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Smart Benefits: Hospital Payment Disparity in RI

Monday, January 07, 2013


A new report from the Office of the Health Insurance Commissioner reveals startling discrepencies among hospital payments in Rhode Island.

The just-released report, Variation in Payment for Hospital Care in RI, offers a revealing peak inside the (often) wide disparity between local hospital costs and payments.

The 2010 study, the first of its kind here, was designed to analyze patterns in hospital payments, specifically the price of hospital care, in Rhode Island. Commissioned by the Office of the Health Insurance Commissioner (OHIC) and the Executive Office of Health and Human Services, the survey was conducted by Xerox Corporation with assistance from 3M Health Information Systems and the Commonwealth Fund.

It’s important to note that the survey uses claims data from 2010.  Some of the initial stages of the Affordable Care Act started to roll out later that year, so the impact of healthcare reform specific to hospital payment reform initiatives and claims dollars is not reflected.

Hospitals Studied

Eleven hospitals in Rhode Island were included in this study.

  • Lifespan represents three hospitals (Rhode Island Hospital, Miriam Hospital and Newport Hospital) and collects 50% of all payments for inpatient and outpatient care. 

  • Care New England collects 21% payments and represents three hospitals (Women & Infants’, Kent Hospital, and Butler, although the latter was excluded from this portion of the study).

  • CharterCARE Health Partners represents St. Joseph Health Services and Roger Williams Medical Center and accepts 12% of payments.

  • Independent hospitals South County, Westerly, Memorial and Landmark represent 17% of payments. 

Public vs Private Discrepancies

The survey revealed that consumers covered by private, commercial insurance pay more for the same care, at the same hospitals, than those covered by Medicaid or Medicare. Medicaid and Medicare reimbursement formulas are established by the federal government and are transparent, or understood by the hospitals up front, while commercial insurance rates are often negotiated privately between the health systems and the insurers.

Common Procedures, Different Costs

According to the survey results, substantial variation exists among the facilities for comparable care.  For example, a colonoscopy with related services costs an overall $1,440, but at the highest-cost facility, it cost $2,343 compared to $803 at the lowest-price facility. 

If employees understood the different costs up front, they could make an informed decision about where to have the procedure – and save on out-of-pocket costs. The employer and employee paying more than they need to for these types of services is contributing to unnecessarily higher healthcare premiums.

Women & Infants’ Highest Paid

Overall, for inpatient and outpatient services combined, Women & Infants’ was paid the most by commercial insurers followed by Rhode Island Hospital, Kent, Miriam and Newport.

What drives differences in hospital costs? There are several factors in addition to inpatient case mix and services provided.

  • Labor costs can vary, particularly when considering union versus non-union costs of labor and benefits

  • The mix of staff (i.e. RNs versus LPNs)

  • Capital costs

  • Interest rates

  • Purchasing practices

  • Capacity utilization

What about teaching hospitals? The study did not find wide disparities in this area, regardless of whether medical teaching costs were included. When teaching costs were excluded, Women & Infants’ was still the most costly, followed by Kent and Rhode Island Hospital.

Cost-Quality Correlation?

Does higher cost mean higher patient satisfaction? The limited evidence available did not consistently support a direct link. While the highest paid hospital, Women & Infants’, ranked second in patient satisfaction, higher payments at Rhode Island Hospital and Kent appear well out of proportion to their patient satisfaction measures. On the other hand, South County Hospital had the highest patient satisfaction ranking but ranked sixth for payment and Newport Hospital ranked third for patient satisfaction yet eighth in payment cost.

High Concentration Drives Payments

Rhode Island expects to remain a very concentrated marketplace for the purchase of care.  It’s unlikely we’ll see an influx of insurance companies other than those who are here: BCBSRI, UnitedHealthcare, Tufts Health Plan and Neighborhood Health Plan. And health systems dominate the hospital landscape; even Landmark, one of the independent hospitals, awaits to be purchased by a health system.

The carriers can’t easily shift contracts to other hospitals because of the dominance of the large health systems.  Likewise, the hospitals can’t ignore the market share of BCBSRI, and to a lesser extent, UnitedHealthcare. Unfortunately, this combination suggests continued  diversity in payment levels with hospitals.

What Can Be Done?

OHIC recommends that the price of hospital care should be included in the greater conversation of healthcare reform at the state level.  Other solutions?

  • Quality data is needed to help patients make informed decisions and to spur innovation that promotes care in the right setting, at the right time.

  • The delivery system needs to be re-shaped to minimize excess capacity.

  • Regulation may be needed to address rate setting and revamp the private negotiating model used between commercial insurance payers and health systems.

Since the 2010, there have been some improvements. Lifespan is now tying payments to quality metrics and has negotiated new payment methods in select commercial payer contracts. Care New England negotiated a global budget for its Medicare Advantage members with one of the commercial payers.

Increased Consumer Control

Both UnitedHealthcare and BCBSRI have introduced consumer technology that provides price transparency for services. Consumers can determine actual claims cost for a service or procedure before they actually receive the care, allowing them to price-check by setting. New cost comparison tools are particularly useful for consumers who have high deductible plans and are looking to limit their out-of-pocket expenses.

An increase in limited network and tiered-network products by the carriers also leave more choice up to the consumer. With these plans, the carriers may exclude higher costs facilities from their networks all together, or may charge higher deductibles for higher cost facilities. Employees may still use these higher cost facilities, but will pay more from their own wallet if they insist on using them.

Your Thoughts?

Should OHIC intervene?  Do you think the answer to hospital payment parity, greater accountability and higher quality patient-centered care should be handled through legislation? Or, should it be left to the commercial payers and the health systems to negotiate. Email me your thoughts at [email protected].

Click here for the complete study.

Amy Gallagher has over 19 years of healthcare industry experience. As Vice President at Cornerstone Group, she advises large employers on long-term cost-containment strategies, consumer-driven solutions and results-driven wellness programs. Amy speaks regularly on a variety of healthcare-related topics, is a member of local organizations like the Rhode Island Business Group on Health, HRM-RI, SHRM, WELCOA, and the Rhode Island Business Healthcare Advisory Council, and participates in the Lieutenant Governor’s Health Benefits Exchange work group of the Health Care Reform Commission.


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