September 29, 2014
Urban Hospitals & Health Insurance: Making It Work
By Michael D. Shaw
Have you heard about the insurance company that provides free health coverage for the poor? Me neither. What about the hospital that provides free health care services to the poor? Of course, you say. Many of them do! Indeed, some of these hospitals even go bankrupt in the process.
It is beyond the scope of this article to discern how economic values are set in a society, but rest assured that supply and demand are but one factor—especially in health care. Notably, health care is the most regulated industry in the country. With compliance comes massive additional costs, not to mention a gigantic subset of parasitic appendages, of which the health insurance companies are the largest. But, how is health insurance related to the regulation of health care?
Bear in mind that the original concept of health insurance was much like any other form of casualty insurance, such as fire insurance. The idea is that in the case of a significant loss—a structure damaging fire, for example—insurance would provide full or partial compensation. Never was there—or is there currently—the notion that this insurance would also cover all routine maintenance and repairs done on the structure.
Likewise, at the outset, health insurance was intended to cover only extraordinary situations, such as significant hospital stays. Then, in 1965, Medicare was introduced into LBJ’s Great Society. In theory, Medicare regulation was supposed to be limited to Medicare reimbursements, but within a few years, it would exert a major influence on how all health care was administered and paid for. After all, Medicare guidelines set reimbursement levels for every sort of procedure—not only those extraordinary or catastrophic matters previously covered by private health insurance.
Thus, in the late 1960s, private medical insurance carriers, sensing a golden opportunity, expanded their operating definition of “health insurance.” This expansion would continue, essentially unabated through the 1980s, and the insurance carriers would become the undisputed paymasters of the entire health care industry. More than that, under the dubious guise of consumer protection, they would be key players in setting reimbursement rates, as well.
Yet, costs would skyrocket. Empowered with the promise of health care supposedly paid for by “Others,” patients would demand the best. And, of course, “the best” always means the highest tech and the most expensive—actual outcomes notwithstanding. Many hospitals and practitioners geared up accordingly and invested heavily in all the latest gadgets. Overhead was going through the roof, and fees rose accordingly.
Clearly, this situation could not endure. So, the insurance carriers pushed back. Reimbursements dropped, and this was countered with creative billing by the hospitals and the providers. Which brings us to the case of Bayonne (NJ) Medical Center.
If the name rings a bell, it might be because of a targeted media campaign desperately attempting to brand this urban hospital as some sort of price-gouger. The facts are quite different.
In financial decline for years, by 2007 Bayonne Medical Center (BMC) was bankrupt and on the verge of closing. Then came three entrepreneurs, who put up their own money, confident that a hospital in a lower-income urban area such as Bayonne—properly managed—could succeed financially. Restructuring began. The mission was to attract capital investment, improve operations, and advance the quality of care available in the community. 1000 jobs were saved.
All this was to occur amid the realities of urban hospitals: Fewer than 75 percent of their patients are insured, and in the past decade alone, nearly 40 such facilities have closed in New Jersey. For the new owners of BMC, a key issue to address was inadequate insurance reimbursements. Attempts to renegotiate the agreements were unsuccessful, and Bayonne made the only choice it could: It decided to cancel its existing insurance contracts.
Eventually, agreements were reached with many carriers, including the largest in New Jersey. Today, 95 percent of BMC’s patients are covered by some form of insurance—truly beating the odds. BMC and its sister facilities in Hoboken and Jersey City are now on sound financial footing.
As to the “high price” story, it simply reflects what can happen when an out-of-network provider tangles with a big health insurance carrier—and when media does not understand, nor care to report the details. One particular incident involved a visit to the emergency room, which initially resulted in a large-out-of-network bill to the patient. New Jersey law requires insurers to pay for ER treatments, whether or not there is an in-network price deal.
The “sticker price” on the bill sent to patients and their insurer reflects the combined cost of the co-pay (paid by patient) and the balance (paid by insurer). This price represents a starting point in negotiations between a provider and an out-of-network payer. The insurance carriers will notoriously attempt to slash such reimbursements, creating additional financial challenges for urban hospitals—already serving a large percentage of patients covered through Medicare, Medicaid, and other set-price systems.
The urban hospitals are merely using a canny negotiating technique, and some insurers object, whining to the media. I guess it’s not as much fun when the rabbit shoots back.
But, it does help vital urban medical centers stay open.