Sat, 06 Sep 2008

A Landmark report, but when can we read it?

This week I decided to spend some time researching just why Landmark Medical Center in Woonsocket is in trouble. For those who don't live in Woonsocket, or haven't been paying attention, Landmark is broke. Its CEO has left, and the enterprise is in the hands of a court-appointed "special master" who is trying to keep it afloat while a savior can be recruited.

I quickly learned the troubles extend well beyond Landmark, to the other community hospitals. These troubles are well documented, and were the subject of an extended report a year ago by a blue-ribbon "Community Hospital Task Force", which included staff from the departments of Health and Human Services, the Lt. Governor's staff, various hospitals, the Health Insurance Commissioner and more.

Fairly well masked by the technical language, here's one thing I learned from it: insurers pay hospitals very different rates for exactly the same services. Getting an appendix removed at Rhode Island Hospital costs your insurance company a much different amount than getting it removed at Landmark.

A senior administrator at a hospital who shall remain nameless explained it this way to me. All the prices are negotiated between each insurer and each hospital. Hospitals with lots of leverage can get good reimbursement rates, and those without it can't. Blue Cross can't afford to leave Rhode Island Hospital out of its network, so their reimbursement rates are healthy compared to the rates a small institution like Landmark can get.

What's more, the larger hospitals have unique services, for which they can charge whatever they want. Women and Infants, for example, has the state's only intensive care unit for newborns. A new baby in trouble has nowhere else to go in Rhode Island, and W&I makes sure insurance company negotiators remember that.

The result is large hospitals can rely on high profits from their unique services and relatively comfortable rates for the rest. Smaller hospitals don't have this kind of leverage in negotiations rates, so lose out. (And some rely on more creative strategies. Disgraced former Senator John Celona admitted in court to using his position as chair of the Corporations Committee to strong-arm Blue Cross and United into improving the rates they paid to Roger Williams Hospital.)

How big a difference does this make? It's hard to tell, really. It's actually a challenge to compare rates, since they are billed in different ways. One hospital might charge by the day for some in-patient procedure, while another might charge a set amount for the same procedure. But indications from the Task Force report imply that rates might differ by as much as 60%.

In an attempt to sharpen up these indications, a report was prepared this year by the Department of Health that made direct comparisons of rates, something few (if any) states have done before. My unnamed administrator tells me it confirmed variations of over 50% in rates, but the Health Department won't release it, saying it may contain "errors."

Whatever is going on with the report, the implications of my preview are fairly troubling, so it's hardly shocking there is resistance to releasing it. After all, reimbursement rates are a free market, and it seems that this free market is not operating in your best interest. Some health care providers are charging whatever they can get, while others can't get what they need. The result? Since it's the big hospitals who can charge more, you have much higher prices for health care. Fifty to sixty percent isn't pocket change.

But what about that ol' free market? Isn't it supposed to bring us the low, market-clearing price? Well, in a word, no.

Free markets are not all efficient, and sometimes there is imperfect competition, especially in markets with very few buyers or sellers. Markets are distorted when some of the buyers or sellers have "market power." What's market power? Well, being the most important hospital in the state is nearly a textbook definition. RI Hospital has power it can wield in negotiations with Blue Cross that Landmark simply can't have.

These issues have been part of mainstream economic thought since well before Joan Robinson's ground-breaking "Economics of Imperfect Competition" helped clarify them in 1933. Somehow, though, they never seem to seep into the world of politics, which seems dominated by people who imagine that Economics 101 is the last word on the subject.

In a free market with few buyers and sellers, prices are very likely higher than they would be in a market with more competition. So what can we do? The two best cures to imperfectly competitive markets are either increasing competition or regulation. In this case, increasing competition is probably not possible. We can't wish into existence another hospital with the clout of RI Hospital, and we probably wouldn't want to. That leaves regulating reimbursement rates as the logical step. This makes sense if we want to save the community hospitals, and also if we ever hope to get a handle on the price of health insurance.

Price regulation would not, of course, be popular with the big hospitals and the insurers, whose well-paid executives are doing just fine in the current system. It's also anathema to the economic ideologues who make policy in this Governor's administration, so the report will be defanged before it sees light of day, if it isn't buried altogether. Because remember, according to some politicians, if you uncover a problem with an inconvenient solution, the only sensible thing to do is to ignore it and hope no one else notices.

01:02 - 06 Sep 2008 [/y8/cols] link

Ads and the like: