How Non-Profit Hospitals Are Driving Up The Cost Of Health Care

Last year, when New York Governor Andrew Cuomo was battling to win the Democratic primary, his campaign solicited a donation from the Greater New York Hospital Association, according to a recent report from The New York Times. The hospital lobbying group gave over $1 million to the New York State Democratic Party. And not long after, according to the Times, "the state quietly authorized an across-the-board increase in Medicaid reimbursement rates." The increase is expected to cost taxpayers around $140 million a year.

The hospital lobby is a juggernaut in New York, as it is in other states. Over the last year, hospital lobbyists have fought reforms for billing transparency in Ohio, minimum nurse staffing levels in Illinois, and cheaper payment rates in North Carolina. Last month, a leaked email from the Kentucky Hospital Association showed that it was urging members to donate to gubernatorial candidates to "assure access."

In Washington, D.C., the hospital lobby is battling Medicare for All as well as efforts to end surprise billing, which is when Americans go to in-network providers but then — surprise! — end up getting billed for more expensive, out-of-network services. Three-quarters of Americans say they oppose the practice, and leaders from both political parties have been working to end it. Yet, hospital lobbyists are making reform really difficult. Which is weird, because most hospitals are nonprofits.

More Than Just Quid Pro Cuomo?
A recent study by Yale School of Public Health economist Zack Cooper and colleagues takes a look at hospital politics and helps shed light on why American health care is so insanely expensive.

In 2003, President George W. Bush began fighting for a major expansion of the Medicare program. The Bush Administration knew it would be a hard sell, alienating small-government Republicans and putting Democrats in the awkward position of supporting Bush's agenda before an election year.

Cooper says their study was inspired by one of his grad students, who served as a congressional aide when this legislation was being passed. "And the rumor was the U.S. Health Secretary, Tommy Thompson, was on the floor of the House with a notebook, writing down members of Congress who voted for the bill," Cooper says. Thompson allegedly did this to sweeten the deal for lawmakers on the fence, offering to reward supporters by "bumping up payment rates to hospitals in their districts" through a special provision, Section 508.

Cooper and his colleagues have spent years investigating whether this was true, filing Freedom of Information Act requests and crunching data. They've uncovered evidence that suggests it was true. They find that legislators who were on the fence and voted "yea" for the legislation were 700% more likely to see a large bump in Medicare payment rates to hospitals in their district. Between 2005 and 2010, Congress shelled out over $2 billion to 88 hospitals through the horse-trading Section 508 provision. It was a clear win for these hospitals, which spent the money on more equipment, buildings, services, and staff.

Dropping opposition to the Medicare expansion also ended up being a political win for lawmakers on the fence. Not only did the special provision funnel extra federal funds to their districts and create jobs; the lawmakers ended up seeing a 65% increase in contributions from people who worked in their state's health care industry and a 25% increase in overall campaign contributions. "It's suggestive to me that this was in a sense a quid pro quo," Cooper says, adding that their analysis shows how health care spending becomes a "piggy bank" for political influence.

Giving New Meaning To The Term "Nonprofit"
"Hospitals are the largest individual contributor to health care costs in the U.S," Cooper says. Americans spend over a trillion dollars a year at hospitals. That's about a third of national health spending, which now consumes almost 20% of U.S. GDP. Cooper's research shows that, after a long period of consolidation, the cost of hospital services has been exploding. Between 2007 and 2014, hospital prices grew 42 percent.

The irony is most hospitals are "nonprofit," a status that makes them tax exempt. Many (but not all) do enough charity work to justify tax benefits, yet it's clear nonprofit hospitals are very profitable. They funnel much of the profits into cushy salaries, shiny equipment, new buildings, and, of course, lobbying. In 2018, hospitals and nursing homes spent over $100 million on lobbying activities. And they spent about $30 million on campaign contributions. Health industries have also been funneling hefty sums into dark money groups. But their political power isn't just the result of lobbying or electioneering. Hospitals are often the biggest employers in states and cities across America.

Health care reformers direct much of their ire at the nation's health insurance companies. Perhaps they're the easiest targets because they're faceless paper-pushers, located outside their districts or states, who are often the only entity in the system controlling costs. Studies suggest insurance administration and profits do contribute to wasteful health care spending, but they're just one contributor to a bloated system. Hospitals, which often escape criticism, are a significant part of the problem.

We reached out to the Greater New York Hospital Association to get a response to criticism of the appearance of a quid pro quo between them and the Governor of New York. They stressed that state hospitals "hadn't received a Medicaid rate increase in 10 years" and that while they "aggressively lobbied" to change this, they deny the interpretation that suggests their large donations were motivated by increasing Medicaid rates. They say, instead, the donations were aimed at defending the Affordable Care Act from "relentless attacks" from lawmakers in the nation's capital.

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Charity care crunch? Rise in uninsured, underinsured offers hospitals tough choices

Starting next year, the federal government won't penalize people who don't carry health insurance, so fewer people are expected to be insured. Hospitals, required to provide emergency care regardless of the patient's ability to pay, are expecting more red ink as a result.
 

This might hurt a little.

"The insured patients have to make it up. Which means your insurance is going up," said St. Luke's CEO John Strange.

In the complex machinery of health care economics, many factors affect the cost of care and how it's delivered. And though providing charity care is both required of hospitals and a source of pride for them, too much will put a strain on the bottom line.

"Because we're a nonprofit, we use that bottom line for new programs, new equipment, upgrading facilities and services and so it does ultimately have an impact on the programs we can bring to the community," Strange said.

Free and discounted health care itself could come under the knife.

"There is the potential to reduce services offered for free," said Stefan Gildemeister, health economics program director at the Minnesota Department of Health. "There are no (legal) requirements beyond stabilizing patients."

St. Luke's and Essentia Health both told the News Tribune they have no plans to further limit the care they provide to people who can't pay. If that remains the case while the number of uninsured people rises in the coming years, it will put pressure on the health systems to find other sources of money and/or make cuts.

"The way we think of it, when one source of revenue goes down you seek it out elsewhere — but that doesn't always seem to play out in reality," Gildemeister said.

Uninsured, underinsured

For a brief moment, the lines on the chart were at last heading in the right direction — down. Minnesota hospitals were giving away less free care and chasing after less bad debt following years of watching these costs rise.

According to the Minnesota Department of Health, uncompensated care peaked in 2013 at $321 million and started falling, bottoming out at $268 million in 2015. Thanks in part to the Affordable Care Act, more people were insured and paying their bills.

Now, since federal tax reform passed earlier this year essentially eliminates the mandate to carry insurance, fewer people will be insured and paying their bills in full, experts anticipate.

The Minnesota Hospital Association, which reported a rise in uncompensated care in 2016, warned earlier this year that because of the insurance requirement disappearing, "hospitals and health systems anticipate further increases in both charity care and bad debt in the future."

It's not just the uninsured causing the rise in uncovered costs. More people are carrying health insurance with massive deductibles, and hospitals essentially are treating them as uninsured.

"Now charity care policies cover people who have insurance and higher incomes but higher deductibles," said Lawrence Massa, president of the Minnesota Hospital Association. "We've redefined a bit on charity care."

In the face of the projected increased demand for charity care, hospitals may need to redefine their policies again.

"It certainly puts pressure on needing to make up that lost revenue somewhere," Massa said. "It's built on a system that shifts costs."

Local effects

For the past several years, Essentia Health has kept systemwide charity care costs right around $13 million, according to annual reports. Though this consistency seems to indicate a target for these costs, the organization says it does not budget a set amount for free and reduced-cost care.

"We have a financial assistance policy which is not in any way restricted," said Kevin Boren, market finance leader for Essentia Health East. "So all people who apply for financial assistance are evaluated based on standard criteria."

Hospitals are legally required to treat emergency care regardless of ability to pay. The law describes an emergency medical condition as "manifesting itself by acute symptoms of sufficient severity (including severe pain) such that the absence of immediate medical attention could reasonably be expected to result in placing the individual's health (or the health of an unborn child) in serious jeopardy, serious impairment to bodily functions, or serious dysfunction of bodily organs."

Everything else is up to the provider's discretion.

"Rarely, elective procedures may be postponed until a payment method can be agreed to by the patient," Boren said. "This usually occurs if the patient refuses to fill out any aid application or payment plan."

Will more uninsured patients mean less flexibility for non-emergency care?

"As the individual mandate gets repealed in the future, we're just watching that situation and it's really, quite frankly, uncertain how it will roll out, what the implications will be," said Mike Mahoney, public policy leader for Essentia.

At St. Luke's, data shows charity care has drifted below $3 million over the past few years. But in 2017 the CEO said charity care and bad debt "jumped dramatically" due to big deductibles leaving patients underinsured.

"They just don't have the wherewithal to pay," Strange said.

Despite the projected increase in uninsured and underinsured, Strange maintains there are no plans to change policies for treating those who can't pay "for the foreseeable future."

More changes coming?

If anything, Strange sees bigger clouds on the horizon.

"If you look at the majority of the coverage that was gained in Minnesota, most of it was Medicaid," Strange said. "Those patients will be covered. The number of people that actually got insurance I don't think grew as fast. It may have an impact, but it may not have that big of an impact."

Indeed, only about 6 percent of Minnesotans — and 5 percent of Duluthians — are uninsured, though the number is already on the rise. Census data show Duluthians are more likely (35 percent) to depend on public health benefits than the state at large (30 percent), in part due to the city's poverty rate being double that of the state average and the population skewing slightly older.

The problem is, Medicare and Medicaid don't pay their own hospital bills in full.

"We get told what we're going to get paid. And what we're paid has no relationship to what it actually costs," Strange said.

Minnesota hospitals had $2.4 billion in costs that weren't covered by Medicaid and Medicare in 2016, according to the Minnesota Hospital Association. For Essentia's regional operations, the shortfall accounted for about 10 percent of expenses that year.

Though the president's budget called for cuts to health care entitlements, Congress recently passed a spending bill that largely leaves those programs alone. Mahoney at Essentia had warned such cuts could have resulted in higher costs and fewer services.

"If all those recommendations were to go into effect it would not only negatively impact our financial stability, but it would have a significant impact on access to care in rural communities," Mahoney said. "It would make us look at services lines specifically and determine what exactly can we maintain in the interest of the patients we serve."

Regardless of any potential changes, in the long run, everyone will end up paying more for health care simply as a matter of course, says Gildemeister, the state health economist.

"We just see year over year the price for the same baskets of services does increase, and it tends to rise faster than the economy and wages," he said. "That underlying trend of the price of health care and the cost of health care services — nothing has changed with that."

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ER Use Goes Down As Hospital Program Pays Homeless People's Rent

For the last two years, the University of Illinois has been trying an unconventional treatment for homeless "super-user" patients at emergency rooms: it finds them a place to live.

STEVE INSKEEP, HOST:
Take a number. That's the name of our occasional exploration of the world done by picking one revealing number. And here's a number for today, 70. The medical costs for homeless patients at a Chicago hospital can be 70 times higher than for other patients. Not 17. Seventy times higher. Many people have chronic medical problems, but homeless patients often end up in the emergency room simply because they want to get off the street. So one hospital is trying to treat those patients not with medicine, but by paying their rent. WBEZ's Miles Bryan reports.

MILES BRYAN, BYLINE: Glenn Baker takes a lot of pride in his one-bedroom apartment on Chicago's South Side.

GLENN BAKER: This is my living room, which is the most biggest part of the apartment. Over here to my right...

BRYAN: Baker has pictures of his favorite superheroes hanging on the walls, and a note above the sink reminding visitors to do their dishes. He also has a scrappy yellow kitten named Simba.

BAKER: It's gotten to when I come home, he lets me know when he's home. He runs and he sits at the front door, and...

BRYAN: Can't have a cat in the emergency room, can you?

BAKER: (Laughter) No. No, actually, I can't.

BRYAN: Baker's housing has been paid for by the University of Illinois Hospital and a federal housing grant since May of 2016. He was one of 26 homeless patients often called ER super users the hospital placed in the housing. Baker, who suffers from asthma and high blood pressure among other things, says his health has gotten much better since he got a place to live.

BAKER: My health maybe have improved a whole 90, 95 more percent because I don't have to worry about when it's cold outside.

STEPHEN BROWN: Housing is health, right? That's kind of what we say around here now.
BRYAN: Stephen Brown runs the housing project at the hospital. He says fully half of the hospital's ER super users are homeless. Just one night in the hospital can run three grand. Now the hospital pays a thousand bucks a month to house them. Brown says those in the hospital's pilot housing project have seen their health improve. And after crunching the numbers, monthly medical costs for their care are down significantly.

BROWN: If we went to every hospital and said we want you to pay for the housing for 10 chronically homeless individuals, that would cost them about $120,000 a year. In doing so we would reduce the number of chronically homeless here by a third. That's major impact.

BRYAN: And that's what's starting to happen. A number of other hospitals here are launching similar programs to house homeless patients. Even the city is putting money towards the idea. And Chicago isn't alone. Robert Friant is with the Corporation for Supportive Housing, a national nonprofit organization that advises hospitals on how to set up this kind of housing program.

ROBERT FRIANT: Almost all of the states where we're active, and we're active in 48 states, health systems are now investing in some way so that they can help people who need rental assistance.
BRYAN: Friant points to big investments by hospitals in Portland, Ore., and Orlando. His group estimates that nationwide hospitals have already invested about a hundred-million dollars in housing. Friant says for hospitals it's a win-win benefiting both patient health and saving money.

FRIANT: When you look at the studies across the board, you're looking at about a 50 percent drop in emergency room use. That's not a minor savings. That's a huge savings for these hospital systems.

BRYAN: Glenn Baker says even though he feels happier and healthier being out of the ER and in his own apartment, he does miss his nurse friends. He says he's taken the 45-minute bus ride to visit the emergency room a few times just to say hi. Still, Baker says his favorite part about visiting the ER now is going home. For NPR News, I'm Miles Bryan in Chicago.

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Left out of the game: Health systems offer direct-to-employer contracting to eliminate insurers

In 2016, Adventist Health began delivering healthcare services to Whole Foods' employees in Southern California. The partnership, in which Whole Foods bypassed insurance companies and negotiated directly for services from Roseville, Calif.-based Adventist, gave the organic supermarket chain access to a tailor-made health plan that it couldn't get from the traditional insurance market.

Now the 19-hospital system is looking to scale the care navigation expertise developed while caring for Whole Foods employees to its Medicare accountable care organization.

Adventist's experience with Whole Foods helped the system develop a new set of skills. The healthy-eating grocer wanted to give its employees access to a more personalized care experience that integrated health coaching and care navigators. Adventist was able to provide that, and in exchange, expanded its footprint and boosted patient volume.

THE TAKEAWAY Provider direct contracting can give employers more control over the health benefit design and potentially lower the cost of care.

"We have a little bit more flexibility as a health system to design around what Whole Foods defines as quality, or what Whole Foods defines as patient satisfaction, which sometimes is different than the traditional definitions," said Dr. Arby Nahapetian, Adventist's chief medical officer for Southern California.

Adventist is one of just a few hospital systems participating in a direct-to-employer contract, but with insurers buying providers and pharmacy chains getting into insurance, direct contracting might be an increasingly attractive way for a health system to remain competitive in an evolving market.

Direct contracting, in which self-funded businesses eschew insurance companies to partner directly with a healthcare provider, can give the employer more control over the employee health benefit design, and potentially lower the cost of care and improve health outcomes.

Currently, only 3% of large, self-insured employers contract directly with an ACO for healthcare services, according to the most recent data from the National Business Group on Health. There are several high-profile examples: Boeing Co., Wal-Mart Stores and Lowe's Cos. are among corporations that have famously shut insurance companies out.

But with employer-sponsored healthcare costs continuing to climb despite the prevalence of high-deductible plans and narrow provider networks, hospital system executives see more opportunity on the horizon for direct-to-employer partnerships as employers look for new ways to bend the cost curve.

Meanwhile, healthcare providers—increasingly dealing with competition from all sides of the industry—are all too happy to take the employers' business and cut middlemen out of the equation.

"These large providers are thinking, 'Hang on a second, I could get carved out here,'" said Tom Robinson, partner at Oliver Wyman, noting the threat that some proposed deals—like the CVS Health-Aetna merger and UnitedHealth's steady march into the provider space—pose to hospital systems. Forming a direct-to-employer contract is one form of protection that helps to diversify the provider's revenue and brings in more patients, he said.

How it works

Without an insurance company standing in the middle, many providers feel better able to care for their patients. Doctors have more flexibility to order the tests or specialty care that they believe is necessary for a patient's treatment without having to fight through red tape, particularly in direct-to-employer contracts that do away with prior authorization.

As an employer's chosen provider, the hospital or ACO benefits from a guaranteed group of patients with known health risks and costs. The provider gets the opportunity to leverage infrastructure that it has already spent time building. And in many cases, providers are able to share in savings if they end up delivering care at a cost lower than the employer budgeted.

That's the case with Presbyterian Healthcare Services' contract with computer technology giant Intel Corp. Albuquerque-based Presbyterian in 2013 entered a shared-risk, value-based direct contract to provide services to workers at Intel's Rio Rancho, N.M., manufacturing facility.

Presbyterian is held accountable for hitting key quality and financial metrics, which include targets for patient satisfaction, access to care, and health and cost outcomes. It receives a bonus if it meets those goals and Intel's benefit costs stay under a set target. Presbyterian is also dinged if costs exceed the target.

Hitting those targets isn't easy, said Dr. Jason Mitchell, Presbyterian's chief medical officer. The partnership reached all of its goals in the first year except for its cost targets.

Even so, the direct contract allows Presbyterian to innovate and "to fine-tune (its) services to meet the needs of the future, because healthcare more and more is going to be designed to meet the needs of the purchaser and the patient," Mitchell said.

While direct-to-employer contracts are an attractive play on the surface, they're difficult to set up and administer. Employers typically need to have at least a few thousand employees concentrated in one area, and hospital systems need a large physician network and a breadth of ambulatory and specialty-care services, said Steven Valentine, vice president of strategic advisory services on the West Coast at consultancy Premier.

Not all of direct contracts have been glowing successes. The Providence-Swedish Health Alliance, a Seattle-based ACO that partnered with Boeing Co. in 2015 to deliver services to its Puget Sound employees, dropped out of the deal this year because the contract wasn't financially sustainable, explained Dr. Rhonda Medows, Providence St. Joseph Health's executive vice president of population health.

Medows said Providence had difficulty capturing enough data to anticipate and manage the cost of care. However, from the Boeing experience, the system learned better ways to coordinate care, improve customer experience, and collect and analyze patient data. It's applying those lessons to other value-based care arrangements with employers and payers, including a contract with Intel in place since 2015, and is in talks with other employers about potential direct contracts.

Danville, Pa.-based Geisinger Health System's direct-to-employer approach takes the shape of a center of excellence program. The system partners with a consortium of employers including Lowe's, Wal-Mart, JetBlue Airways Corp. and others for specific procedures, including spine, bariatric and cardiac surgeries.

The employers give their workers incentives to choose Geisinger for those surgeries, sometimes covering the entire cost of the procedure and travel expenses for their workers. Employees who choose to go outside of the narrow network pay a significantly higher portion of the costs.

Geisinger benefits from seeing more patients and receiving a bundled payment for the surgeries, which pushes the system to get the care right every time, said Dr. Jaewon Ryu, Geisinger's chief medical officer.

"There's a rigor that comes from being selected as one of these centers of excellence," Ryu said. "We like having that rigor applied. It keeps us on top of our game, and it keeps us on our toes for all the rest of the surgeries we do."

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Provider-sponsored plans carry on, despite hefty losses

Northwell's CareConnect in New York City rides losses, boosts premiums to stay in market.

It seems simple enough: A provider wanting to move into value and looking to gain the population health prowess needed to get there decides to sponsor a health plan.

Sometimes it works, but recently there's been harsh examples showing how it hasn't.

Health systems backpedaling their decision by recently divesting of health plans that put them in the red include Catholic Health Initiatives of Englewood, Colorado and Tenet Healthcare in Dallas.

Other providers that have been resetting their business plans due to insurance losses include Texas Children's Hospital in Houston, Banner Health in Phoenix, and Partners HealthCare System in Boston.

The majority provider-sponsored plans have not even produced savings, according to independent consultant Paul Keckley.

"It's hard to get scale, to get enrollment, especially where you get dominant in the market," Keckley said. "They've run into challenges."

But when he talks to clients, Keckley finds that most didn't enter the insurance game to make money.

"They went in for the long-term population health management," Keckley said. "This is an excuse to get doctors to work together."

Systems that are making it work have said they were modest about expectations going in, he said.

One example is the Marshfield Clinic Health System and Security Health Plan in Wisconsin. Its two hospitals, 40 clinics and health plan are thriving if CFOs can base that definition on a margin of 1 to 2 percent.

Another success is Sentara Healthcare and its health plan Optima Health in Virginia.

"Running a hospital is very different from running a health plan," said Michael Dudley, president and CEO of Optima Health and senior vice president of Sentara Healthcare. "It takes a lot of patience and a lot of time. It takes time in terms of several years, for people to understand both sides of the equation. Hospital administers are designed and have the incentive to fill hospital beds. A health plan executive is designed to help people stay healthy and not need healthcare."

Providers taking on the disparate businesses of treating patients and then taking the responsibility for paying for that treatment seems like a crazy business model. But as Woody Allen said about accepting craziness from a guy who thought he was a chicken, "We need the eggs."

Providers need the information, the data and the population health. If there's one certainty providers agree on, it's that the move to value-based care will continue.

"I think from the standpoint of population health management, it gives you a perspective," said Richard Miller, deputy CFO, business strategy for Northwell Health and senior vice president, payer relations and contract development. "Without having a health plan, we wouldn't have that level of insight around care management and analytics."

Managing a plan is harder than you think, said Howard Gold, Northwell's executive vice president, chief managed care and business development officer. "It's not for the faint of heart. I think providers can do well on certain kinds of value-based contracts, bundled payment or shared savings. A lot of that rests on how providers organize and deliver care, not the funding mechanism. The issue is, is there enough money in value-based  programs, or does value-based take funding away from providers?"

Having a health plan gave Northwell more knowledge on how to handle shared savings and even risk contracts, Gold said.

New York-based Northwell Health, formerly the North Shore-LIJ Health System, suffered losses due to its health plan CareConnect. It originally set premium prices low because it was a narrow network, and also ran up against risk adjustment numbers that favored the larger Oxford Health Plan owned by UnitedHealthcare.

Northwell is in the number two spot for business, right behind Oxford, Miller and Gold said.

Northwell posted an operating loss of $36.2 million during the first quarter, with $22.7 million of that from losses in CareConnect's individual and small group plans.

The losses were due to federal risk adjuster methodology in the small group line of business, which represents about 80 percent of the business.

In the budget neutral risk adjustment system, CareConnect had to pay $130 million in 2016 because the government deemed its members were less sickly than the populations served by other plans in the New York City metropolitan area.

State regulators have since agreed to reduce the risk adjustment by 30 percent in 2018 and 40 percent in 2019, in a move signaling recognition of CareConnect's higher cost for member care.

Northwell has filed for a 30 percent premium increase in its individual line of business, and for a 20 percent hike in small group.

Both products are sold on or off the exchange.

"The relief from New York State partially helps us to move towards a breakeven or better financial result," Gold said. "The rate increase, both in the small group and individual line, we believe will move us in the right direction."

Even with the premium increase, CareConnect has a low-priced insurance product compared to the market, Gold said.

"It does move us closer to break even," Miller said. "We're pricing products to be sustainable."

Northwell and CareConnect have made a decision to stay in the commercial line of business. For individual and small group, "we're here to stay for now, and do what we have to do to fix it," Gold said. "We may get more relief depending on what's happening in Washington on risk-adjuster."

Northwell started the health plan in 2014 to take advantage of the newly insured under the Affordable Care Act and Medicaid expansions in 31 states and the District of Columbia, according to Miller and Gold, who serve on the board of the Northwell Health Plans Holding Company.

"The rationale was to enter with a narrow network product around our providers, but not (be) exclusive," Gold said. "By having our own insurance company, patients to the extent they needed healthcare, would use our healthcare and physicians. We thought that would give us a competitive edge. More would come into the health system and stay in network."

That has happened, he said.

"The more we're in it, the better results we'll have."

Alan Murray, CEO of CareConnect, said Northwell CEO Michael Dowling recruited him to work in the managed care environment to see how the system could move into risk. That's when CareConnect was founded three-and-a-half years ago.

"The reason Northwell started this was to be in the business of keeping people well, to be part of an integrated delivery system," Murray said.

If not for the risk-adjustment, by any other measure, CareConnect is successful, Murray said.
It has a medical loss ratio under 80 percent, an integrated arrangement with the health system and a large amount of value- based contracting. Administrative costs are running about 15 percent.

"Next year we'll probably break-even if get rate increases," Murray said. "The cultural impact of owning the medical risk of a population is not just your ability to manage a population, you have to retain them from a medical experience. We focus heavily customer experience."

Programs to improve care include Northwell Health Solutions that coordinates home visits and takes responsibility for patients for 30 days post discharge from the hospital or emergency room.

"If you're going to start an insurance company, you're starting a completely new business," Murray said. "Like any other business, you have lessons learned as you move forward. Very few businesses start up and start making a profit in three years."

Sentara Healthcare, which owns the health plan Optima Health, has been successful in the provider-sponsored business for a number of years.

Optima Health offers commercial products including employee-owned and employer-sponsored plans, individual and family health plans, employee assistance plans and plans serving Medicare and Medicaid enrollees.

Sentara Healthcare, which has 12 hospitals, also contracts with non-Sentara providers.
Optima is about halfway down the continuum to value-based agreements, moving towards the total cost of care targets and taking risk, Dudley said.

It will stay in the exchange market, Dudley said, though it also had adverse selection and the risk adjusters did not fully make up for the losses sustained.

"For those providers who got into health plan business last five years, a start-up is tough," Dudley said. "If there isn't good experience and knowledge to anticipate risk, there might be losses."

To be successful, a provider-sponsored health plan must have everyone in the organization aligned on goals and have experienced leadership on the health plan side, he said.

Health plans need to have enough enrollees to be competitive on pricing. Many of the 140 provider-sponsored health plans in a recent Robert Wood Johnson Foundation report were only able to price competitively by paying their own providers below-market rates.

The report found that most provider forays into health insurance have failed financially. Of 37 provider-sponsored health plans that have formed since 2010, only four were profitable in 2015, according to the report released in June by Allan Baumgarten, an independent research analyst.

"This is risky business for providers to get into," Dudley said. "For those of us who have been it for a number of years, we've had made it work. We foresee we will see strong results going forward."


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How U.S. Health Care Became Big Business

Health care is a trillion-dollar industry in America, but are we getting what we pay for? Dr. Elisabeth Rosenthal, a medical journalist who formerly worked as a medical doctor, warns that the existing system too often focuses on financial incentives over health or science.

"We've trusted a lot of our health care to for-profit businesses and it's their job, frankly, to make profit," Rosenthal says. "You can't expect them to act like Mother Teresas."

Rosenthal's new book, An American Sickness, examines the deeply rooted problems of the existing health-care system and also offers suggestions for a way forward. She notes that under the current system, it's far more lucrative to provide a lifetime of treatments than a cure.

"One expert in the book joked to me ... that if we relied on the current medical market to deal with polio, we would never have a polio vaccine," Rosenthal says. "Instead we would have iron lungs in seven colors with iPhone apps."

On what consolidation of hospitals is doing to the price of care
In the beginning, this was a good idea: Hospitals came together to share efficiencies. You didn't need every hospital ordering bed sheets. You didn't need every hospital doing every procedure. You could share records of patients so the patient could go to the medical center that was most appropriate.

Now that consolidation trend has kind of snowballed and skyrocketed to a point ... that in many parts of the country, major cities only have one, maybe two, hospital systems. And what you see with that  level of consolidation is it's kind of a mini-monopoly.

What happens, of course, when you have a mini-monopoly is you have an enormous sway over price. And so, what we see in research over and over again is that the cities that have the most hospital consolidation tend to have the highest prices for health care without any benefit for patient results. So consolidation, which started as a good idea in many places, has evolved to a point where it's not benefiting patients anymore, it is benefiting profits.

On the ways the health-care industry stands to profit more from lifetime treatment than it does from curing disease
If you're a pharmaceutical manufacturer and you have a problem like diabetes, for example, if I invented a pill tomorrow that would cure diabetes — that would kill a multi-billion dollar business market. It's far better to have treatments, sometimes really great treatments ... [that] go on for life. That's much better than something that will make the disease go away overnight.

On how prices will rise to whatever the market will bear
Another concept that I think is unique to medicine is what economists call "sticky pricing," which is a wonderful term. It basically means ... once one drugmaker, one hospital, one doctor says "Hey we could charge $10,000 for that procedure or that medicine." Maybe it was $5,000 two months ago, but once everyone sees that someone's getting away with charging $10,000, the prices all go up to that sticky ceiling.

What you see often now is when generic drugs come out ... the price doesn't go down to 20 percent of the branded price, it maybe goes down to 90 percent of the branded price. So we're not getting what we should get from a really competitive market where we, the consumers, are making those choices.

On initiating conversations early on with doctors about fees and medical bills
You should start every conversation with a doctor's office by asking "Is there a concierge fee? Are they affiliated with a hospital? Which hospital are they affiliated with? Is the office considered part of a hospital?" In which case you're going to be facing hospital fees in addition to your doctor's office fees. You ask your doctor always ... "If I need a lab test, if I need an X-ray, will you send me to an in-network provider so I don't get hit by out-of-network fees?" ...

Often that will be a little hard for your doctor, because they may have to fill out a different requisition, but it's worth asking. And any doctor who won't help you in that way, I think, isn't attuned to the financial cost that we're bearing today.

On getting charged for "drive-by doctors" brought in by the hospital or primary doctor
You do have to say "Who are you? Who called you?" and "Am I going to be billed for this?" And it's tragic that in recovery people have to think in this kind of keep-on-your-guard, somewhat adversarial way, but I think if we don't push back against the system in the way it bills, we're complicit in allowing it to continue.

On how to decipher coded medical bills
Don't be alarmed by the "prompt payment discount." Go back to the hospital and say, "I want a fully itemized bill. I want to know what I'm paying for." Some of it will be in codes, some of it will be in medical abbreviations. I've discovered you can Google those codes and find out what you're being charged for, often, and most importantly, you might find you're being charged for stuff that obviously you know you didn't have.

Elizabeth Rosenthal is editor-in-chief of Kaiser Health News, an editorially independent news program of the Henry J. Kaiser Family Foundation and a partner of NPR's. Neither KFF nor KHN is affiliated with Kaiser Permanente. Radio producer Sam Briger and web producers Bridget Bentz and Molly Seavy-Nesper contributed to this story.

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Fight over Obamacare helps lead to Parkland's $100M budget shortfall, officials say

The standoff between the federal government and Texas over health care reform has left Parkland Memorial Hospital's finances in trouble, the public hospital's CEO said Tuesday.

"The last thing I want to do is cut services," Dr. Fred Cerise told Dallas County commissioners at a budget hearing. But "that's a distinct possibility in this budget year, given where we are right now."
The hospital is projecting a $101 million deficit. Cerise said that figure is similar to estimates in past years at this time -- deficits that were resolved by September. But he said it's more concerning this year because leaders aren't proposing any programs that could be cut.

"It's the most challenging budget I've had in my three years," Cerise said.

The budget gap comes despite a projected jump in property taxes that hospital officials expect to bring in at least an extra $40 million. Officials project Parkland will get $575 million from property tax revenue next year. The hospital's total budget for the coming fiscal year is $1.7 billion.

Some of the shortfall -- at least $24 million -- would come from changes to the federal government's reimbursements. Parkland expects to see fewer dollars from Medicaid supplemental payment programs for the poor, the uninsured and nursing home residents, Cerise said.

The supplemental Medicaid payments Parkland relies on are shrinking largely because the federal government is trying to pressure the state to expand Medicaid, Parkland officials said.

Texas is one of 19 states that declined the expansion offered under President Barack Obama's health care law. Gov. Greg Abbott and state leaders have said expanding Medicaid would lock Texas into a bloated, costly system that doesn't work.

But Michael Malaise, a Parkland spokesman, said the feds are now telling the state: "You're asking for supplemental payments for patients who we've already offered coverage through Medicaid expansion."

Medicaid already reimburses Parkland for less than the hospital's cost to treat the uninsured and Medicaid recipients, Cerise said. But next year the federal dollars the hospital receives will drop significantly, creating deeper deficits in the cost of providing care.

Half of Parkland's patients are uninsured. An additional 25 percent are on Medicaid.

Only 8 percent of Parkland patients have private insurance. That tiny chunk, coupled with property taxes, represent the only revenue streams for Parkland that are rising.

Meanwhile, Parkland's costs are increasing. The hospital is seeing about 6 percent more patients this year compared with last year. More patients means more cost to Parkland because of the low reimbursement rates, Cerise said. In addition, he said, prices for drugs and other health care equipment are always rising.

To address the deficit, Cerise said, officials are looking for places to cut costs throughout the hospital. One option is staffing changes. Parkland also may dedicate less money to pay for the depreciation of its new $1.3 billion hospital. Cerise presented a budget that showed $105 million set aside for next year for that expense, both for new capital spending and to save up for a new building in 40 years.

But Cerise said the hospital could operate next year with only $45 million set aside for that, as that's how much the hospital needs for replacing aging equipment and technology expenses. That's not a good accounting practice for the long term, he said, but it could work if money is tight.

County Judge Clay Jenkins, who is trying to limit property tax increases for the county and Parkland to 7.5 percent, sought to play down the projected deficit. "It's an accounting thing, not a real expense," Jenkins said of the depreciation numbers.

But Commissioner John Wiley Price disagreed. He advocates for not changing property tax rates even if values rise more than 7.5 percent. The county expects values to rise 8.9 percent when the tax rolls are certified July 25.

"At the end of the day, you got a $100 million-plus gap," Price told Cerise. "I don't see anything close to you being able to approach closing that gap."

Commissioner Mike Cantrell said the hospital should cut services. "Our business model ought to correspond to what we can afford, not to what we want to afford, or should afford."

But Cerise made clear he considered that option his last resort.

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Obamacare Fuels Surprising Jump In Hospital Admissions

A surprising increase in admissions to the nation’s largest hospital operators is getting a boost from newly insured patients who have purchased coverage on public exchanges under the Affordable Care Act, companies reporting earnings this week say.

Tenet Healthcare and HCA Holdings considered hospital industry bellwethers, surprised Wall Street this week with reports of robust profits and an uptick in hospital admissions thanks in part to the ACA, which has expanded health coverage to millions of Americans via public exchanges. It also comes despite a mild flu season, which has kept people out of the hospital and hurt sales at hospitals as well as pharmacy chains like Walgreens and CVS Health.

“Health reform activity continued to grow in the quarter,” said William Rutherford, HCA’s chief financial officer said during a conference call with analysts earlier this week. “In the first quarter, we saw approximately 12,500 same-facility exchange admissions as compared to the 9,860 we saw in the first quarter of last year, or about a 27% increase. We saw about 11,200 same-facility exchange admissions in the fourth quarter of 2015, or 11% increase sequentially quarter-to-quarter.”

Source: Shutterstock

Just last month, a report by Fitch ratings said large investor-owned hospital operators were “unlikely to repeat the positive admissions growth” they saw last year. In 2015, hospitals had their first positive admissions growth since 2008 and it was largely due to expanded coverage under the health law that started in 2014.

HCA, which plans to invest $2.7 billion in services and capacity this year, said “same-facility equivalent admissions” increased 3.1% while admissions overall increased 1.6% compared to the first quarter of last year.

Tenet, too, surprised projections, reporting hospital patient revenue at hospitals open more than a year grew 6%, driven by 2.2% growth in admissions and “3.7% growth in revenue per adjusted admission.
 “The number of patients we treated that had exchange coverage increased significantly, with our inpatient admissions up 28 percent,” said Daniel Cancelmi, Tenet’s chief financial officer, in a conference call with analysts earlier this week.

Any increase in hospital admissions comes against a variety of headwinds, including new Medicare reimbursement incentives to improve quality as well as penalties for hospitals that re-admit patients within 30 days from errors and hospital-acquired infections, will have an impact. The Obama administration earlier this year estimated 565,000 readmissions “were prevented across all conditions” between April 2010 and May 2015 compared to the readmission rate before the ACA was passed into law, which created the readmission penalties.

But Tenet and other hospital operators say they are well positioned to capture newly insured Americans in their outpatient centers as well.

“The inpatient exchange business was up close to 30% and then the outpatient was up over 40%,” Tenet CFO Cancelmi said. “our exchange business has improved significantly year-over-year.”

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When it comes to health care, bigger isn't always better

With mergers raising prices by more than 20% without improving quality, consolidation should be considered carefully

The economist Herb Stein famously quipped, “If something can’t go on forever, it will stop.” New York state’s hospitals and policymakers should take note.

Though hospitals are consolidating and getting bigger, health care cost controls and technology are crushing the demand for hospital beds. We can be sure that tomorrow’s hospital industry is going to be much more competitive—and much smaller—than the collection of behemoths we have today.

For two decades, hospitals nationally have played defense—consolidating to increase market power, and shifting from inpatient to outpatient care to counteract a decline in bed utilization.

New York state hasn’t been any different. From 1999 to 2014, the number of hospital beds per 1,000 people plummeted by 36%. This makes sense, given that hospital visits fell and outpatient visits grew.

The simple truth is that hospitals exist to treat patients with significant illnesses that require labor- and technology-intensive services. They can afford technology that a physician’s office would find ¬prohibitively expensive, bring in specialists to treat complicated illnesses and offer surge capacity for epidemics or mass-casualty events.

But how many hospitals do we really need in a health care system focused on efficiency and prevention? With more than a dozen mergers in the Empire State since 2012, hospitals seem to think the old way of doing business will remain highly profitable—at least if you’re big enough. In the era of health care reform, that’s a bad bet.

As we discuss in a report released last week, New York state already has highly consolidated hospital markets. Such mergers can raise prices by more than 20% without improving quality. In a worst-case scenario, New York’s Medicaid reform efforts, which rely on essentially creating 25 massive hospital systems statewide, may end up being stymied by the size and clout wielded by big systems.

Step back, though, and it becomes clear that the smart money today is focused on keeping patients out of hospitals.

Employers are getting serious about sending patients with complicated conditions to centers of excellence that specialize in certain diseases or procedures. While Medicare penalizes hospitals for readmissions within 30 days, new physician-led, accountable care models make money by keeping people out of hospitals in the first place.

To survive, hospitals will need to offer greater specialization and efficiency (or lower prices).

The remaining hospitals will have to accept much more risk for managing overall population health. That means fewer beds, more outpatient clinics, and—yes—fewer mergers.

Intermountain Healthcare in Utah sees the writing on the wall, guaranteeing to hold price increases to consumer inflation in new contracts with employers. It will pay for this with $2 billion in savings during the next few years. By concentrating on efficiency for the costliest patients, Inter-mountain is betting that it can coordinate care without compromising quality, producing a better and more cost-effective product.

Bigger isn’t always better. In health care, it’s usually just more expensive.

Remember, if something can’t go on forever, it won’t. The winners in New York’s hospital industry will be the ones who take that to heart. 

Paul Howard is a senior fellow and director of health policy at the Manhattan Institute. Yevgeniy Feyman is a fellow and deputy director of health policy.

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Most N.J. hospitals to lose some charity care aid

In 2014, the first full year of the Affordable Care Act, the amount of charity care hospitals provided to treat the uninsured fell by nearly 50 percent, according to a report released by acting Health Commissioner Cathleen D. Bennett Thursday.

The shift of roughly 400,000 low-income people from no or little insurance to Medicaid, which the Christie administration chose to expand under the landmark health care law, will cost many hospitals a lot of money.

With documented charity care went from $1 billion in 2013 to $570 million in 2014, 47 hospitals will get less in the coming year and 17 will get more aid, according to the department.

Newark Beth Israel Medical Center is slated to get $32 million in charity care, a drop of $12 million. Saint Francis Medical Center in Trenton will lose nearly half of the $10 million it got this year.

Bennett said the changes reflect how the healthcare system is undergoing a major transformation.

"The results include more New Jerseyans covered by Medicaid, less need for hospitals to provide charity care, and increased need for outpatient services and wellness initiatives," Bennett said.

Just 15 hospitals reported above $10 million in documented charity care in 2014, compared to thirty-two in 2013. 

Roughly 440,000 people have joined the expanded Medicaid program since January 2014. There are 1.7 million Medicaid enrollees in New Jersey.

New Jersey hospitals are legally obligated to treat uninsured patients at no or low cost, depending on their income. Hospitals receive some of this money back under a formula based on the Medicaid rate, which pays about 70 cents on the dollar.

While charity care is slated to decline by $150 million, the pool of money to train new doctors will rise by $60 million, tripling the amount spent on graduate medical education.

Many hospital representatives who were contacted Thursday said they were still reviewing the figures and were not prepared to discuss them. Others declined to comment or did not return calls and emails.

"We're still digesting the numbers released this afternoon, but with a $150 million hit to the charity care fund we knew there would be some significant reductions for individual hospitals," said Betsy Ryan, president and CEO of the New Jersey Hospital Association, which represents every hospital in the state. "We are discussing the distribution amounts with our membership to determine the impact of the charity care funding reduction along with the increase in graduate medical education funding...which is vitally important for helping our teaching hospitals prepare the next generation of healthcare professionals."

"Our hospitals very proudly continue to provide care to all regardless of their ability to pay, and that will not change," Ryan added.

Suzanne Ianni, president and CEO of the Hospital Alliance of New Jersey, which represents city "safety net" facilities, acknowledged the decline of charity care funding was inevitable as more people are insured.

But Ianni stressed that lawmakers and policy makers need to recognize that hospitals that saw more Medicaid patients are still not getting adequate reimbursement. St. Joseph's Regional Medical Center, took one of the largest hits, $13.3 million, because so many patients enrolled in Medicaid.

"Bottom line is that both Charity Care and Medicaid do not reimburse appropriately," she said. "If a hospital's patient mix is comprised with many low income patients, it is extremely challenging."

Changes Proposed to Charity Care Funding 

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A Novel Plan for Health Care: Cutting Costs, Not Raising Them

As employees know all too well, health insurance companies have one surefire way to lower costs: Ask their customers to pay more.

Intermountain Healthcare, a nonprofit health system in Salt Lake City, is trying something virtually unheard-of: promising to sharply cut costs rather than pass them on.

Its new health plan, SelectHealth Share, is guaranteeing to hold yearly rate increases to one-third to one-half less than what many employers across the country typically face.

To help keep the rate increases roughly in line with a rise in consumer prices, Intermountain, which operates 22 hospitals and employs 1,400 doctors, says it will produce savings of $2 billion over the next five years.

Health systems and insurers are closely watching Intermountain’s rollout. It has established itself as a leading health system by tracking and analyzing costs and the quality of patient care, allowing it to improve treatments and reduce unnecessary expenses.

Intermountain’s plan is “the first innovative thing we’ve seen in a long time,” said Dave Jackson, managing partner for FirstWest Benefit Solutions in Orem, Utah. “Share has got everybody at the table — everybody’s got accountability and got things to do.”

Intermountain has already saved money by renegotiating the cost of surgical staplers, pitting a cheaper manufacturer against another and saving $235,000 a year. It saved $639,000 a year by ensuring that heart attack patients get into the catheterization lab within 90 minutes of emergency room contact, thereby helping patients recover faster.

Some systems might be more likely to reduce services or shrink their money-losing operations if they tried to guarantee a long-term lock on price increases.

But a few are heading in a similar direction to Intermountain’s, experimenting with ways that avoid the traditional piecemeal approach of fee-for-service care. The idea of locking in rate increases — Intermountain’s Share program sets the increase at approximately 4 percent — is particularly attractive to employers because coverage then becomes a predictable expense.

Patricia R. Richards, the chief executive of Intermountain’s insurance unit, SelectHealth, said its new effort was not a marketing gimmick. “This is not a repackaging of the same old stuff,” she said. “We’re fundamentally changing everything.”

While there is a lot of experimentation taking place in the health care industry, including the creation of so-called accountable care organizations that try to make health systems more responsible for the long-term care of patients, much of it is at the very early stages, said Brian J. Marcotte, the chief executive of the National Business Group on Health, which represents large employers. “You almost have to look at them like start-ups,” he said.

And there are financial risks. Intermountain, for example, could incur significant losses if it wound up having to spend a lot on caring for patients, which is why few, if any, systems — or insurers — make similar guarantees.

And while Intermountain is known for its high-quality care, other systems that might try to mimic this approach might be tempted to skimp on services to make sure they do not lose money, said Suzanne Delbanco, the executive director of the Catalyst for Payment Reform, which represents purchasers of health care like employers. The challenge is “how to balance rate guarantees with quality,” she said.

Some of Intermountain’s goals to improve care and save money are elusive and tough to evaluate so soon, because the new plan has enrolled only 11,000 people so far this year.

Like other systems looking for savings, Intermountain is concentrating on its most costly patients, most of whom have complicated chronic conditions like diabetes that also might be accompanied by depression or other problems.

Patricia R. Richards, the chief executive of Intermountain’s insurance unit, SelectHealth, said its new effort was not a marketing gimmick. “We’re fundamentally changing everything, she said.” Credit Cayce Clifford for The New York Times

But tackling such issues can be slow or even grudging. A two-year-old clinic created to deal with these sick patients was expected to manage about 1,000 patients, but so far only about 140 are enrolled, many of whom need a daily check-in. Patients are also staying longer — while the ultimate goal is to send someone back to a primary care doctor once stable. Only 19 patients to date have graduated from the clinic and can now see a regular doctor.

In caring for patients, doctors must take painstakingly small steps, said Dr. Timothy A. Johnson, a senior administrative medical director at the clinic. Someone whose diabetes is dangerously out of control may be more engaged by another condition, and doctors must adjust “even if it’s the diabetes that is scary at the time,” he said.

While it says the clinic appears promising, Intermountain says it will not have information it can share publicly until this summer. One patient was going to the emergency room nearly every other day because of anxiety, for example, and is now going only half as often because the patient calls the clinic instead.

In 2016, the system expects to achieve savings approximately equal to 8 percent of its volume, or about $500 million. It decided it would not keep the savings or wrangle with outside insurers about who gets to pocket the money.

“What we’ve decided to do is to give it back to the community in terms of lower rates,” said Dr. Brent James, the executive director for Intermountain’s Institute for Health Care Delivery Research.

But what distinguishes Intermountain is that it has agreed to care for about a third of its patients for a fixed amount, meaning that it is already at financial risk if its health care costs rise too much because it did not do enough to keep people healthy or because its treatments were too expensive.

The Salt Lake clinic of Intermountain. 

Other systems lose money if they find ways to provide less care, and any savings typically flow to outside insurers. “Your ethics align with financial incentives,” Dr. James said.

While offering a guarantee remains a tall order for Intermountain, it is among the minority of systems ready to do so. Intermountain is “probably in a better position to take on risk and have the systems and capability to manage care,” said Mr. Marcotte of the National Business Group on Health.

Only a few other systems are taking similar steps. In Albany, CDPHP, a nonprofit insurer, has been offering employers a plan that caps any rate increases at under 10 percent in the first and third years. Some companies are experiencing much lower rate increases.

Many systems will experiment with becoming more financially responsible for the care they deliver by offering their own Medicare Advantage plans, said Paul Keckley, the managing director in the Navigant Center for Healthcare Research and Policy Analysis.

But Intermountain also says its success is dependent on the efforts of everyone involved. Doctors who are not affiliated with Intermountain who care for patients under the plan must agree to changes like using an electronic medical record and sharing information about their outcomes.

Employers must agree to offer coverage that their workers can afford by paying for at least 70 percent of average premiums and funding a savings account with a sizable contribution. Businesses must also choose SelectHealth as their sole insurance company within the area.

The longer-term contract enables hospitals and doctors to take care of patients without worrying about whether they will switch if their health plan changes or skip a needed doctor’s visit because of a high deductible. Otherwise, said Paul Ginsburg, a health economist at the University of Southern California, “it makes it very difficult to engage enrollees early enough to detect their chronic diseases and manage them,” he said.

Under the Intermountain plan, employees also are required to take more responsibility. They have to agree to participate in programs like a health risk assessment or have a health screening like a cholesterol check or colonoscopy if they are over 50. They may have to employ a digital health coach who might send them an email urging them to walk more, or they may use an online tool to help decide if they need surgery for their back pain.

“We have not seen anything similar from other providers,” said Lana F. Jensen, an official with the Utah County government, which provides coverage for 700 employees. “This is worth a try. We’ll take a leap of faith.”

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