June 27, 2007

What can we expect from the Community Hospital Task Force?

In a rare but encouraging show of bipartisanship, our Republican Governor Carcieri and Democrat Lt. Governor Roberts last month announced they had empanelled a task force to deal with the perceived crisis in our community hospitals. The first difficulty facing the group seemed to be defining a "community" hospital, a term evidently associated with modest status among hospitals. To their credit the group moved quickly past the initial bickering, perhaps unified in the knowledge that they indeed shared, if little else, a fiscal problem.

As many in the business community have figured out, Rhode Island's health care system could be described as "payer-centric", being dominated by a single insurer with only a sole competitor. Both companies seem content with their respectably profitable books of business. While it is commonly argued this lack of a competitive market has led to higher rates, that isn't really borne out by the facts of a comparison with other states. Instead it seems the insurers have used their near monopolistic leverage in the channel of commerce on the other end, paying providers including the hospitals very near the bottom of the national heap. Businesses are concerned, even sympathetic, but still find the situation preferable to paying higher rates so that providers could be well paid. The premium paying business community is evidently still perceived as ever so slightly more important or threatening than the providers in the insurers' skillful game of divide and conquer.

As a business problem the quandary facing the task force is not all that complex. The hospitals had a cumulative loss in the last fiscal period of about $15 million, while the insurers enjoyed a cumulative profit of over $75 million-do the math, as we say. We are paying enough for the care we receive; the money just isn't getting to the right place. As several hospitals sit on the brink of insolvency, this has now become our problem.

The hospitals are surely all venerable institutions, each a real part of the fabric of their communities. People care deeply about them, many even enough to have donated over the years to the now depleted endowments some enjoyed and relied upon to cover operating losses in recent years. That game is now over. The SHAPE study conducted by the respected consulting firm of Booze, Allen& Hamilton confirmed the State's need for the number of acute care beds we now have, facing the demographic profile of aging baby boomers. Indeed, there are periods of bed shortages and ER diversions even now. Still, there is a vague sense the acute care infrastructure is somehow bloated. If we were re-engineering the hospital system based upon the needs of the population today, would it look the way it does? Would Roger Williams, Fatima or Landmark be located where they are in today's mobile society? Would Westerly and South County be separate facilities? Would Kent be surrounded by such an array of private purveyors of its critical ancillary services? These are but a few of the questions that have made what seems like a simple business problem somewhat more befuddling.

Regardless of the well intentioned deliberations of the task force, our hospitals face only two possible fates if they are to survive. They will combine themselves into networks large enough to gain pricing leverage over the payers, or there will be a rate setting commission controlling what they are paid, and inevitably what employers pay for coverage. Neither option is perfect, but either could work. The more conservative, free market option of provider networks portends the dangers of a sellers' market, while the governing "authority" in true Rhode Island fashion could easily slip into the political morass of corruption, of which historical examples are all too replete. The question truly reflects the larger issue at hand in Rhode Island. Are we capable of governing ourselves?