It looks as though our community is facing another health-care challenge. The recent purchase of SRMC by Prime Healthcare changes the vendor landscape in our community. It is important that people understand how the change will affect them in the short term and the long run.

Our health care system is complicated, both as a delivery system and in the way it’s financed. It’s critical that consumers have some understanding of the difference between the two. Simply stated, the delivery system is the way in which we access health care from providers such as doctors, hospitals, labs, pharmacies, etc. The health-care financing system is the way in which we pay for those services.

What DRIVES costs is the health-care DELIVERY system, much more so than the FINANCING system.

Yes, there are administrative costs that add to the problem, and they could be reduced by electronic records and the like. “For profit” insurance companies must satisfy stockholders, so there is a profit goal in the process as well. But you must remember that about 70-85 percent of the health-care dollar is spent directly on claims. Until we address THOSE issues, we will not reduce the real costs. Whether we have a single payer system (government run) or private sector financed system, claims are still claims.

In 1990 I published data from OSHPD (Office of Statewide Health Planning and Development) that showed that our geographic area had an extremely high surgical intervention rate. In fact, if our intervention rate had been at the state average for the 12 highest procedures, we would have saved the City of Redding residents $41 million dollars in 1989 alone. (Note, the state average is not necessarily a good or bad number, but convenient.) In 1989, City of Redding population was about 60,000. It took over 10 years for at least two of those issues to be addressed: cardiac procedures and c-sections.

In 1932 the National Labor Relations Act, requiring management to bargain with labor over “wages and conditions” was enacted and became a catalyst for employer-based health benefits. America’s first “Blue Cross Baby” was born in Durham, North Carolina in 1933. Her birth was the first in America to be covered by a health insurance family certificate that included maternity benefits. The entire cost of her delivery and her mother’s 10-day hospital stay totaled $60. I delivered our second child in Redding in 1977 without insurance. Our cost was $600. In 2004 the cost was $5500 with PPO discounts; $10,000 without. Today the costs are even higher.

The first attempt at a national minimum wage was set at $.25 per hour in 1933. That $60 baby would have cost 6 percent of the minimum wage earner’s annual salary. Today, with an $8.35 minimum wage, a $6,000 baby represents almost 37 percent of the wage earner’s annual salary. This is still at the negotiated rate, not billed charges.

So just what is negotiated rate? Simply stated is a predetermined charge for the service rendered. For example, Medicare reimburses hospitals for many services under a rate for a DRG (Diagnostic Related Group). The hospital is paid based on the diagnosis. If they can treat the patient for less than that cost, they are ahead. If not, they need to make it up somewhere else.

Many insurance companies negotiate on a per diem (per day) rate based on the level of care. Intensive care is paid at a higher rate than standard medical surgical care. In addition, the insurance companies look at quality issues and credentials of their Preferred Providers. If a provider does not comply with the quality standards and the pricing figures, the insurance company does not contract. Conversely, if a provider does not like the reimbursement rate from the insurer, they will refuse to contract.

This negotiation removes some of the guesswork out of the financing of health care. Quality health plans provide the participant with an “out of pocket” maximum on their contracts, so that they know they will at least have some level where they know they assume no further risk for the health care costs covered under the plan. Hospital charge masters list as many as 8,500 different procedure codes, so it’s almost impossible for the average consumer to have any idea of charges before they are admitted.

It’s funny, though. If we went into Kmart and filled our basket; and someone else put things in our basket; and we were expected to pay whatever was charged, we would never do that. Yet we do it in health care all the time! The third party payer has insulated us from any idea of the cost. Yet we wonder why health care costs are so high? Do we have an MRI or a CT scan or just an x-ray? How many tests do we need? How many test does the doctor order for fear of a lawsuit later?

Many of American’s health problems are self-induced. Smoking, obesity, alcohol and drug intake are almost always able to be controlled. According to the Blue Cross Blue Shield Association President, Scott Serota, “There are 57 million Americans today who are pre-diabetic. The cost of treating it is $116 billion annually. We treat it pretty well, but there are tangible things we can do in the areas of obesity, weight management, nutrition, fitness and health risk assessment to reduce the incidence of diabetes. We can cut that 57 million number in half and make a dramatic impact not only in the delivery system costs but in people’s lives. “

So what does all this have to do with the new owners of SRMC? They have chosen to play outside the standard playground. They will not negotiate per diem or fixed-cost charges. They have said that they want to be reimbursed at a percentage of “reasonable and customary” charges - a nebulous number at best.

They are no longer Participating Providers with the two major health plans in our area, Blue Cross and Blue Shield. The Blues have stayed in this area when the other vendors have left because there were not enough insured lives to make it profitable.

I have noticed increased SRMC advertising for the emergency room. That is likely a good business decision for them. You see, if an insured member is admitted under an “emergency” - then the health plan must pay their billed charges, even if they are not a Preferred Provider. SRMC has even suggested that they will pay the insured’s copays and deductibles if they come in through emergency admission, or in any case where they can collect “50 percent of billed charges”.

Sounds good, right? In the long run, it’s not so good. We all know there is no free lunch. The extra money the insurance company pays out will merely be passed on to us in the form of even greater rate increases. Pay now or pay later, but you will pay for those increased charges.

The one thing I don’t understand is that Lex Reddy told us that only a small percentage of the hospital’s patients were insured. He said they already have 90-93 percent Medicare and MediCal patients, and that they are a losing proposition. It seems to me that if the hospital can’t survive on those patients, they were not going to be able to survive anyway. Seven percent of your patients can’t support the entire hospital. I can’t imagine how you could cost-shift enough to that 7-10 percent to make up the loss.

He told us to “check back in 6 months”. I intend to do so. I will be very interested to see how this scenario unfolds. Will our citizens understand the long-term effects of this strategy? Will they care? Of course there are lots of other issues, such as the taxes that SRMC will pay to the City of Redding, as well as the jobs that are maintained. No one wants to be a one-hospital town.

All of that matters. I just happen to be the most involved on the insurance end of the spectrum and thought your readers might want to know a bit more about that end of it.

 

Margaret R. Beck owns and operates Affiliated Benefit Services at 1348 Market St., Suite 208 in Redding where she is a licensed CLU (chartered life underwriter), ChFC (chartered financial consultant) and CEBS (certified employee benefit specialist). She may be reached at (530) 225-8583 and mrb1348@gmail.com

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