>>Medical Costs Surge as Hospitals Force Insurers to Raise Payments
By MILT FREUDENHEIM
Many hospitals are winning sharply
higher payments from insurers, and the
efforts by insurance companies to pass those
costs along to employers and consumers are
contributing to the most rapid surge in medical
costs in years.
Medical costs increased 10 to 15 percent in
the first quarter for the biggest insurance
companies after averaging 5 to 6 percent for
a decade. Experts expect them to keep rising.
And health maintenance organizations are
asking the employers that are their biggest
customers for increases in premiums
averaging 18.3 percent, according to a
preliminary estimate by Hewitt Associates,
with proposed increases as high as 60
percent.
The rising medical costs come from both new
and familiar sources.
A growing number of hospitals are becoming
more powerful in their regions through
mergers and acquisitions. As they take
control of more of their local markets, they
are using their enhanced market power to
demand major increases in payments from
health insurance companies. Some have
effectively fired insurers that refused to pay
up, refusing to accept patients covered by
those plans. A few hospitals have demanded
increases as high as 40 to 60 percent for
some services.
Often, these hospitals have received no increase in payments for years. Now,
among other challenges, they are contending with rising labor costs for nurses,
pharmacists and other workers in short supply.
In New York, Mount Sinai, New York Presbyterian and North Shore- Long Island
Jewish extracted double-digit increases from some insurers in the most recent
contracts.
In Boston, Partners Healthcare, which includes Massachusetts General Hospital
and Brigham and Women's Hospital, won significant increases from the Tufts
Health Plan and is now jousting with Harvard Pilgrim Health Care, the other big
Boston H.M.O., over a proposed 25 percent increase in overall payments over four
years.
The Stanford University Medical Center told six major California H.M.O.'s this
month that it would no longer accept flat payments, called capitation, for each health
plan member. In Chicago, Portland, Ore., and Orange County, Calif., hospitals have
broken off relations with health plans that refuse to agree to the higher payments the
hospitals demand.
Hospitals in Waukegan and Evanston, Ill., have asked for increases of 40 percent to
60 percent for some services, blaming a 17-year freeze in state Medicaid payment
rates and low payments from managed care companies.
At the same time, the insurance companies are dropping many of the restraints on
care that infuriated consumers and doctors but kept their costs in check.
In addition, drug costs continue to rise precipitously. Prescription drug costs
increased nearly 19 percent last year, and analysts expect further hefty increases this
year and in 2002. New and more widely used forms of sophisticated diagnostic and
treatment equipment are also raising costs.
Insurance companies are asking for higher payments as corporate profits are sliding.
Many executives increasingly say they are fed up with managed care, which was
supposed to control costs.
"Employers in general have lost faith in managed care as it was five years ago," said
Peter Lee, president of the Pacific Business Group on Health, an employers' group
that negotiates rates with health plans and presses for improvements in the quality of
care. Managed care "no longer rings true with large employers," he said.
Rising costs pervade the health care system. Even as advertising- fueled demand for
prescription drugs is increasing spending on health care, advances in surgery,
medical devices and diagnostic techniques like bone scans are raising costs for
hospitals and health plans.
"The cost explosion is going to get worse," said Helen Darling, a health care expert
at the Watson Wyatt benefits consulting firm. "We haven't seen the full impact of
new technology across the board."
For example, medical device makers like Medtronic Inc. and the Guidant
Corporation are racing for regulatory approvals for implant devices that prolong the
lives of patients with congestive heart failure. The devices are expected to cost up to
$25,000 each.
"Many more people are getting more sophisticated things," said David Cutler, a
Harvard University professor of economics. More than 50 percent of Medicare
beneficiaries now have an angiogram to examine their arteries after a heart attack,
compared with only 10 percent in the early 1980's. Such technologies help extend
lives, but they are costly. An angiogram costs $3,000 to $4,000 at a big
metropolitan teaching hospital.
Some of the largest insurance companies have, meanwhile, dropped reviews of
doctors' orders and other so-called gatekeeping measures that had kept some
medical costs in check.
Some plans are even moving away from charging monthly capitation fees for each
member, said Kenneth L. Sperling, a consultant at Hewitt Associates. Capitation
enraged doctors, but did keep costs in check because doctors had a stake in
keeping down costs. "Getting away from capitation is not good for keeping costs
under control," said Paul B. Ginsburg, president of the Center for Studying Health
System Change, a nonprofit research center in Washington.
Instead, the insurers are going back to paying a fee for each service and some health
plans are again requiring patients to pay 20 percent of the fee, just as they did
before managed care, instead of covering all but a few dollars. <<
More at:
nytimes.com
Capitation is the dirty little secret of how HMOs keep costs down at the price of patient care. HMOs pay doctors a flat fee per patient - if anything is left over at the end of the year, the doctor gets to keep it as a "bonus." So every treatment the doctor renders is money OUT of his/her pocket instead of the other way 'round.-ng- |
