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Some Hospitals Turn Profit by Shifting Medicare Losses to Commercial Payers, Says Study

Cheryl Clark, for HealthLeaders Media, March 22, 2010

Cities where health systems appear to offer high value at low cost based on Medicare ratings may actually be taking a loss, and shifting cost to private insurers and employers to maintain financial viability, according to a new National Business Group on Health study.

Conversely, cities with healthcare systems that appear more expensive, and seem to deliver lower value, may be giving employers and private health insurers a break. And some healthcare regions appear to do all things: profitable, while delivering high value healthcare at low cost.

The nonprofit group consists of large employer members who seek solutions to employer challenges, such as providing healthcare and related benefits to their employees.

"We just wanted to ask the question analytically, to see which hospitals are high value for everybody, or do they just look high value because they're charging others the difference?" says Helen Darling, the National Business Group's president.

The group asked Bruce Pyenson of Milliman Inc. to evaluate 65 cities in the U.S. "and determine whether examples of high hospital value exist, and what characteristics they share." They used the Dartmouth Atlas Medicare Admission Rates, as well as several other data sources, including the Healthcare Cost Report Information System (HCRIS).

The findings illustrate the danger of using only Medicare data to evaluate whether a hospital is providing high value at low cost, Pyenson said. In some cities, "hospitals appear to meet their business objectives by charging private payers much more than Medicare."

Those nine cities identified in the report are Fresno, CA; Denver, CO; Modesto, CA; Fort Wayne, IN; Sacramento, CA; Reno, NV; San Francisco, CA; Seattle, WA; and San Jose, CA.

"Given the high stakes involved and the important policy implications, we wanted to understand which cities and hospitals provide the best value for all payers, consumers, and the community as a whole," said Darling.

The report found 16 cities where hospitals do provide high value to Medicare and low cost for commercial payers for inpatient care, and where hospitals are also profitable. They include Tucson, AZ; Albuquerque, NM; Sarasota, FL; Akron, OH; Honolulu, HI; Medford, OR; Boise, ID; Portland, OR; Portland, ME; Pittsburgh, PA; and Grand Rapids, MI.

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