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A murky picture on hospital pricing
SoVaNow.com / May 20, 2013In seeking a $116 million acquisition of Halifax Regional Heath System, Sentara Healthcare has acknowledged it wants to achieve a first for the company — bringing a rural hospital into the fold.
“Sentara has not run a rural hospital before, but we know most of the hospitals in this country operate in a rural setting,” said Ken Krakaur, a Sentara executive vice-president who has emerged as the Norfolk-based hospital chain’s point man in South Boston.
A new report on Medicare payments and hospital pricing suggests possible business paths that Sentara could take as it moves into the rural Southside Virginia market. It’s an outcome that HRHS and Sentara officials anticipate by July, when approval of their proposed merger by the Virginia Attorney General’s Office is expected to be complete.
The Medicare data, released in May, reveal stark differences between what some of Sentara’s hospitals and what Halifax Regional Hospital charge for essentially the same services.
Sentara hospitals in Hampton Roads are considerably pricier than the local hospital — but by the same token, its Charlottesville hospital is one of the least expensive in Virginia, with lower sticker prices than Halifax Regional.
Using Medicare cost data for more than 3,000 hospitals nationwide, the News & Record examined pricing practices at 10 Virginia hospitals — including Halifax Regional, five others located near South Boston or in similar communities, and four owned and operated by Sentara.
The data reveal some striking results — including Sentara’s presence on both the high end and the low end of the hospital fee-for-service cost continuum.
Sentara’s Norfolk General Hospital, the sole large urban hospital on the list, was the second most-expensive facility examined, behind only Southern Virginia Medical Center in Emporia. At Norfolk General, the average charge to treat the 50 most common acute care conditions that resulted in a hospital discharge was $28,211.83; at Halifax Regional Hospital, the comparable figure was $17,046.38.
At the same time, however, Sentara also operates two of lowest-priced hospitals among the 10 that the News & Record examined.
Charlottesville’s Martha Jefferson Hospital, in particular, had much lower prices than the norm. Martha Jefferson, on average, charged $13,670.07 to treat the 50 most common conditions, which run the gamut from heart trouble to infection to gastrointestinal disorders.
The average price for procedures there is less than half that at Norfolk General and nearly $10,000 less than at Sentara’s Suffolk hospital, the third costliest institution on the list.
Halifax Regional Hospital was the seventh most expensive hospital of the 10 examined. The next lower cost institution was Rockingham Memorial Hospital, like Martha Jefferson a Sentara facility in the company’s Blue Ridge group. It was followed by Farmville’s Centra Southside Community Hospital and finally Martha Jefferson.
The basket of data, for fiscal year 2011, includes pricing information for four Sentara facilities — Norfolk, Suffolk, Charlottesville and Rockingham — as well as for hospitals in Danville, Farmville, South Hill, Emporia and Lynchburg (see rankings, box).
The News & Record narrowed the data set to the 50 most common types of care to offer a better apples-to-apples comparison of hospital pricing. The Center for Medicare Services provides data for the 100 most commonly utilized episodes of care, but many of the treatments are not offered by smaller hospitals or else are not included on the CMS report due to their infrequent occurrence.
For instance, the CMS data provided pricing information for only 37 types of care at Halifax Regional Hospital; only the Emporia hospital had fewer procedures reported by the CMS.
The sticker price for hospital services at times can seem to defy all explanation. Sentara’s Norfolk and Charlottesville hospitals offer a prime example: For patients with heart failure who develop major complications, the cost of care, on average, at Norfolk General was priced at $41,501. By contrast, the average charge at Martha Jefferson, in Charlottesville, was $11,616. (Halifax Regional charged $17,682.)
Across the board, Halifax Regional’s charges tended to settle into the middle or low range of all the hospitals reviewed, although there were exceptions. The list price to have a major joint replacement or extremity reattachment at Halifax Regional, without the occurrence of major complications, was $41,044. That charge was higher than the equivalent price at larger hospitals in Norfolk, Suffolk or Lynchburg, although lower than Danville’s price ($44,593) or that for the most expensive hospital on the list, Community Memorial Healthcenter in South Hill ($50,840).
The wide discrepancy in pricing has drawn criticism from insurers and health care reform advocates who say the data, released for the first time by the Obama Administration as part of the Affordable Care Act, illustrate a disconnect between charges rendered and the quality of care received.
“It’s another indication that we have a non-system of health care,” said Jonathan Oberlander, a professor of social medicine at UNC-Chapel Hill, in an interview with Raleigh’s News & Observer newspaper following the release on the nationwide data. “It’s ‘Alice in Wonderland.’ It just doesn’t make sense.”
Further complicating the picture is the fact that few patients, or their insurance providers, pay the full sticker price for hospital care. In addition to fixed fee-for-service Medicare and Medicaid reimbursements that typically fall well below hospitals’ stated charges, private insurance carriers typically negotiate their own discounts with in-network providers.
Uninsured patients, too, often receive discounts depending on their income. Charity care is a major cost for most hospitals; in 2011, the latest year for which data is available, Halifax Regional Hospital provided nearly $4.9 million in charity care. Some bills for uninsured patients are simply written off.
Medicare and Medicaid, in particular, sharply discount payments to providers. The Medicare report lists not only the prices that hospitals charge, but the payments they receive from the federal government (and from Medicare participants). Medicare is the federal insurance program for senior citizens over 65; Medicaid is a shared federal-state health insurance program for the poor and disabled that also pays for much of the country’s long-term elderly care.
Medicare payments can seemingly bear little relationship to the charges that hospital impose — or propose — for care. The most expensive hospital among the 10 reviewed by the News & Record, Southside Regional Medical Center in Emporia, charged an average price of $33,540.66 for the 50 most common types of care. Medicare, however, paid only $5,793.81, putting Emporia at the bottom of the list in terms of Medicare compensation.
Sentara Norfolk General, which had an average charge of $28,211.83, received $9,603.39, the highest level of Medicare reimbursement of all the hospitals on the list.
Many factors affect the size of Medicare payments — including the circumstances of individual health care episodes, prevailing market conditions for hospitals and other providers, and whether a hospital is a teaching institution or a provider in underserved communities. Hospitals complain that the low level of Medicare and Medicaid reimbursements forces them to make up the difference by setting rates higher for private payers — whether it’s insurance companies or people paying for care out of their own pockets.
However, heavy reliance on Medicare and Medicaid does not mean hospitals cannot make solid profits. HRHS CEO Chris Lumsden recently estimated that Halifax Regional Hospital’s payer mix is 58 percent Medicare and 12 Medicaid — yet the hospital reported net operating income of $7.5 million in fiscal year 2011.
Sentara, meantime, operates four of the five most expensive hospitals in the Hampton Roads area, according to an analysis compiled by the Virginian Pilot newspaper. Sentara has a strong market position in the region, with seven of its 14 hospitals.
In Charlottesville, by contrast, the company is going up against the University of Virginia hospital, possibly accounting for its low — some might say aggressive — pricing structure.
The consolidation wave in the hospital industry — which has reached South Boston with the proposed merger of HRHS and Sentara, and which may be coming to South Hill with CHM actively reviewing its affiliation options — has set off fears that providers are seeking to push back against cost-cutting efforts by swallowing up the competition. But that may be less of a fear with the Sentara-HRHS merger, which offers no geographic overlap and has been touted more as a way to achieve operating efficiencies and economies of scale.
Besides, notes Lumsden, with HRHS receiving most of its income through Medicare and Medicaid, there’s little that anyone can do to negotiate on price. Sentara, he said, is a $5 billion chain, which dwarfs Halifax Regional’s annual $100 million income stream, but compared to some hospital corporations, it a relatively modest player in the business.
And with Medicare and Medicaid, “there’s not a lot of negotiation there,” he said.
News & Record