Why Are Health Insurance Companies More Untouchable Than For-Profit Hospitals?
Have health insurance companies in America become so coddled they’ve forgotten what it means to compete for business? Are they so reliant on government intervention, price-fixing, and captive clients that they’ve lost the will to negotiate? Are they aware of the decline and steady closure of America’s urban hospitals, and their role in that process? Do they care? Or, have they become so blinded by greed, sloth, and arrogance that they don’t even notice?
These are just some of the questions you might be asking if you’re an urban-dwelling health insurance consumer, or if you’ve been following the insurance industry’s media war to crush one of the few recent success stories in U.S. healthcare: the for-profit hospital model.
It has been an aggressive campaign, featuring lots of sympathetic ink devoted to the insurance industry and its difficulty in navigating an obstacle with which it is not too familiar: resistance to its artificially low reimbursement rates for medical treatments to customers. Although all are quick to assail hospitals’ profit motive, most stories seem reluctant to acknowledge that insurance companies must also adhere to fundamental economics. The less they pay, the more they keep.
The battleground over for-profit hospitals has largely been confined to the state of New Jersey – and its powerful New York media market – which has seen the shuttering of nearly 40 urban hospitals over the past decade (for national perspective, a study by the Pittsburgh Post-Gazette found that between 1990-2010, America’s 52 largest cities experienced 201 hospital closures).
One particular hospital, Bayonne Medical Center (BMC), has been the primary target of the media scorn promoted by the insurance industry. At the same time, BMC has been thriving, earning accolades for quality and efficiency. It’s quite a success story, a model that could well be replicated throughout the country. That must be why the insurance industry is in such a snit.
BMC nearly didn’t make it. Three decades of financial decline, and by 2008 BMC was bankrupt and slated to close. But three successful entrepreneurs had a different idea. They believed a low-income urban area like Bayonne deserved its own hospital. Provided it was well managed, it could succeed. They had a strategy, commitment, and the necessary private capital, so they rescued Bayonne Medical Center from bankruptcy.
Today, BMC serves its community well. It employs quality doctors and nurses, maintains a high level of patient satisfaction, and offers real advancement in the quality of care now available in Bayonne. Everyone says so (even the hit pieces commissioned against it).
BMC’s transformation required oodles of private capital and a commitment to streamlined management practices. It also required a bold confrontation of a terminal ailment that prevented BMC – and still prevents other endangered urban American hospitals who, like Bayonne Medical Center, also regularly serve patients who lack insurance coverage – from achieving profitability: the inadequate and artificially meager payments insurance companies routinely offer hospitals for the services they provide.
BMC’s repeated attempts to renegotiate the sweetheart deals to which the insurance industry has long become accustomed proved unsuccessful. So, Bayonne made the only choice it could, and canceled all of its existing insurance contracts. Well within its rights, and, smart.
Soon, BMC reached contract agreements with all of the insurance providers who were willing to renegotiate in good faith, including the state’s largest provider. Today, fully 95 percent of Bayonne’s patients are covered by some type of insurance.
BMC’s sister facilities in Hoboken and Jersey City employed a similar renegotiating strategy, and now they, too, are on a sustainable financial path, no longer in jeopardy of closing.
There the story might have ended and happily, save the New Jersey legislative wrinkle (there’s always a legislative wrinkle in Jersey).
New Jersey law requires that patients pay emergency room expenses as if they were at an in-network hospital, regardless of whether the hospital is actually in-network. The “sticker price” on the invoice sent to patients and their insurer reflects the combined cost of the co-pay (paid by the patient), and the balance (paid by insurer).
Insurance companies work relentlessly to pay as little as possible for every single bill not under contract. Because the insurance companies count each dollar that isn’t reimbursed to the hospital as profit, they seek to provide only partial payments, eager to haggle over the cost of every single procedure. This is a point most media reports are loath to make. But they also neglect to acknowledge that urban hospitals face unique financial pressure, given the sizable portion of their patients who are insured through Medicare, Medicaid, and other set-price systems.
Bayonne and other major hospitals in New Jersey – and around the U.S. – negotiate fair reimbursement rates with insurance companies, who pay a set price for treatments, in addition to the patient’s co-pay. But for those insurers unwilling to negotiate, it has become a necessary tactic to first list high prices for each procedure. This allows the hospital to anticipate the inevitable partial payments, which are often insufficient to cover the fair-market cost of treatment. This also provides a starting point for out-of-network reimbursement. It’s a common practice that allows hospitals to maintain their financial viability, and to reinvest in providing high-quality care. It is also the only negotiating tool available to them.
Health insurance companies already enjoy obscene, regulated, beyond-market protections. But they shouldn’t be treated like mobbed-up untouchables. If they’re going to wage public media battles designed to remove the one tiny piece of leverage that small, community-based urban hospitals have to bring them to the negotiating table – the threat of contract termination or going out of network – then they should at least be forced to embrace their own profit motive. The hospitals already do.