Health-care providers in New York have long blamed the state”™s exorbitant costs and their difficulty in making ends meet on HMOs and insurance companies. They claim the health insurance reimbursement rates have been insufficient, undermining their stability.
Now, businesses are beginning to join the chorus of complaints, possibly adding weight to the lobbying on state legislators to implement laws that would in effect increase government oversight of health-care insurance, which was deregulated a decade ago.
The Westchester County Association (WCA) formed a blue-ribbon task force to examine the crisis two years ago. Its aim was to improve the affordability of health care for business and strengthen the health-care sector, which is a major economic engine in the region. According to the WCA, hospitals in Westchester County employ 16,000 with an annual payroll of $1 billion and contribute more than $3.2 billion to the county economy.
Approximately 1,650 physicians in Westchester employ another 6,250 people and contribute $1 billion to the economy. Yet that industry is at risk, The WCA says, as was highlighted by the closing of two hospitals in the last two years: United in Port Chester and St. Agnes in White Plains. Physicians who are squeezed by rising malpractice insurance as well as flat or declining reimbursement rates for services are having increasing difficulty practicing in the state, leading to a shortfall of care in some areas.
After meeting with all the various stakeholders, including senior executives from both hospitals and the HMOs, the WCA has released its findings. It identified the root cause of the problem as the low reimbursement rates to health-care providers and rapidly increasing premiums of the HMOs. The proof is in the profits, according to the WCA: While many hospitals are losing money, the insurance companies have apparently made out well, thanks to premium increases of 67 percent over the past five years and reimbursement rates that are among the lowest in the country. (New York hospitals”™ reimbursement rates trail the rates paid to Connecticut hospitals by 35 percent on average, according to the WCA.)
It might seem strange that a business group is pushing for government regulation. But in the case of health care, the usual paradigms break down. Almost every business or academic survey measuring quality of life or business conditions in the state lists affordable health care as the most pressing issue.
Angela Skretta, vice president of the Northern Metropolitan Hospital Association, which represents 28 Hudson Valley hospitals and is based in Newburgh, said that hospitals in this region receive “as little as 62 cents for every dollar” in insurance reimbursements for their costs. She said hospitals fail to negotiate higher rates because when deregulation occurred, they were unprepared, agreed to rates that were too low, and never caught up.
The HMOs have gained strength as they have consolidated, which gives them the edge at the negotiating tables. Just a handful of companies dominate 70 percent of the insured in New York state. The insufficient reimbursement rates are squeezing providers, resulting in lower salaries to their employees and compromising their ability to invest in important new technologies.
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“The managed care companies initially came to be with the promise they would haul down the cost and maintain and improve care,” said Dr. Michael Rosenberg, a practicing plastic surgeon in Mount Kisco who is also president elect of the Medical Society of the State of New York. “What they”™ve done is lower the insurance reimbursement rates and made it more difficult for patients to access care. Hospitals are getting hurt, while the insurance companies benefit.”
Prior to 1997, the New York State Insurance Department (NYSID) capped health insurance premium increases. The Health Care Reform Act (HCRA), passed in 1996, eliminated that authority (except for rate increases of more than 10 percent), allowing HMOs to negotiate the reimbursement rates with health-care providers. In 2000, the law regulating increases over 10 percent expired, in essence resulting in a system of reimbursement rates that is market driven.
Since then, HMO premium increases have soared in the double digits but the reimbursement rates for hospitals and physicians”™ groups have lagged behind costs, claim the health-care providers. The HMOs have made significant profits at the expense of providers, they say, by underpaying them and by not reimbursing them in a timely fashion.
“This is an incredibly powerful special interest,” said state Assemblyman Adam Bradley, D-White Plains, who has introduced health-care insurance reform legislation. “It”™s one of the hugest lobbies in Albany.” Bradley noted bills he and others have introduced in the past, among them legislation that would have reinstated the NYSID”™s authority to cap the HMO premiums, typically pass the Assembly but stall in the Senate, going nowhere. “HMOS have incredible negotiating advantages and market practice advantages against the providers,” he said. “It”™s creating the forced conglomeration of medicine, because the only way to have an equilibrium is to have such a large group they have some leverage.”
Robert Glazer is the CEO of one of the large physicians”™ groups that have sprouted up in the state. ENT and Allergy Associates has 23 locations in the lower Hudson Valley, New York City and northern New Jersey and represents 76 physicians. “Certainly, larger groups are better able to manage how the health insurance companies are playing games with them. Most physicians are in smaller groups, and they are really getting hurt,” he said. Glazer is lobbying for more competition among insurance companies, medical malpractice reform, and the creation of standards for claims adjudication, including enforcement of penalties if standards aren”™t met.
The HMOs counter that deregulating the system has finally enabled them to be profitable ”“ before, they were losing money ”“ and that their profitability has resulted from being more efficient. The HMOs claim that the premium increases are necessary because of the escalation in health-care costs, and that in fact there is some degree of oversight by the state. Mark Wagar, CEO and president of Empire Blue Cross/Blue Shield, based in New York City, noted that “our administrative share of the premium is already regulated by the state. Depending on the size of the customer, 80 to 90 percent of the premium goes toward the cost. We generate our profit out of being efficient on the administrative piece.”
The real problem is the inefficiencies at hospitals, which should be required to make the same sort of reforms the HMOs made a decade ago (as is under way with the state-sponsored Berger Commission recommendations on hospital consolidation), said HMO representatives. For example, Leslie Moran, senior vice president at the New York Health Plan Association, a trade organization representing the managed care companies, said one reason the premiums are higher in New York is because the hospital length of stay is “significantly longer than in the rest of the states.”
In places like Connecticut, “hospitals say, ”˜we”™ll meet certain standards,”™ such as shortening their stays,” bettering their bottom lines. Another factor that affects costs and premiums is New York”™s 36 mandated benefits, which range from parity for mental health patients to coverage for chiropractors and infertility treatments, said Moran.
But opponents point to the health insurance companies”™ substantial profits as proof that they are nonetheless doing very well. According to the WCA, the HMOs”™ profits increased 10.7 percent in 2004 over the year before, to an aggregate income of $11.4 billion, following an 80 percent increase in profits the year before.
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HMO CEOs are paid very generously. The WTA cites figures from the May 8, 2006 issue of Forbes showing that the compensation for the heads of Aetna, Cigna, Wellpoint, and United Health amounted to more than $10 million each.
Wagar at Empire countered that in some cases hospital executives”™ salaries exceed those of insurance firms. He himself is an example: while his office said that his compensation in 2006 was $968,000, including the value of stock options, the CEO of New York-Presbyterian Hospital received more than $2.1 million in compensation in 2005, and another $1.3 million in contributions to employee benefit plans, according to Wagar.
The WCA and health-care providers also take issue with the HMOs”™ $6 billion in reserves, which is money they are required by the state to set aside as a way to cover a pandemic or other unforeseen disaster resulting in a health crisis. (Glazer said that the state”™s requirement for the HMOs to have substantial reserves hurts competition in the insurance industry, since smaller firms can”™t afford to provide them. His recommendation is to lower the amount in required reserves.)
But critics note the reserves exceed the state”™s required minimum fourfold, by one estimate, and are hiding places for additional profits. Bradley has introduced a bill, the Healthcare Reinvestment Act, that would redistribute a portion of the HMO profits, including money buried in the reserves, to regional health-care providers, helping fund hospitals”™ investments in new technology, for example.
HMO representatives said the portrayal of the reserves as hidden sources of riches for the insurance companies is mistaken. “If you look at the operating margins of the health plans, many are in the same boat as the hospitals and providers,” said Moran. “They actually make 4 percent in operating margins.”
The $6 billion in reserves is actually not that much, considering what it”™s designed to pay for, according to Wagar. He said it”™s enough to cover New York”™s 12 million insured for only six months. “Less than a decade ago, the large insurance companies in New York didn”™t have adequate reserves. You must have an excess that”™s more than the limit.”
As far as plowing money back into the health-care system, Wagar said the HMOs already provide over $2 billion in subsidies for the health-care industry through state taxes. Under HCRA, a “covered lives assessment” on each premium generates $1 billion, which is channeled back to providers, according to Wagar.
In addition, an 8.95 percent tax on every hospital discharge in the state generates over $1 billion, which subsidizes graduate medical education. Furthermore, Wagar said that Empire Blue Cross/Blue Shield contributed more than $5 billion when it converted from being a nonprofit to for profit. The money was distributed to hospitals and medical workers for training, as required by the group”™s agreement with the government.
Tom Zyra, assistant chief of deputy health bureau at NYSID, said the HMOs are required to abide by “loss ratios” regarding the pricing of their products. The HMOs must file a loss ratio report annually the preceding year to show they have priced the product appropriately. If not, they have to issue a refund. In some cases, the HMOs are compensated by the state for claims that exceeded their payments. The money comes out of a $40 million “stop loss mechanism” fund and isn”™t sufficient to fully compensate the HMOs, said Zyra. He said they might be recompensed at a rate as high as 60 cents on the dollar.
Zyra said in 2004 NYSID attempted to gain some control over the HMOs”™ proposed rate increases by asking them to review the rates with the department before implementing them, but was subsequently sued successfully by Excellus Health Plans. NYSID appealed, but Excellus won the case. Therefore, reinstating the department”™s authority in capping the rates must occur through legislation.
“It”™s obviously a very complicated issue with complex financial dynamics,” said Zyra. Health care providers receive reimbursement not just from the HMOs but also from federal Medicare, state and federal Medicaid, private insurance, self insurance, workers comp, and other sources. Threatened cuts in Medicare reimbursements, proposed for the last several years, haven”™t happened yet, but the proposal by the federal government to cut the rate by 10 percent in 2008 still has providers nervous and would obviously create additional hardship.
“We have a responsibility that the rates are adequate and not excessive, but we also have a responsibility that the HMOs are solvent,” Zyra said. “If you look at the profit and loss statements of the corporate entities, they”™re probably doing pretty well, but some of them are not in such good shape.”
Meanwhile, the high cost of insurance is resulting in new but related difficulties for the health-care providers. John Neubauer, president of AVP Business Products, based in Patterson, N.Y., and chairman of the board at Putnam Hospital, said the advent of health savings plans is causing new problems. Shifting the cost of health care onto employees ”“ health savings plans cost employees less but have a higher deductible ”“ the hospitals end up footing the bill in the near-term.
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“The hospital becomes like a bank, because we have to finance the cost,” he said. “Our undersinsured portion has skyrocketed in the last six months. Previously, we would have gotten a $500 co-pay, but now we have an additional $4,500 we are not getting,” he said, citing the example of a $5,000 deductible.
Bradley said the successful passage of several bills he introduced to reform the HMOs in the last couple of years was a hopeful sign that the climate is changing. “Before I was a lone wolf in the wind,” he said. But “the tide is changing as people become aware of how serious these issues are to our public health system. Will the HMOs become partners, or down the road are they going to ensure there will be single payer system?”
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