Dr. John V. Zudans, MD
ON AUGUST 21, 2016 WE WROTE THAT AT THE MONTHLY CHAIRMAN’S MEETING OF THE INDIAN RIVER COUNTY HOSPITAL DISTRICT (IRCHD) ON AUGUST 18, 2016 INDIAN RIVER MEDICAL CENTER (IRMC) CFO GREG GARDNER PRESENTED AN UPDATE ON JULY AND YEAR TO DATE IRMC FINANCIAL PERFORMANCE.
Mr. Gardner projected a “breakeven operation” for the fiscal year ending 9/30/16, while for the year ended 9/30/15 IRMH had revenue of $ 234 million and reported operating income of $ 1,005,596 (not including any income from the IRMC Hospital Foundation).
At this same meeting, IRCHD Trustee Doctor John “Val” Zudans asked Mr. Gardner what the difference was between IRMC and the Sebastian River Medical Center (SRMC), Sebastian, FL where IRMC pays no rent to the IRCHD and pays no property taxes but “SRMC has the same demographics but makes money and we don’t?”
Mr. Gardner’s response focused on the rates paid to the hospitals by managed care organizations such as HMOs and PPOs, which provide hospital and medical care in one policy and the “egregious” disparity in their payments to IRMC vs. SRMC.
Physicians and Managed Care Plan Contracts, 2001
(Center for Studying Health System Change)
According to Mr. Gardner, 80 percent of IRMC’s revenue is attributable to Medicare and Medicaid, who pay hospitals equitably with the same rates for patient medical care. Thus, IRMC and SRMC are paid the same rates.
But the remaining 20 percent of IRMC revenue, approximately $ 50 million is attributable to managed care contracts with insurers such as Blue Cross, United Healthcare, Cigna and Aetna. $ 35 million of the $ 50 million is paid by Blue Cross.
However, Blue Cross pays SRMC twice what it pays IRMC for a hypertension check-up and other services. He said it pays Lawnwood Medical Center (LMC), Ft. Pierce, FL three times as much; which he referred to as “egregious” amounts.
How can this be?
According to a November 15, 2014 article in NPR Heath News by Sammy Mack entitled “How Negotiated Deals Hide Health Care Costs,” Bruce Rueben, president of the Florida Hospital Association breaks it down this way:
“There’s one party — the hospital who provides the service. There’s a second party — the patient, who receives the service. And there’s a third party — the insurance, who pays for the service.”
That third part is where health care pricing gets really squirrelly.
Every hospital has its own master list of charges for different services. Those charges are different from hospital to hospital.
But insurance companies don’t pay those listed charges. The listed charges are almost fiction. Instead, each insurer negotiates for lower prices with each hospital and doctor on every plan. The negotiated prices even can vary within an insurance company depending on which plan a patient has.
All of this means there are about as many price tags for that hypertension checkup as there are insurers and providers.”
Why then, asked Dr. Zudans, does IRMC have a “bad contract” and not negotiate for higher rates like SRMC and LMC?
For one thing, IRMC is a relatively small community hospital whereas in 2014, SRMC was acquired by Community Health Systems (CHS), making Sebastian River Medical Center one of over 200 hospitals that are managed by CHS. Mr. Gardner says CHS cuts the deals with the managed care providers; that they are not cut at the local level.
LMC is a Safety Net hospital with an operating budget totaling nearly $ 11 Billion.
But IRMC is not alone having such a rate disparity. Mr. Gardner cited that three of four other 5013C not-for-profit Florida hospitals, such as IRMC, south of Vero Beach in Martin County, Jupiter, Boca and Boynton Beach are paid the same as IRMC.
Dr. Zudans asked: “Why aren’t you getting better rates?” Mr. Gardner replied that IRMC has been and is continuing to discuss with Blue Cross and as other payers’ CEO’s a renegotiation of payments.
The three other hospitals referred to above are “fighting the same payers.”
Mr. Gardner indicated that IRMC negotiations have resulted in a three percent increase in April, 2016 and will result in a three percent increase in October, 2016.
Mr. Gardner angrily said the public needs to be made aware of the rate disparities and to “gravel, embarrass and shame” the managed care providers. Although he did indicate Florida’s Governor Scott is working to make this data more public.
He said that while healthcare is so highly regulated, there is no governmental oversight, no regulations and no watch dog like the rate setting commissions for the utility Industry to address the managed care rate disparities.
Then why can’t IRMC join together with the other three hospitals and fight the managed care insurers, asked Dr. Zudans? Because, according to Mr. Gardner, “the only way to negotiate collectively would be to affiliate with them on an economic risk basis where finances are pooled.”
He said the IRMC strategic planning committee meeting discussed the idea of such an affiliation but agreed that it would only be a last resort; an insurance policy, per se.
Mr. Gardner indicated that without the philanthropic support IRMC Foundation and the indigent care reimbursement by the Indian River County taxpayers “it would be completely different discussion.” He said that IRMC sustainability is not a “cost management” issue, but that “costs are outstripping revenue growth.”
IRCHD Trustee Ann Marie McCrystal essentially closed the discussion by paying tribute to the philanthropy that supports the IRMC and said many philanthropists who contribute “feel happy with a community hospital and that with a big hospital like other places they would not be as inclined to contribute.”
Ann Marie McCrystal
On a positive note, Mr. Gardner said IRMC expects a path to sustainability by achieving a 20 percent incremental increase in payments from managed care providers over the next three years.
If IRMC was paid twice the rate for its $ 50 million in revenue from managed care providers it would bring $ 50 million to the bottom line.