Leading managed care plans never pay retail

  1. Leading managed care plans never pay retail
    Glenn Howatt
    Star Tribune
    Published Sep 9 2001

    The charge for a semi-private room at Abbott Northwestern Hospital in Minneapolis is $1,035 per day, while the list price for an MRI of the brain goes for $1,972 and one tablet of the generic equivalent of Tylenol is priced at 97 cents.

    But managed care companies never pay the full price -- at Abbott Northwestern or any hospital in the metro area.

    Large buyers such as HealthPartners, Medica and Blue Cross and Blue Shield of Minnesota have each negotiated discounts with health care providers. The plans keep their fees a trade secret and forbid providers from discussing them with anyone, including patients.

    Now, some doctors, employers and health care advocates say it is time to take the wraps off such discounts and other deals so costs can be analyzed and the state's large insurance companies can be held accountable.

    Minnesota health plan premiums jumped 16 percent last year, according to state health care economists. That was on top of a 12 percent increase in 1999 and a 9 percent increase in 1998.

    "We'd have better control over costs in the system if we could scrutinize them," said Ric Davenport, a clinic consultant and board member of Advocates for Marketplace Options for Mainstreet, a lobbying group that wants to create more competition.

    Managed-care payment arrangements have become so complex that some doctors don't know whether they are making or losing money on certain procedures.

    "Health care administrators are managing blind," said Steve Wetzell, a health care consultant. "It is virtually impossible to get a true picture of costs even in organizations as significant as some of these large health care companies."

    Prices paid by insurance companies have more to do with forging strategic business relationships, rather than rewarding quality or efficiency, he said.

    "There is no true marketplace price. It is all a discounting shell game," Wetzell said. "There is no way to put a value on what you are buying."

    Lack of information

    In Duluth, NorthStar Physicians, a consortium of 16 clinics and 120 physicians, is required under the Blue Plus health plan to meet cost targets, including limits on hospitalization costs for the clinics' patients.

    But earlier this year, Blue Plus, which is owned by Blue Cross, stopped giving information about hospital costs to the clinics. No longer would doctors have access to information about how much Blue Plus paid three hospitals and two surgical centers in the Duluth area to treat the clinics' patients.

    Dr. David Sproat, an internist and past president of NorthStar, said physicians are trying to make responsible decisions on how the dollars are spent -- and are penalized financially if they don't.

    "If we are going to be responsible for controlling costs of health care, then we should have information to direct it," he said.

    Sproat knows from past experience that costs vary widely at hospitals. As it stands, he and his colleagues won't know whether they are directing patients to a facility with above-average fees.

    Jodie Root, vice president of contracting and payment at Blue Cross, defended the change in policy.

    "For us to publish those hospital prices puts us in a dangerous situation," she said. Hospitals could obtain the price list and adjust their prices to the highest fees that Blue Cross allows, she said.

    Root said nothing in the provider contract prevents a doctor or clinic from asking a hospital directly about fees.

    "The ability for the physician and the hospital to work collaboratively is very, very strong," she said. "They should be talking about quality and they should be talking about pricing even if it is not a managed-care situation."

    Root said it would be impractical for health plans to make their fees public.

    "If all the walls came down and all prices and all charges were suddenly out there, that would create probably a very competitive marketplace, but it sets us up as a health plan for creating an environment for price fixing or decreasing my bargaining power," she said.

    Paying different prices

    Documents uncovered by Minnesota Attorney General Mike Hatch during his investigation of Allina Health System and Medica have provided rare insight into how hospital profits are affected when they charge different prices to different health plans.

    Allina owns or manages 47 clinics and 17 hospitals, including Abbott Northwestern. The non-profit health system's board recently decided to split off the 1 million-member Medica health plan.

    Payments from Medica provide the lowest profit margin to Allina's four metro-area hospitals of any major insurance company, according to an Allina internal report.

    Even Minnesota's Medical Assistance program, which has a stingy reputation, provided Allina's hospitals with a greater profit than Medica, the report said.

    Allina's profit margin was twice as large on payments from Medica's main competitors, Preferred One and Blue Cross, the report added.

    The documents also show that Medica invested or loaned millions of dollars to the Aspen Medical Group. In exchange, doctors at the Aspen clinics switched their hospital admissions from Fairview Health Services to the Allina hospitals.

    In short, a business deal was the reason that Aspen patients were sent to a different hospital; quality of care was not a factor.

    "The competitive spirit has led to deals and shifting of blocs of patients whether they want to be shifted or not," said David Page, Fairview chief executive officer. "Patients are pushing back and saying 'No, this is wrong, we don't want to be herded and directed on the whims of business deals.'"

    Allina and Medica refused to discuss either case, saying they won't comment on the documents uncovered by Hatch until he releases final results of his investigation later this month.

    Hatch has criticized the two organizations for tinkering with payment rates and transferring funds between the health plan and the hospitals, calling it an inherent conflict of interest.

    No sign of change

    It's unclear how the Medica and Allina split, which will take several months to complete, will affect prices.

    Davenport is not optimistic, saying there is no reason to expect that Medica will change. All of the three major health plans use their muscle to influence payment rates, he said.

    "Medica will still be the 800-pound gorilla with a 34 percent market share in the Twin Cities," he said. "Health plans control reimbursement lock, stock and barrel."

    His group said it will ask the Legislature to require full disclosure of reimbursement arrangements involving nonprofit health-care entities, which include most of the major health plans and hospital systems in Minnesota.

    Until then, some companies are promoting health-insurance arrangements in which consumers have at least some information about cost.

    The Buyers Health Care Action Group, a coalition of large self-insured employers, has a health plan that allows consumers to choose their primary care clinics using information about cost and quality. Those who pick higher-cost clinics pay a higher monthly premium.

    Other plans let consumers decide how to spend their health-care dollars. One such plan, Definity Health, is available to Medtronic employees and will soon be offered by the University of Minnesota.

    -- Glenn Howatt is at howatt@startribune.com .
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