No discounted rates. That's the policy of Reid Hospital and Health Care Services, and trustees of the Richmond, Ind.-based hospital are sticking to it-even though it prompted a face-off with a major insurer.
Reid Hospital's price and discount policy, also referred to as its "fairness policy," isn't some makeshift reaction. "It's a carefully thought out principle" reaffirmed by the 257-bed hospital's board this March, according to Barry S. MacDowell, the hospital's president.
The policy says prices should be fair and "reflective of the resources used to produce the services performed and uniformly applies." Under the policy, it's not fair to discount one payer's rates because that would shift the burden to other groups of patients in the form of higher prices.
That position is exceedingly rare these days. "This is an atypical hospital in an atypical marketplace. It is more reminiscent of pre-managed-care days," says Elizabeth Propp, vice president of the Healthcare Financial Management Association's Washington office. Although the HFMA doesn't keep track of hospitals that refuse to discount, Propp believes the practice is sporadic, mainly occurring where there is no managed-care penetration and no real competition.
By MacDowell's estimate, there may be five or six hospitals in Indiana that do not discount. But as the only acute-care hospital in Wayne County, where managed care is virtually nonexistent, the policy has stood the test of time.
"The game plan of `Let's make a deal' does not serve anyone well," MacDowell contends. "And that's heresy in today's marketplace."
Trouble surfaced last August, though, when Anthem, an Indianapolis-based insurer, gave notice that it would be terminating Reid's contract, effective at year-end. Without a contract, Reid patients covered by Anthem would have to pay higher out-of-network copayments, the hospital said. Reid says Anthem's contract was worth $6.7 million in 1996, or just over 5% of the hospital's gross revenues.
Anthem spokesman David Holthaus says the contract's cancellation was a formality required before the insurer could begin to renegotiate. In fact, he says, Reid was not the only Indiana hospital affected.
"The hospital contracts in Indiana have not been updated for a long time, and frankly there's been a lot of inflation in healthcare costs because of that," Holthaus says.
At Reid, in particular, "we feel that their inpatient pricing, which has largely been the issue all along, is not in line with the other healthcare providers, the other hospitals, in the state of Indiana," he says. That's not fair to Anthem customers, he adds.
"In that market, we are the largest buyer of healthcare services, so we felt we should receive the best prices," he says.
But Reid claims to be a low-cost hospital. "I think the hospital has had incredibly low prices," MacDowell says. Reid also released data showing that Anthem's market share as a percentage of inpatient and outpatient hospital revenues dropped to about 5% earlier this year from 20% in 1975.
Negotiations stretched over several months while the contract was extended three times. Eventually, they agreed to change inpatient rates for Anthem beneficiaries to a DRG structure from fee-for-service rates.
In MacDowell's view, the new contract is revenue-neutral.
Says Holthaus, "I don't know if we've done a financial analysis on that or not, but I think moving to a DRG system is progress in trying to contain healthcare costs."
Neither side will discuss specific terms. Although the parties have agreed on pricing, other issues hang in the balance. At deadline, a final contract had not been reached.
Reid isn't talking publicly about the issues at stake, but Anthem says it's pursuing several points. For one, it wants to do away with balance-billing by anesthesiologists and other hospital-based physicians by ensuring they are under contract with Anthem. The insurer also wants Reid to participate in its quality-assurance program.
MacDowell says the community understands its stance against cutting special deals.
"There are no games being played," he says.
But the HFMA's Propp says hospitals have to be careful not to lock themselves out of contracts by refusing to reduce rates. "These kind of policies can result in a competitive disadvantage in fledgling managed-care markets," she warns.
MacDowell acknowledges that the fairness policy may face future challenges, which the hospital will address as they come. "If we change policy, it will be done openly."