO with no co-pay or deductible, reimbursements differed because each insurer negotiated a different reimbursement rate. Anthem is estimated to pay $1,512, Harvard Pilgrim $2,054 and Cigna $3,427. An uninsured person is estimated to be charged $4,935, but hospitals typically provide at least a 15 percent discount, lowering the cost to $4,195.

“Every carrier looks at their plan subscribers and how they’re reimbursing, and the hospital looks at that plan’s subscribers and the level of services they offer and how that spreads across their entire operation,” said Steve Ahnen, president of the New Hampshire Hospital Association. Negotiated rates for one service may subsidize another service, he said.

Ahnen expects hospitals to press insurance companies to help recoup some of the $250 million cut in state aid.

“I don’t think there’s an easy way to determine how much of that will be shifted to the private payer,” he said. “Clearly, the pressure will be there to recover some of those costs, but those are individual negotiations between health plans and hospitals.”

He said Medicaid reimburses 50 percent or less of actual costs to hospitals while Medicare was in “the neighborhood of 82 percent.”

Last February, Anthem resolved a dispute with Exeter Hospital and its provider group, Core Physicians, over pricing. The health insurer had said the hospital was charging more for its services than others in the state.

Tom Bunnell, a policy consultant with NH Voices for Health, a network of groups pushing for quality, affordable health care for all, said he expects the budget cuts will mean “some significant amount of those costs would be shifted over to payers of private health insurers.

“Hospitals would be more inclined to make up their losses, especially those who are hurting significantly, by being in negotiations by raising their rates for insurance companies and insurance coverage,” he said. “Small businesses as well as consumers — workers, people with health insurance — would be paying even more in the cost of their private health insurance.”

The study showed the 26 health systems generated a post-tax profit of $128 million in 2009, the most recent year available, or a 2.8 percent operating margin, although seven were in the red for the year.

Anthem’s Guertin said Anthem pays nearly 150 percent of the actual costs of providing care to its members.

Noonan said private payers historically have absorbed more than the actual costs of just their members.

Hospitals “had quite a bit of leverage in this marketplace,” he said. “There’s not a lot of competition at the local level” with few communities having more than one hospital.

“They’ve had quite a bit of clout in the negotiations,” Noonan said. “Price is somewhat of a function of how competitive or not a marketplace is.”

Alexander Feldvebel, the state’s deputy insurance commissioner, said his office plans this fall to have experts take a more thorough analysis of cost-shifting hospital costs, issuing a report around November.

“There’s some indication (in other states) that if a hospital has a higher percentage of Medicaid, Medicare and uncompensated care (cases), it actually becomes more efficient and therefore benefits the commercially insured population,” he said. “Obviously, what most people already understand is we have a mix of payers, and when one of those payers lowers their compensation, then the natural tendency is to look to the other payers to make up that difference.”

Feldvebel said his office by November may be able to see whether insurance companies are hiking their rates as a result of the hospital cuts. Three companies cover more than 90 percent of the state, with Anthem leading with 51 percent of market share.

Rep. Neal Kurk, a member of the House Finance Committee, said legislators made tough choices to balance the state budget and considered the repercussions of cutting hospital aid, including a possible rise in health insurance premiums.

“The hospitals could become more efficient. The hospitals could try to cost shift. The hospitals could offer more services,” he said. They could close down less profitable services.”

“In an economy that’s not growing, if you reduce one area, there are consequences,” Kurk said. “If you reduce the other area, there are consequences. If we take hospitals and reduce their income, they’re going to lay off people, they’re going to become more efficient,” he said.

If the state funds them at the previous level, then “the only way to cover those expenses is to raise taxes,” Kurk said.

“If we raise taxes, the public’s disposable income ... goes down because they have to pay taxes,” Kurk said. “When their income goes down, we don’t spend as much. If we don’t spend as much, the private sector lays off people.”

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