Report outlines community hospital business difficulties

Courtesy Photo Community hospitals such as the UMass Memorial HealthAlliance Hospital in Leominster could be in peril according to a new report.

Write a Comment

By State House News Service

Community hospitals in Massachusetts face a "self-reinforcing cycle of challenges" that makes their traditional business model unsustainable as more patients choose larger academic medical centers like those in Boston for routine care, according to a report released Monday and prompted by the closure of hospitals in Quincy and North Adams.

The Massachusetts Health Policy Commission's report analyzing the status of community hospitals found that while such hospitals are a key part of the health care system -- often more convenient for patients and with lower costs -- they see fewer patients and receive lower rates from commercial payers.

"Community hospitals play an important role in our health care system, offering high-quality, low-cost care in the community, especially for many of the Commonwealth's most vulnerable residents," commission executive director David Seltz said in a statement. "This report highlights the challenges community hospitals face to remain sustainable in our system."

With an average drive of under 10 minutes for a patient to get to a community hospital and lower median spending for routine procedures like pregnancy and joint replacement than at academic medical centers, community hospitals provide services efficiently and conveniently, the report found. Community hospitals also tend to serve a higher proportion of patients covered by MassHealth, Medicare or other government programs, and patients facing mobility, language and financial barriers.

However, according to the report, many patients travel to academic medical centers or teaching hospitals for routine care they could get from local community hospitals, with those leaving their community for metro Boston hospitals increasing spending by $981 to $4,775 per patient, depending on the region they come from.

The report said provider consolidation -- and the subsequent referral of patients to hospitals and physician groups within the same system -- combined with "patient migration" to Boston, a decline in the use of inpatient care statewide, and lower payment rates for the patients who remain at community hospitals can lead to a drop in revenue for the institutions, making them less able to invest in programs, infrastructure, marketing and fundraising that could draw new patients.

"We have to constantly find more efficient ways to provide care because we're not getting paid any more while our costs for care continue to escalate about 5 to 6 percent per year, and it becomes extremely difficult to manage a business that way," Lahey Health President and CEO Howard Grant told the News Service.

Lahey's state, federal and commercial contract reimbursement rate overall rose by about 0.4 percent from last year to this year, Grant said. He said the health system budgeted for a 9 percent increase in its pharmaceutical costs but that is now on track to rise by 15 percent, and the costs of maintaining equipment and paying staff a competitive wage with cost-of-living increases presents challenges.

Jeff Hall, a spokesman for the 10-hospital Steward Health Care System, said the report's findings show "continued over-reliance on high-cost providers is increasing health care costs for patients."

"From the beginning, Steward has been making the case that there needs to be a more level playing field for community hospitals and community providers," Hall said in a statement. "Today's HPC report offers clear and uncontroverted evidence that the migration to higher-cost facilities is resulting in higher total medical spending, increased costs, and higher premiums for all patients - and that the way to address this issue is to level the playing field for community hospitals across Massachusetts."

Significant variation in prices paid to different hospitals for the same services was flagged by nearly every community hospital interviewed by the Health Policy Commission as a "topic of vital importance," and the report finds that price variation "threatens the sustainability of community hospitals."

A ballot question that came before lawmakers for a hearing earlier this month looks to address price variation in a way that supporters say would benefit community hospitals. Backed by 1199 SEIU United Healthcare Workers East, the question would set a floor and ceiling on negotiated prices between private insurers and health services providers.

Tyrek Lee, the health care workers union's executive vice president, said in a statement that the new report highlighted "the need for immediate action to protect" community hospitals.

"Healthcare workers continue to sound the alarm about the severe healthcare pricing disparities that are not only threatening the future of our community hospitals, but driving up consumer costs," Lee said. "The Health Policy Commission's findings demonstrate the need for healthcare pricing reforms like those proposed by 1199SEIU caregivers that will ensure the long term viability of Massachusetts' community hospitals."

Grant, of Lahey Health, said that his system does not believe that the ballot question is the "best way" to address the complex issue of price variation but is having conversations with other health care organizations, employers and providers to "try to understand what the most rational solution would be to the challenges we face."

The report calls on hospital leadership, community members, policymakers, providers, payers and other stakeholders to "proactively reshape" community health care instead of "reacting to crises," with particular focus on "planning and support for community hospital transformation, encouraging consumers to use high-value providers for their care, and creating a sustainable, accessible, and value-based payment system."

On Tuesday, March 29, the commission plans to host a forum discussing community hospital transformation and the challenges and opportunities the institutions face. Scheduled participants include community hospital heads, insurance company representatives and consumer advocates. The discussion is set to begin at 9 a.m. at Suffolk Law School.