Second of two parts
COAL TOWNSHIP - Tom Harlow seemed to have taken a dose of bad medicine himself when asked if he had read Time magazine's recent special report, "Bitter Pill. Why Medical Bills Are Killing Us."
"Yessss," Harlow said, smiling but quickly reaching for the American Hospital Association's three-page "Setting the record straight" press release issued in response.
The magazine has garnered a lot of attention with the story by Steven Brill on March 4 that described how "outrageous pricing and egregious profits are destroying our health care." It related how thousands of nonprofit institutions have "morphed into high-profit, high-profile" institutions that have become the strongest businesses in communities across the country, "making tens of millions of dollars a year and paying their nondoctor administrators six or seven figures." And it pointed out example after example of how hospitals mark up charges, such as a 10,000 percent markup for an acetaminophen tablet.
The description of a "high-profit, high-profile business" that has become the focus of its community seems to fit Geisinger Health System (GHS), which has grown with not only its merger with Harlow's Shamokin Area Community Hospital (SACH) at the start of 2012, but since with the "integration and merger" with The Bloomsburg Hospital and Community Medical Center in Scranton, a letter of intent for the same with Lewistown Hospital and a recently announced shared cancer clinic planned in Pottsville. Systemwide, total revenue for GHS in fiscal year 2011-12 was $2.9 billion, with a $154 million operating income, or "profit." The nonprofit now employs 20,000 people.
Harlow, Geisinger-Shamokin Area Community Hospital (G-SACH) chief administrative officer, and Tom Sokola, his counterpart for Geisinger Medical Center (GMC), Danville, believe there are a number of factors that defend Geisinger's position, beyond what even the AHA says.
As it pertains specifically to G-SACH, the explanation starts with the basic principle for any commodity or service: price.
One campus; one price
Harlow and Sokola recognize there has been an increase in the cost of care since Geisinger and SACH merged.
Various models were studied ahead of time, while Geisinger had to be mindful of regulations
as overseen by the state Attorney General's office.
"We decided that if we can integrate the GMC main campus with Shamokin under one - one set of policy procedures, one license - that was the most effective and efficient way," Sokola said during an editorial board session with The News-Item, conducted Wednesday at the G-SACH campus. "It gave us the opportunity to share resources and not develop or transition a bunch of policies and procedures to something in between."
To have SACH operate like it was on the Danville campus "we thought was a real benefit," Sokola said.
In turn, however, the one-license, two-campus model meant there couldn't be two fee schedules or two sets of contracts with insurance providers.
"So our charges, I'm sure, went up. Gross charge went up," Sokola said. "But for 96 percent of the people, they don't see the gross charge," he continued. "They see what their insurance - Medicare, Medicaid, the Blues - pay."
He acknowledged as well, however, that co-insurance rates and deductibles likely climbed for people because Geisinger - able to leverage a better rate with providers because of its size - gets a better price on its end of the contract than SACH did.
Beyond price is the concept of utilization, Sokola said, and improved health care.
"If we can improve the readmission rate, from an insurer prospective, they don't pay that price as many times. The insurer should see some improvement in utilization and an offset of that price per unit increasing.
"And our own insurance company, Geisinger Health Plan, has seen this - better utilization rates," he continued. "And that's where you make up maybe the price difference."
Investment in quality
The one-license arrangement between GMC and G-SACH allows the Danville hospital to share its academic teaching facility designation with its new partner. By extending that designation, it allows G-SACH to have residents, who are already on rotation in the Emergency Department, with other opportunities under evaluation.
Another extension from Danville to Coal Township is the American Nurses Credentialing Center Magnet Recognition Program nursing designation, what Sokola called "a major investment."
"We wanted to bring some of those services to this campus," he said.
Also since the merger, G-SACH now has Joint Commission status, a voluntary certification that holds hospitals to a higher standard in terms of quality.
"There is in an investment that is necessary to improve the quality, so some of our prices may reflect some of that support structure," he said. "It does take a bigger investment, and we've been able to leverage some of our insurance contracts to get some of that (cost) back."
In some cases, the reinvestment is aided by the federal government, but not without "meaningful use." For example, hospitals are being subsidized to convert to electronic health record systems; that has taken place at G-SACH since the merger. GHS gets a payment, but only it if proves that the new system has "meaningful use," such as properly populating those records and allowing information to move between providers, Sokola said.
"If we meet meaningful use, they help pay that transition. So their bet is that, while it's costing money, it will provide a return in an improved health care delivery system," he said.
"It's not that much different than what we've been talking about on an individual entity or system level," he continued. "We make investments in certain things so that over time the quality of care we deliver improves."
He said health care advancements throughout the region may be resulting in a healthier population. Between the end of the 2010 and 2012 fiscal years, the number of admissions in hospitals within GHS' central primary (Northumberland, Columbia, Union, Snyder and Montour counties), central secondary (Lycoming, Schuylkill, Tioga, Clinton and Sullivan counties) and west (Clearfield, Huntingdon, Centre, Juniata and Mifflin counties) regions, decreased 9 percent, from 55,636 to 50,622.
Cost-shifting is key
Brill's article introduced to many people the concept of the chargemaster, a hospital's internal price list that he characterized as arbitrary. Sokola said Geisinger definitely has one, listing hundreds of thousands of items, down to sutures. He described how thick the chargemaster book is, holding his hand some six inches above the table.
"The chargemaster is not necessarily regulated, but payment (from the chargemaster) is different than what you charge when you're insured," Sokola said.
He described how Medicare pays hospitals across the country a standardized rate that varies only by things like wages in a particular region.
"So it doesn't matter what you charge - $1 million for a total hip replacement, or $800,000 or $300,000 or $100,000 - what Medicare will pay you is a regulated amount," he said.
And so begins the cost-shifting, something Harlow said is the "ugly business of health care that's existed for decades."
"Medicare and Medicaid typically do not pay the cost of care. If it costs $100 to provide to a Medicare beneficiary, Medicare doesn't pay us $100, it's typically less," he said. "So for all intents and purposes, you could say we lose money on that Medicare patient. And for years, health care, hospitals, the system has shifted that cost to the more lucrative private payer contracts because we can negotiate with them."
Among the many examples cited in Brill's article was Medicare paying $13.94 for each troponin test for a particular patient while a non-Medicare patient was charged $199.50 for the same test. He said every hospital administrator "grouses" about Medicare's payment rates, but that they are supervised by a Congress that is heavily lobbied by the AHA, which, Brill reports, spent $1.8 million on lobbyists in 2012.
But AHA in its rebuttal cites the federal Medicare Payment Advisory Commission in saying the overall Medicare margin is a negative 5.8 percent for hospitals.
Harlow said cost-shifting "skews" the pricing structure and, when it comes to the chargemaster, he doesn't agree with Brill's premise that it's wildly exaggerated pricing.
"The chargemaster in my mind has always been somewhat irrelevant, because, as Tom said, we could charge a million bucks for something, but what we're actually getting paid is typically dictated by Medicaid, Medicare or a contract we have with a third party."
He reiterated one of the AHA points in that comparing an item such as Tylenol purchased at Amazon.com or Walmart, as Time's article did, with the much higher price a hospital charges isn't fair.
"But what you don't see behind it are the Omnicells to make it safer, things like that," Harlow said, referencing an automated medicine dispensing system recently installed at G-SACH that improves accuracy, cuts down on pill theft and misuse and tracks medication inventory in real-time. "There are costs that we either incur to meet certain standards ⦠there are a lot of things behind the scenes from a regulatory perspective that we do that add to the cost of the system."
The Shamokin area having a higher than average percentage of Medicare enrollees, Harlow estimated 80 percent, further drives the cost-shift.
"You've got even more to make up with your insurance providers," he said.
In fact, Harlow used that point in explaining why SACH said it would have to merge with Geisinger or run the risk of going out of business, while Geisinger, owning the same property, is building new additions and clearing $154 million a year systemwide.
"We couldn't shift enough cost at Shamokin hospital to offset what we weren't getting paid from Medicare and Medicaid," because of a limited number of insurance providers with which it had contracts.
Geisinger has only an estimated 65 percent Medicare clientele and a much larger "payer mix," providing the necessary leverage to help the cost shift.
Explanations aside, Harlow acknowledges the health care system needs improvement.
"I think all of us, Dr. (Glenn) Steele (GHS president) included, would admit the system is broken, and there are misaligned priorities," he said.
Improving health
Harlow said he's experienced the change of being affiliated with a health care leader.
"That's one of the advantages they have - the intellectual property that's been developed to think, 'How do we re-engineer this stuff?'" he said about keeping up with health care needs.
And that is the bottom line, Sokola said.
"So our price might be higher; (but) I would suggest - and what we're seeing over time - we hope to improve the health of the population."
As representatives of some of the nonprofits featured in the Time article stressed, their profits are large, but they're not padding wallets outside the hospital system with that money.
"It's not like it's just falling to the bottom line and we're giving it out in dividends to stockholders," Sokola said. "We're reinvesting it in all these programs and building a new ophthalmology center (on the G-SACH campus) and providing access to care that was not here prior to the merger. So that's the vision."