By Paul Levy

First Posted at Not Running a Hospital on 5/18/2013

Paul Levy, Host of (Not) Running a Hospital

Paul Levy, Host of (Not) Running a Hospital

Sometimes when something is right in front of you, you don’t see it.

A friend who serves on a Boston hospital board writes:

Great cover story in the New York Times today on how the new private owners of Bayonne Hospital made it for-profit and canceled their insurance contracts.  By becoming out-of-network they were able to jack up their prices and make a lot of money. Talk about gaming the system!

The writers of the story, “New Jersey Hospital has the Highest Billing Rates in the Country,” missed the major point. My friend did, too, but less so.

This is not about the relative prices in the hospital’s chargemaster, nor is it about gaming the system.  It is the system.

The name of the game is to have sufficient market power in a geographic area that you can demand higher than market prices from the insurance companies.

In recent years, Bayonne Medical put up digital billboards highlighting the short waits in its emergency rooms in an effort to attract more patients. Insurers complained that the hospital was seeking to take advantage of the higher rates it could charge. 

Community leaders in Bayonne, fearing the hospital could close, said the buyers were always candid about the methods they intended to use to make the hospital a profitable enterprise.  

In 2009, Horizon Blue Cross Blue Shield of New Jersey filed an injunction in New Jersey Superior Court saying Bayonne Medical’s owners had “flatly rejected” and refused to negotiate an in-network hospital contract with Horizon. When the existing agreement expired in early 2009, Horizon said Bayonne sharply increased its prices. Bayonne’s in-network charges to Horizon averaged $13,000 a day in 2008. A year later, when it was out of network, the charges soared to $29,000, the insurer said in a spring 2009 news release. 

The two eventually settled in 2011, and Horizon became an in-network insurance provider. A spokesman for Horizon declined to comment on Bayonne Medical’s charges, citing terms of the settlement agreement.

Still, many other large insurance companies, including Cigna, United Healthcare and Aetna, remain out of network at Bayonne and are paying the higher bills. 

Aetna’s internal data showed that Bayonne Medical’s emergency room charges jumped again in 2012 and are running 6 to 12 times as high as those of surrounding hospitals.

Now, Aetna is one of the largest insurance companies in America.  But in the Bayonne area, that size means squat.  Bayonne Medical Center, by an accident of geography, is viewed as an essential medical center by patients.  The hospital’s owners are extracting monopoly-like profits as a result.

Unusual?  No.  In Boston, we have had a larger variant on this, as the Partners Healthcare System, dominant in the region, has extracted above-market prices from the insurers in town.  PHS proved its ability to do so well over a decade ago, when Tufts Health Plan objected to paying the high rates PHS was demanding.  Partners threatened to drop THP from its network, and the health plan folded within 72 hours.  That set the stage for rate deals that have generated (my guess) an extra $200 million per year for this large system.  Other hospitals were left to fight over the scraps.  PHS used the extra money to expand further, enhancing its market power year by year.  (The only company that could have taken PHS on, Blue Cross Blue Shield of MA, which has corresponding market power on the insurer side of the ledger, chose to be complicit.)

And it will be more common over the coming years.  The impetus coming out of the so-called Affordable Care Act (aka, Obamacare) is for hospital systems to consolidate into accountable care organizations to become dominant in their market area.  Ostensibly, this is to better manage care across the spectrum of care.  Part of the reason, too, is to have a broader pool of patients as pricing moves to more of a risk basis.

The Federal Trade Commission has determined that it does not have the authority to deal with these increases in market power.  An FTC commissioner said:

“The net result” of ACOs, says Rosch, “may therefore be higher costs and lower quality health care—precisely the opposite of its goal.”

As in Bayonne, we can expect continued upward price pressure across the country as these large systems hold a hammer over the head of insurers.  So why it is called the Affordable Care Act?

By the way, let’s review this quote:  The two eventually settled in 2011, and Horizon became an in-network insurance provider. A spokesman for Horizon declined to comment on Bayonne Medical’s charges, citing terms of the settlement agreement.

With all this fuss about the chargemaster, reporters and some patient advocates are again missing the point.  Let’s make public the actual rates charged by hospitals and physician groups.