Hospitals await ruling on equal insurer payouts
Posted on Sunday, October 14, 2007
The Arkansas Insurance Department hopes to decide as early as this month whether the state’s “any willing provider” law requires insurance companies to reimburse hospitals equally for the same procedures.
Arkansas Surgical Hospital in North Little Rock this spring asked the department to look into reimbursement. The hospital’s position is that state law requires all providers to be paid equally — or at least under a formula that is applied equally — for services provided under similar conditions.
“We feel up to this point in time, while there has been some compliance with the any-willingprovider law, there hasn’t been total compliance,” said Sam Perroni, a lawyer and investor in the hospital.
An Arkansas insurer, Perroni said, told Surgical Hospital officials in a conversation that the hospital wasn’t being paid the same as another hospital for the same operation, and did not give an explanation as to why. He would not identify the insurer or the other hospital.
“Since that time we have received additional evidence that confirms to us that there is not a rational formula” for the different payouts, Perroni said, although he would not specify what the evidence was.
The Insurance Department is charged with enforcing the law, which opened up insurers’ networks to health-care providers who meet entry requirements. Passed in 1995 and officially called the “Patient Protection Act,” the law was not enforced until 2005, the year a federal appeals court decision ended a 10-year legal standoff.
Supporters said the law would give patients more choice over where they received care, without paying out-of-network fees. Opponents said it would raise health-care costs.
The law says insurers can’t “impose a monetary advantage or penalty under a health benefit plan” that would affect a patient’s choice among providers.
Different reimbursement rates for hospitals isn’t affecting patient choice, said Pam Stoyanoff, chief financial officer at Little Rockbased St. Vincent Health System. Such differences aren’t causing hospitals to drop out of insurance networks, she said.
She and officials with Arkansas Blue Cross and Blue Shield, the largest Arkansas-based insurer, as well as the Arkansas Hospital Association, say the law wasn’t intended to require equal reimbursement.
Blue Cross and Blue Shield negotiates individually with hospitals to determine payment. Spokesman Max Heuer said that’s because each hospital is unique, with different equipment, cost structures, billing practices, and types of clients they serve.
“We believe our approach is consistent with [the any-willingprovider law ],” Heuer said. “The spirit of AWP was an access issue. It wasn’t a price-fixing issue.” Charlie Smith, chief executive officer of the Arkansas Heart Hospital, said “several smaller hospitals feel like they’re being reimbursed at dramatically lower rates than other hospitals for the same procedure.”
NEGOTIATORS Smith said the Heart Hospital negotiated its contract with Blue Cross by looking “at what we needed and what we felt like was fair.” “ It would be nice to know if they pay other hospitals more or less, ” he added. “But they don’t share that information.” If wide disparities exist among what various insurers are paying providers for the same services, Smith thinks “it needs to be looked at.” Stoyanoff said, “Arkansas Surgical Hospital should not get paid the same for doing a knee replacement that St. Vincent would, because St. Vincent has a much higher cost structure.” She cited St. Vincent’s “fully active” emergency room as an important difference. The hospital association hopes insurers will continue to be allowed to negotiate individual reimbursement rates with hospitals. Bo Ryall, the association’s executive vice president, said the anywilling-provider law was about patients wanting “to choose their doctor, choose their hospital.” Perroni said reimbursement is related to access. For example, if a provider moves or goes out of business because a lower rate is being paid, access could disappear. Julie Bowman, Arkansas’ insurance commissioner, wouldn’t say this week which way she’s leaning on the issue.
MAY AFFECT PREMIUMS Whatever the decision is, it could affect health insurance premiums, Bowman said. If insurers are told to pay all hospitals the maximum rate per procedure, for example, that increase would be passed on to consumers. “My concern is that, if premiums get any higher, that [consumers ] might go without insurance totally,” Bowman said. Another possibility, Ryall said, would be for insurers to reduce reimbursement rates across the board.
“I don’t think they would pay everybody on the highest level,” he said.
If the department decides that all hospitals must be paid equally, it’s unclear how such a system would work. For example, if equal payment can mean a formula applied in the same way to every hospital, would the location of the hospital be a factor in the formula ? Capital expenses or depreciation ? Patient mix ?
The department would only say that all options are being considered.
Additionally, it’s uncertain if the coming decision will apply to all health-care providers, or just to hospitals, department spokesman Alice Jones said.
Community hospitals, which provide more services than specialty hospitals, typically receive higher payments, Ryall said.
Hospitals such as St. Vincent can lose money on services such as emergency departments, neonatal intensive care units and uncompensated care, Ryall said.
“To keep a community hospital open and providing these services, there needs to be different reimbursement,” he said.
Bowman said the hospitals that think providers should be paid the same view the matter as a fairness issue. “A knee operation is a knee operation is a knee operation,” is their opinion, she said.
No other states that Bowman is aware of require providers to be paid the same under their anywilling-provider laws.
The Surgical Hospital, Perroni said, isn’t necessarily against taking factors such as quality of care and location into consideration. But there should be a “rational, consistent reason” for differences in payment. “What we believe is that there is none” by insurers the hospital works with.
Perroni suggested that the state could develop a reimbursement formula based on the one used by Medicare, the federal program that insures Americans age 65 and older and the disabled.
Medicare pays hospitals for services based on a complicated formula that takes into account the service provided as well as factors such as a wage index and the geographic location of the hospital.
The Medicare payment system, Stoyanoff suggests, does not give sufficient weight to factors such as a hospital’s size and capacity to treat complications, although that recently has begun to change, she said.
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