Study documents disparity in payments to hospitals

STAYING HEALTHY: Thomas Breen, vice president and chief financial officer at South County Hospital, speaks with Assistant Vice President Elaine K. Desmarais. Breen says population-management analytics will be key to future hospital viability. / PBN PHOTO/BRIAN MCDONALD
STAYING HEALTHY: Thomas Breen, vice president and chief financial officer at South County Hospital, speaks with Assistant Vice President Elaine K. Desmarais. Breen says population-management analytics will be key to future hospital viability. / PBN PHOTO/BRIAN MCDONALD

A comprehensive study documenting a disparity in payments to hospitals in 2010 in Rhode Island lays bare “the legacy of the old way business was done, through confidential negotiations between hospitals and commercial insurance companies,” according to Thomas J. Breen, vice president and chief financial officer at South County Hospital in South Kingstown.
The study, “Variation in Payment for Hospital Care in Rhode Island,” conducted by Xerox, examined inpatient and outpatient costs at Rhode Island’s 11 acute-care community hospitals as well as reimbursements by government and commercial payers for 2010.
Released on Dec. 19, 2012, by R.I. Health Insurance Commissioner Christopher F. Koller, the study found a large disparity in the commercial health-insurance market, with the highest-paid hospital receiving twice as much per stay as the lowest-paid hospital for similar care.
“Commissioner Koller did a great job in promoting transparency about how hospitals get paid,” Breen said. “It adds value, not just to South County, but to the system as a whole.” By making payments transparent and linking it with quality measures, Breen continued, “it creates a new dynamic and can only lead to positive results.”
South County is, at this moment, poised to become the only remaining independent, acute-care community hospital in Rhode Island. Westerly Hospital is in the midst of being sold to Lawrence + Memorial Hospital in New London, Conn., with the deal expected to be completed by the end of the month. Prime Healthcare Services of Ontario, Calif., is bidding to purchase Landmark Medical Center in Woonsocket, and Memorial Hospital in Pawtucket is planning to become part of the Care New England hospital network.
As the OHIC study documented, despite being the top-rated hospital in Rhode Island for safety and patient satisfaction, South County was one of the lesser-reimbursed hospitals in the state. The study examined 63 percent of hospital net patient revenue in 2010, or $1.65 billion – about $1 billion for inpatient care and about $630,000 in outpatient care.
Together, Rhode Island’s two largest systems, Lifespan (50 percent) and Care New England (21 percent), received 71 percent of the total payments, or about $1.17 billion, reflecting to some degree the volume of utilization.
In contrast, South County received a total $69 million in payments, 10th out of 11 hospitals. Westerly Hospital, with $40 million in payments, ranked last, according to the study.
But, as much as Breen praised the report and its findings, he acknowledged that as the business model for hospitals shifts from fee-for-service to global payments, the key to a hospital’s future economic viability will be population-management analytics. And South County, with its smaller base and a lack of capital resources to build out its IT system, will have to seek out a partnership with a larger hospital system.
“Our board of directors is looking at partnership opportunities,” he said. “Certainly that’s a direction for the industry. Population management and risk contracting are things that a small independent cannot do today by itself. ”
In the future, he predicted, reimbursements will keep pace by what is being demanded by population-management analytics.
Lifespan, the state’s largest hospital system, had a very different take on the study, which found that commercial health insurers paid more to Lifespan and Care New England hospitals than to other hospitals, and that inpatient specialty care for maternity, mental-health, orthopedic and oncology services showed similar patterns of variation. Mark Montella, senior vice president at Lifespan, found that the study was not “as instructive as it would seem in creating a conversation about moving from the current volume-based [payment system] we currently have to the value-based system we clearly need to create.
“Rates are just one side of the coin,” Montella continued. “Providing quality services needed at the right time and the right place, those are the things that will begin to moderate the expenses of our [health care] system,” he said. “We need to tackle the issue of utilization.”
Montella also drew the distinction between Rhode Island Hospital, the largest hospital in the state, and the role it serves, compared to other hospitals.
It’s a false comparison, Montella said, to compare rates paid to a community hospital and Rhode Island Hospital, with its 718 licensed beds, running a daily population of well over 600 beds, with 160 ICU beds, as well as serving as a Level One Trauma Center and burn center. “I don’t think it should be surprising that you are paid more for this very complex resource.”
Domenic F. Delmonico, senior vice president of Care New England, said that the biggest problem with the study, from his hospital network’s perspective, is that it was out-of-date and did not take into account the major changes that have occurred since 2010.
The report, Delmonico continued, did raise some valid issues, the most important of which was the lack of quality data. “There is clearly a need for all of us to do a better job on quality data; it’s a critical need for us and the state.” And, he said, the report underscores “the need for a coordinated state health plan moving forward.”
Neither Blue Cross & Blue Shield of Rhode Island nor UnitedHealthcare could be immediately reached for comment. •

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