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?
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.