Published by Ted Almon October 18th, 2006 in Articles. 0 Comments
The very public dispute between Landmark Medical Center and Blue Cross & Blue Shield of Rhode Island is the most recently exposed symptom of an underlying disease afflicting our health care system - a dysfunctional reimbursement process.

In fact, while this malady has gone largely undetected, it is now in an advanced and intractable stage. Unless treated by radical reform, it is certain to be fatal to at least the most vulnerable appendage of the system's body, the community hospitals.

Lacking the market leverage of the larger networks of teaching hospitals and affiliates, our community hospitals have fallen prey to a perverse form of wage discrimination, and often are paid substantially less by insurers than the network hospitals with which they compete for the same services and procedures. Eventually they will exhaust their reserves covering the widening gap between revenue and fixed operating costs.

Many in the community, including Gov. Donald L. Carcieri, have expressed support for Landmark and our community hospitals. But even if superficial pressure should persuade Blue Cross to relent, it will only treat this overt outbreak and not the underlying disease. Having done volunteer fundraising for several of our community hospitals, I believe these institutions are an important part of the fabric of the communities they serve.

At some point this unsavory situation will repeat itself with the other community hospitals, as evidenced by recent news items involving financial difficulties at Westerly and Roger Williams hospitals. If the answer lies purely in the present payment system and market forces, all of these institutions will need to affiliate or be absorbed by a larger system to gain some pricing power in the game.

Perhaps that is the answer, but the obvious implications for consumers of this transition to a sellers' market may be somewhat daunting considering the already stratospheric cost of coverage. Something must be done to address the underlying cost of providing the care itself, and hospital costs are the single largest component of that expense.

So it seems we have a choice between alternative strategies. If we stay the course of a competitive hospital model, the inevitable consolidation into several powerful networks is likely to accelerate. These dominant providers will exercise their monopoly power over payers to demand adequate reimbursement now being denied to community hospitals, and the added cost will inevitably be passed along to consumers and businesses.

It is important to note that our existing hospital networks are competing in a game which does not have reducing costs as an element of its mission. They manage their expenses aggressively, but for the purpose of maximizing net margins. They are equally assiduous in growing their top lines, which translates for consumers into costs, the same as any other business. This reality is unlikely to change anytime soon.

The alternative option is a much more regulated model one might find akin to a utility, with private providers governed by an authority representing the interests of the community. Such a body would presumably be charged to preserve the existence of our fundamental institutions while streamlining the services (hence the costs thereof) they provide to minimize redundancy, inefficient administration and the marketing costs associated with competing.

In the governor's health care platform, one might interpret the stated concept of "centers of excellence" in just such a way. Such organizations would disperse services and programs according to the needs of the population, not the economic needs of the hospitals themselves. In exchange, their economic viability would be assured.

Eventually, in either model, there could be a consolidation of many ancillary and administrative/back office costs that would dramatically trim the bloated present model.

Most notable perhaps would be the process of reimbursement, which now absorbs a shocking share of these non-value-added activities. The ridiculous cat-and-mouse game hospital providers now endure to negotiate rates and collect receivables should be an early victim of the reform effort.

Change of this magnitude never is painless, but the luxury of inaction and indecision has passed us by. Landmark says it cannot survive unless Blue Cross pays more. Why should Blue Cross be mandated to settle with one provider but not its competitors? The situation is a conundrum - but perhaps with an unexpected benefit if it causes us to fix a system now that has been broken for a long time.

Published 10/07/2006
Issue 21-26 of the Providence Business News