Modern
Health Care, Oct. 2, 2006
http://www.modernhealthcare.com/article.cms?articleId=41758
The
big squeeze
Insurers
point to slower growth in premiums in past few years to show progress, but
providers say they're paying the price
Health
plans were quick to pat themselves on the proverbial back last week after the
release of a report indicating that insurance premium increases have continued
to slow nationwide for a third consecutive year.
"Our
community has reinvented cost-containment strategies and is deploying a new
generation of tools and techniques to stretch healthcare dollars and mitigate
the burden of rising medical costs," AHIP President and Chief Executive
Officer Karen Ignagni said in the news release.
The
other half of the story
But
for doctors and hospital, there's far more to the story. Providers argue that
large insurers, many emboldened by a spate of recent megamergers, have been able
to ease up on premiums predominantly because they've been clamping down even
more on reimbursements. "These `savings' are coming off the backs of
providers," said Martin Wasserman, executive director of the Maryland State
Medical Society. "So let's not celebrate yet."
"Insurers
are using their market dominance to hold hospitals hostage," added Gary
Gaube, president and CEO of 150-bed
According
to the report released by the Kaiser Family Foundation and the Health Research
& Educational Trust, premiums rose 7.7% in 2006, the slowest annual rate
increase since 1999. Although still about twice the rate of general inflation,
the figure marks the third straight year that premium hikes have decelerated
since soaring 13.9% in 2003, and its the second straight year of increases in
the single digits (See chart).
And
the gradual slowdown is expected to continue -- at least in the near future.
According to a separate survey released last week by consulting firm Towers
Perrin, large employers anticipate their healthcare costs will slow again in
2007 to 6% from the 7% increase they reported last year.
Industry
insiders said insurers are taking a harder line on reimbursement rates, largely
to appease frustrated employers, many of which have been cutting back or
dropping their healthcare benefits after years of double-digit premium
increases.
"Employers
are putting pressure on insurers to demonstrate their ability to hold down
costs, and clearly a lot of that is being driven through tougher negotiations
with providers," said Henry Loubet, chief strategy officer for insurance
broker Keenan & Associates and former CEO of UnitedHealth Group's Western
operations. He pointed to a study released last month by the federal Agency for
Healthcare Research and Quality, which found that hospitalizations are the
single most expensive component of healthcare, consuming 33% of every dollar
spent on medical care.
But
hospitals argue that some insurers have become so stingy in recent years that it
has put them in financial jeopardy at a time when they are caring for more
uninsured patients, seeing smaller rate increases from government payers and
having to invest in new technology and facility upgrades. About one-third of the
nation's hospitals -- most of them stand-alone community facilities -- lose
money each year.
Insurers
"are always going to try to give you as small (a reimbursement) increase as
possible with as little pain to themselves as possible; that's to be
expected," said Russ Weaver, director of managed care for 199-bed Huguley
Memorial Medical Center, Burleson, Texas, which is locked in a contract dispute
with Aetna. "But what's worrying is that there's a growing segment (of
insurers) that aren't going to budge an inch, no matter what." Weaver said
The
contract was set to expire Sept. 30.
Indeed,
data from the Bureau of Labor Statistics indicate that the balance of power may
be shifting once again in insurers' favor, after a number of years in which
large hospital systems seemed to hold the upper hand at the negotiating table.
According to the bureau's Producer Price Index for general medical and surgical
hospitals, annual rate increases from private insurers began to climb rapidly in
2000 after being stuck below 2.5% in the mid- to late '90s. But after hitting a
10-year high of 8% in 2003, the rate hikes slipped to 7.1% in 2004 and 4.3% in
2005, and were averaging 4.4% through August 2006. (The PPI includes payers'
negotiated rates plus any portion expected to be paid by the member.)
Butting
heads
Growing
tensions between insurers and providers have been bubbling to the surface in a
number of highly public contract disputes.
Landmark,
for example, upped the ante in its months-long battle with the Rhode Island
Blues by staging a rally outside the insurer's headquarters in July and more
recently, recruiting the public support of Gov. Donald Carcieri. The hospital
says the state's dominant insurer has refused to adjust reimbursement rates to
reflect more accurately the rising cost of providing these important services.
Landmark's contract with the Blues was set to expire Sept. 30.
"We've
done a really good job of responding to our market's needs, and yet we find
ourselves unable to penetrate with Blue Cross as other systems have done,"
said Landmark Chairman John St. Sauveur. "We have tertiary services, too,
but they want to continue to see us as a community hospital."
However,
Rhode Island Blues spokeswoman Kim Keough contends that the insurer has offered
Landmark a "fair and equitable" reimbursement rate and that the
hospital is simply "trying to lay its financial problems at our feet."
"As
a nation, we're all facing a crisis of rising healthcare costs, and a good part
of that is related to hospital reimbursement rates," Keough said. "It
would be easy for us to give every hospital exactly what they're asking, but
unfortunately those costs would be put on the backs of our members through
higher premiums. We feel we have a fiduciary duty to our subscribers."
Yet
such calls for cost savings ring hollow with many providers when large insurers,
including many of the nation's not-for-profit Blues plans, are posting record
profits, boosting their reserves and paying executives hefty salaries and perks
(Aug. 7, p. 6). The Rhode Island Blues, for example, holds $326 million in
reserves and is expected to post $60 million to $70 million in operating profits
this year. "It's very hard for me to be sympathetic," said David
Rosen, president and CEO of 588-bed Jamaica (N.Y.)
When
Critics
all around
Insurers,
however, aren't the only ones turning a critical eye on some hospitals' demands
for higher reimbursements. A number of consumer groups and labor unions,
including the California Nurses Association, have criticized the hospital
industry for profiting from huge markups in charges to patients.
American
Hospital Association data show that in 2004, hospitals' total profits climbed
16.4% to $26.3 billion while their net profit margin expanded to 5.2% from 4.8%
in 2003. And according to Modern Healthcare's
30th annual Hospital Systems Survey, that growth continued for multihospital
systems in 2005, thanks to continued success curbing operating expenses and an
emphasis on leveraging their size for savings (June 12, p. 24).
"High
hospital charges are a direct contributor to skyrocketing increases in
healthcare costs that result in more people losing their coverage, more
employers eliminating benefits ? and the ongoing implosion of our healthcare
system," said CNA President Deborah Burger. She cited a study released in
December 2005 by the CNA's Institute for Health & Socio-Economic Policy,
which found that the nation's hospitals had set their gross charges at an
average of 244% of their costs in 2004, an increase from 232% the year before.
(On
a related note, California Gov. Arnold Schwarzenegger vetoed, as expected by
policymakers, a controversial single-payer bill designed to expand healthcare
coverage to all of the state's 36 million residents. The legislation, strongly
endorsed by the CNA, narrowly passed the state Assembly and Senate last month.)
Labor
leaders in
But
with more Americans going uninsured, even some business groups are seeing it
hospitals' way. The Westchester County (N.Y.) Association, for example, blames
insurers for what it called "horrific" reimbursement practices that
contributed to the closure of two regional hospitals and financially hobbled
others -- making the local climate bad for business. The 600-member business
group is working with the Northern Metropolitan Hospital Association on a
legislative initiative that would force insurers to return some profits to
"rebalance the marketplace" and support providers' capital-intensive
improvements in technology and patient services.
"Here
we have hospitals and doctors who are in real trouble, and then we have the
paper-pushers walking away with carloads of money and not wanting to help the
industry where they make all that money," said WCA President Bill Mooney.
"There's something very wrong with this picture."
--
with Cinda Becker
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