Many factors influence what a hospital is reimbursed for care, but quality isn’t the key.
BOSTON – At Holyoke Medical Center, it costs an average of $3,430 to deliver a baby.
About 10 miles to the north, Cooley Dickinson Hospital in Northampton receives $5,664 for the same routine, inpatient service, or 65 percent more than its counterpart in Holyoke.
The prices, adjusted for the severity of a patient’s condition, reflect the average paid by five large private insurers for having a baby at the hospital, excluding cesarean deliveries, according to a May 26 report by the state Division of Health Care Finance and Policy.
Holyoke costs less but the quality of the service is also rated higher. Holyoke’s delivery of babies is rated at 4 percent better than the state average, while Cooley Dickinson’s was pegged at 2 percent below the average, said the report, debated during four days of state-sponsored hearings and testimony last week in Boston on health care cost trends.
The report found some dramatic differences in the prices paid to hospitals around the state for 14 selected inpatient services, but often little meaningful difference in quality. The report found that lower priced hospitals such as Holyoke Medical Center sometimes have higher quality scores than higher priced competitors.
Officials at Cooley Dickinson declined requests for an interview on the price and quality differences.
Hank J. Porten, the president and chief executive at Holyoke Medical Center, said Cooley Dickinson has market leverage because of its more isolated location, helping the Northampton hospital to negotiate higher prices from insurers. And while the Holyoke Medical Center serves one of the poorest cities in the state, Cooley Dickinson enjoys a wealthier demographic, with a higher percent of revenues from more coveted, privately insured patients, Porten said.
The Holyoke hospital receives 73 percent of net patient service revenues from government payers such as Medicaid and Medicare, for example, while for Mercy Medical Center in Springfield, it’s 71 percent. Cooley Dickinson receives 38 percent from government payers, according to a 2009 report by the state division of health care finance.
“Our quality is good,” Porten said. “I’m proud of that, but it is not rewarded in any economic sense.”
The state determined quality for inpatient services by using measures such as patient experience with care, including room cleanliness, nurse and doctor communication and pain control; patient outcomes including mortality and re-admission rates for certain clinical areas and process of care for certain areas.
Porten said Holyoke Medical Center has a low percentage of privately insured patients, meaning that it can’t charge them more to offset government payers like Medicaid, a federal-state insurance program for the poor that pays about 80 percent of the costs of providing a service.
Instead of providing an interview, a spokeswoman for Cooley Dickinson Hospital referred to a prepared statement issued on May 26 by Craig N. Melin, president and CEO of the hospital.
In the statement about the report on health care cost trends, Melin said the report shows that Cooley Dickinson is the most underpaid hospital in the state by Medicare, which is federal health insurance for people 65 and older. “Being underpaid in this area means we have to make ends meet which affects the pricing for commercial care.”
Melin said the hospital is continuing to take measures to improve health including work on reducing re-admission rates for congestive heart failure and use of a system to reduce an already low level of a hospital-acquired infection.
In testimony last week in Boston, Dr. JudyAnn Bigby, the state’s secretary of health and human services, said insurers have stated that quality is not a major factor in price negotiations.
Baystate Medical Center in Springfield, for example, is paid an average $7,025 for an appendectomy and its quality is rated at the state average. Cooley Dickinson Hospital is paid $10,120 for an appendectomy, but the quality is rated 2 percent below the average. The prices are adjusted for the severity of the patient’s condition. Ninety miles away, in Boston, Massachusetts General Hospital is paid $10,668 for an appendectomy, but the quality is 1 percent below the average. Brigham & Women’s Hospital in Boston is 1 percent better than the average on quality, but receives $10,779 for an appendectomy – 53 percent more than Baystate.
Baystate Medical Center is paid $19,375 for a knee joint replacement and the quality is right at the state average, but about 40 miles to the east in Worcester, the University of Massachusetts Memorial Medical Center receives $21,952 – 13 percent more than Baystate – but the quality score is 1 percent below the average, according to the state report on cost trends.
The sharp differences in prices and the need to curb costs are a couple of reasons that Gov. Deval L. Patrick is sponsoring legislation to overhaul the way doctors and physicians are paid.
Lora Pellegrini, president of the Massachusetts Association of Health Plans, said there is no correlation between cost and quality at hospitals. Market leverage determines the prices for services, not quality, she said. There are some big price swings, but often little difference in quality, she added.
“People have used their geographic isolation or brand reputation to ask for higher rates of reimbursement with no correlation to quality,” she said in an interview.
Pellegrini said one way to control health care costs is through “limited networks” for people that could exclude high price providers. Or, she said, costs could be cut with tiered networks offering a broad range of providers with people paying more for more expensive providers and vice versa.
Peter F. Straley, president and CEO of Health New England , a Springfield-based health insurer, said there is a significant variation in prices paid to hospitals that has existed for at least 30 years.
Straley said he didn’t want to comment on specific prices or quality scores, but he said it can be a dilemma to determine the right price and that the quality scores are “directionally correct.”
Straley said he likes the Patrick administration’s idea of establishing budgets and improving coordination for a person’s care. Health New England is already piloting or running programs in both areas. He said, however, that he is wary of approval of “a statewide single solution” that might favor the way health care is organized in Boston.
In order to lower health care costs, Patrick submitted legislation in February that seeks to move the state away from the current system of allowing providers to charge a fee for every service. Instead, Patrick wants to establish a monthly budget for each person.
He also wants to require hospitals, doctors and other providers to better coordinate in providing an individual’s care. Dr. Bigby, secretary of health and human services for Patrick, said both changes together could lower costs over time.
Attorney General Martha M. Coakley said in a report this month that establishing per-head budgets for health care might not control the rising costs of care without also addressing the historic disparities in the prices paid to providers for services.
Dr. Bigby said that under the current payment system, individual providers negotiate rates with individual insurers or payers.
She said it is “way too soon” to draw conclusions about so called “global payments,” or establishing budgets for patients.
Market power comes into play in negotiating prices, but it is only one factor for the various price differences, she said.
Teaching status for a hospital such as Baystate Medical Center, high technology, costs of living in certain areas like Western Massachusetts, labor costs, payer mix and case mix and capacity to provide specialized care are other reasons for price differences, according to the report on health care cost trends.
Dr. Bigby said that private group health insurance premiums in Massachusetts from 2007 to 2009 increased 5 to 10 percent annually, when adjusted for benefits, while the consumer price index in the Northeast increased at an average 2 percent.
On average, she added, the level of benefits covered by private group health insurance has declined and member cost-sharing has increased.
Daniel P. Moen, president and CEO of the Sisters of Providence Health System, which includes Mercy Medical Center, said hospitals such as Mercy and Holyoke Medical Center may be models for the future in controlling costs.
Mercy, for example, was paid $6,089 for a cesarean delivery, while Cooley Dickinson received $8,649, Baystate Medical, $7,536 and Berkshire Medical Center in Pittsfield, $9,017, but the quality was nearly the same.
“It’s not a very fair system now,” Moen said. “You see the wide variations in reimbursements without a lot of justification on cost and quality.”
Dennis Chalke, chief financial officer for Baystate Health, said Baystate attempts to provide the highest quality care at the lowest possible cost.
When quality is improved, costs are also reduced, he said.
“We’ve been working for years and years to be high quality and low cost,” he said.
As a result of these efforts, Baystate Medical Center is one of the lowest cost teaching hospitals in the state, Chalke said.
Chalke said several factors influence prices.
Costs can be slightly higher at a teaching hospital like Baystate Medical Center, which offers a broad level of services, plus education and research. Baystate Medical Center is also the only tertiary care hospital in Western Massachusetts, offering care in a center that has personnel and facilities for highly specialized treatment, Chalke said.
As the tertiary care center and Level 1 trauma center, Baystate Medical Center also provides round-the-clock specialty care for the most critically ill and injured people, ranging from babies in the neonatal intensive care unit to adults in the intensive care unit.
Also, private payer prices compensate the hospital for losses related to Medicaid and Medicare payments, according to Chalke. Reimbursement rates for private health insurance tend to be higher than government-paid plans, which typically reimburse hospitals at rates below the hospitals’ costs.
Chalke said the price that Baystate Medical Center is paid for delivery of a baby is partly driven by its tertiary care role. Typically, high-risk patients with needs for more specialized and complex care end up at Baystate Medical Center, he said.