Thursday, April 01, 2010

Wait a second . . .

You know how you sometimes read a newspaper story and then, a few days later, you say, "Wait a second. How could that be true?"

Steven Syre and Robert Gavin at the Boston Globe wrote this column on the recently announced acquisition of the Caritas Christi system by a private equity firm. The thesis presented by people they interviewed was that Caritas could gain market share by being "a competitive lower-cost provider of medical services in Massachusetts."

Well, that got me thinking. I reviewed the recent report prepared by the Attorney General comparing reimbursement rates for the hospitals in the state. This chart, displayed at the recent Division of Health Care Finance and Policy cost trend hearings, shows the rates paid to the Caritas Christi community hospitals compared to their competitors in the same geographic areas. It turns out they are not the lower-cost providers.

In the Brockton area, Caritas Good Samaritan competes with Brockton Hospital. See the map below to see how close they are. Good Sam is paid more.


North of Boston, Caritas Holy Family competes with Lawrence General, and it is paid more. In and near Boston, Caritas Carney competes with Milton Hospital and Quincy Medical Center, and it is paid more. In Fall River, Caritas St. Anne's competes with Southcoast Charlton Memorial, and it is paid more.


The article's premise was that, in a cost-sensitive medical environment, the Caritas Christi hospitals would become attractive alternatives to the Boston teaching hospitals. However, if relative costs of care actually start to be determinative of where people seek care, why wouldn't these other community hospitals be even more attractive alternatives? How would that affect the business plan posited in the story?

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Note that this discussion is based on current insurance company payments. It does not reflect the increased costs that a for-profit system will face: Property taxes; sales taxes on the purchase of goods and services; taxable debt; and a return on equity. Plus whatever amount of money the Attorney General might recommend to fund a new community-centered foundation. Perhaps the investors feel that they can make improvements in efficiency to offset these increased costs and avoid the need to ask insurance companies for higher rates. But to underprice those neighboring hospitals, i.e., to reverse the current payment pattern by having lower relative rates, would require dramatic efficiency gains.

8 comments:

Anonymous said...

While rates are obviously a significant factor in cost, they are not the only one; health care providers that can produce quality outcomes while ordering fewer tests, using fewer specialists, conducting fewer procedures, and maintaining lower lengths of stay could conceivably charge higher rates while still generating lower bills.

Hmmmm.

Anonymous said...

Wait til Caritas' 2009 rates come out. Makes the 2008 ones in the recent public report look low. They're, the most expensive in all of their markets-- by a mile.

And while we're at it, let's put to rest the myth that Caritas takes care of the Poor People. In every market they're in they have the same or way less Medicaid mix as their competitors do. Brockton Hospital has double the Medicaid volume as Good Sam. Quincy Hospital has double Medicaid that Norwood has. Lawrence General-- yup-- double Medicaid as Holy Family. St. Anne's: same as SouthCoast. Curious that Blue Cross supported the "low cost alternative" mythology. They sure know better. Funny how BC continues to penalize hospitals with high Medicaid volume. Wonder why they'd be so eager to drive up premiums-- again? C'mon Globe, do your thing.

Morris said...

Cerebus is making the purchase to increase profit. It would be interesting to identify the approach to profit making Cerebus has used in past purchases which contrary to the investment warning will most likely predict the future.

Anonymous said...

Sorry, no amount of high falutin' frugal care delivery can outstrip the huge price differentials Caritas has. Go look at the recent public report, South coast, Lowell General, Lawrence General, New England Qual Care All- all cheaper on a Total Medical Expense basis- all competitors to Caritas. Even BMC and BI -- the supposedly "expensive" Boston teaching hospitals are cheaper than Caritas for HPHC.

Sorry, the Globe needs to take a closer look. It doesn't add up. And yes, Blue Cross needs to answer some questions about why they're so supportive of this latest gambit to drive up health care costs in MA.

Engineer on Medicare said...

Let open competition drive the cost of health care.

When I am buying a car or a fancy TV set I compare value (features, quality, service, et cetera, et cetera, . . . ) and price. The cost to manufacture the product is not part of the equation. For health care, location and cost of hiring personnel may affect the price but the fact that some hospital builds a more expensive monument should not be allowed to affect price.

I'm sure that the price of a unit of health care depends on a lot of things that I don't know, but the collective users of and payers for health care (insurers, government agencies, . . . ) should compel openness and then set rates based on assessment of the capacity and price available from some segment of the total provider community. If one of the providers, such as BIDMC, is willing to provide care at a particular rate, then payments to others should be the same with possible adjustments based on public data and rationale.

Competition driven by complete openness of prices and outcomes should be the basis for using any provider and the payers must refuse to pay rates that are higher than necessary to get quality care within the community. Let the others get their act together or go bankrupt.

Anonymous said...

Caritas hospitals compete with many others besides the one you list, including the downtown teaching hospitals. Are you cherry picking the data to make your point? How does BIDMC stack up against community hospitals on cost?

Paul Levy said...

Take a look at the chart. It is all clear there.

Engineer on Medicare said...

That bar chart is good for getting an idea of what is happening but the underlying data should be analyzed to try to normalize out the case-mix variable.

I don't have the underlying data but if it can be assumed that the case mix index is approximately related to cost or price, then the different rates can be normalized by dividing the cost index in the bar chart by the case mix index. That provides some interesting ratios.

Lawrence General at .89 is greater than Caritas Holy Family at .85. Caritas Good Sam is pretty high at 0.98.

BIDMC is 0.74 which is one of the lower ones. MGH is .81 which is about 10% higher than BIDMC.

Lahey in Burlington is .80 which is less than either Holy Family or Lawrence General but about 8% higher than BIDMC.

The real value in the displayed chart is to find apparent outliers that deserve detailed analysis.