OHIC expected to rule soon on hospitals’ request to increase the hospital-rate cap


"WITHOUT THE ability to effectively negotiate contracts with insurers, hospitals are unable to recoup shortfalls from Medicare and Medicaid,” HARI President Michael Souza wrote in HARI’s Oct. 19 letter / COURTESY HARI
"WITHOUT THE ability to effectively negotiate contracts with insurers, hospitals are unable to recoup shortfalls from Medicare and Medicaid,” HARI President Michael Souza wrote in HARI’s Oct. 19 letter / COURTESY HARI

PROVIDENCE – With the Rhode Island hospital sector losing millions of dollars each year, the Hospital Association of Rhode Island has sought relief from the Office of the Health Commissioner’s hospital rate cap regulation. OHIC Regulation 2, Section 10 (d) (3), limits hospitals’ negotiating power with commercial insurers; it currently bars hospitals from proposing charging a commercial insurer more than 2.65 percent more than last year. Under the existing OHIC regulation percentage amount (which is tied to both an urban Consumer Price Index and hospitals’ ability to meet quality criteria) would decrease by 0.25 percent each year beginning in 2017.

While HARI supports OHIC’s proposed regulation to set the hospital rate cap at 2.9 percent, beginning in 2017, and testified to that effect on Oct. 19, it may not be a complete fix.

“Without the ability to effectively negotiate contracts with insurers, hospitals are unable to recoup shortfalls from Medicare and Medicaid,” HARI President Michael Souza wrote in HARI’s Oct. 19 letter to Health Commissioner Dr. Kathleen C. Hittner. “Therefore, as the cost of providing services is increasing due to the rising cost of supplies and drugs, hospitals are paid less each year… This leaves our hospitals with an unsustainable negative margin and no funds for employee salary and benefit increases, investments in technology and infrastructure or system reforms.”

Here’s how an average hospital would be affected by the proposed change to a 2.9 percent rate cap (based on CPI, plus 1 percent). HARI’s October Tracking Trends profiles a fictitious Rhode Island hospital with annual revenues of $200 million that would still experience an annual $1.7 million shortfall, given the lower reimbursement rates from Medicaid and Medicare. Souza told Providence Business News that this hospital, which assumes a payer mix of Medicare at 40 percent, commercial insurers at 34 percent and Medicaid at 25 percent, represents an average of all of Rhode Island’s hospitals; actual hospitals may have more or less revenue, and different payer mixes.

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Under this average scenario, the hospital would experience decreased revenues of $2.48 million and $1.25 million, from Medicare and Medicaid, respectively, as they have reduced their payments by 3.1 percent and 2.5 percent, respectively. The anticipated increased revenue from commercial insurers would be $2.03 million, given the higher rate cap. Souza did not include the uninsured losses hospitals suffer, which are getting smaller, he said.

Data from Rhode Island’s Office of Regulatory Reform identified the impact of the proposed increased cap annually and over five years, assuming hospital utilization rates drop by 1 percent, remain flat and increase by 1 percent, and estimated total improvements over five years of approximately $133 million, $138 million and $143 million, respectively. As these initiatives presume the assumed hospitalization utilization rates remain the same, hospitals can negotiate the maximum 2.9 percent rate with all commercial insurers and all of the quality initiatives are achieved, HARI believes the actual impact will be significantly less. In any case, the assumed increases will not have a significant impact on Rhode Island hospitals’ profit margins, as they receive more than $5 billion in commercial reimbursements each year, HARI reported.

A hospital rate cap is unique to Rhode Island, and no other industry here is similarly constrained, said Souza, although Maryland sets rates that hospitals can receive and Vermont is considering rate setting

Although the proposed 2.9 percent increase won’t fully solve the problem, HARI’s Tracking Trends noted, “Approval of this regulation is an important first step in addressing the negative effect of the hospital rate cap. Hospitals must have the resources necessary to achieve delivery system reform, support job growth and improve infrastructure. We ask state leaders to support this, and other measure that assist hospitals in strengthening their financial solvency so they may invest in our state.”

The comment period for changes to the regulation end Wednesday, Oct. 26, said Souza, and Commissioner Hittner is expected to issue a decision on the proposed change within 30 days thereafter. If it is approved, it will go into effect January 2017. With no sunset provision, the regulation can be changed at any time or continue as is indefinitely, said Souza, who is not aware of any formal, organized opposition to the proposed change.

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