Healthcare Equality and Affordability League

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Tuesday, April 1, 2014

Question: Why are community hospitals like North Adams Regional struggling to keep their doors open under health care reform?

Is it because…?

  • A. They are inconvenient for patients to get to
  • B. They provide care that is too expensive
  • C. The quality of care is poor
  • D. Many of their patients are insured by Medicaid, which pays well below the cost of providing the care
  • E. Teaching hospitals are undermining community hospitals by opening satellite offices in the same location as community hospitals, yet are paid significantly higher rates than community hospitals for the same exact services

If you answered “D” and “E” you are correct.

Community hospitals in Massachusetts are cost-effective, located close to where people live, and – as the Massachusetts Attorney General proved – deliver the same, high-quality care as our internationally famous teaching hospitals in Boston.

North Adams residents have been devastated by the abrupt and reckless closure of their hospital. Community hospitals are among the largest employer in their areas and serve as economic anchors in these communities. The ripple effects of a community hospitals’ closure on access to care and the local economy tend to be significant.

So how do Medicaid reimbursement levels and the actions of teaching hospitals hurt community hospitals and the cities and towns where they are located?

First, let’s talk about Medicaid. Hospitals get paid very little to take care of low-income patients who are insured by Medicaid (Massachusetts’ Medicaid program is called MassHealth). In fact, the payments are so low that hospitals spend more money to take care of these patients than they get paid. In addition, Medicaid payments have actually been cut over time, failing to keep up with inflation. Typically, hospitals with inadequate Medicaid payments are able to survive financially because they also care for a significant number of patients with commercial insurance (such as Blue Cross, Tufts, Harvard Pilgrim, Fallon, Aetna, etc.) that have much higher reimbursements, which helps balance things out.

If everything else were equal, community hospitals like North Adams would be able to survive. Unfortunately, that is not the case in Massachusetts. In particular, teaching hospitals often get paid at least 50 percent more than community hospitals to provide the same services to patients with commercial insurance (even when they are located in the same town), and even when there are no differences in quality.

To make matters worse, teaching hospitals gain a competitive advantage when they invest the profits they make from these higher commercial payments into new facilities, physicians, and services. Their marketing efforts are often focused on drawing commercially insured patients away from local community hospitals for routine care and making even more money. This isn’t just happening in the Berkshires, but also in many other parts of the state too.

More community hospitals like North Adams may then find themselves in dire straights. As teaching hospitals open up satellite offices in, or near the community, and siphon commercially insured patients away, many community hospitals are left with a higher share of inadequately reimbursed Medicaid patients. Financial losses rise and community hospitals have less money to invest in order to compete for commercial patients. Eventually, financial distress sets in, followed by layoffs, bankruptcy and closure of community hospitals.

The state can take immediate action to stop other community hospitals from this inequity in reimbursements and to avoid additional hospital closures. In particular:

  • Medicaid should stop trying to save money by cutting rates, and instead should implement a Medicaid Accountable Care Organization (ACO) that rewards hospitals and doctors for coordinating care and improving quality.
  • Medicaid and commercial health plans should consider each hospital’s mix of patients when setting rates. Currently, hospitals that care for the highest share of Medicaid patients are actually paid the lowest commercial rates. That needs to change.

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