Massachusetts hospitals were jolted last week by a major insurer's decision to stick them with the full uncompensated-care liability the state had just imposed on all third-party payers and self-insured employers.
Massachusetts Blue Cross and Blue Shield sent a letter to all hospitals detailing its intent to reduce reimbursements for healthcare services by 5%. The withheld money will be forwarded to the state to meet terms of a new law dunning payers a total of $100 million a year for a statutory uncompensated-care pool.
That move is "a clear violation of the law's intent, which is to mandate that insurer contributions be separate from all other payment streams," said Ronald Hollander, president of the Massachusetts Hospital Association.
But the law's intent and particulars apparently depend on the interpreter. The Blues company contended it is acting within its legal rights, drawing on statements from the law's legislative architects that payers were free to determine how to come up with the money to pay their tab.
The Blues organization has struggled to rebound from a string of net losses and other setbacks during the past few years. The company lost $90 million in 1996 after a $21 million profit in 1995.
In 1997, after the Blues lost $17 million in the first quarter, the state insurance department increased its oversight of the financially troubled plan. The Blues also quit as a Medicare fiscal intermediary.
Although it rebounded in the past two quarters with collective net income of $20.1 million, the Blues total profit in the first nine months stands at $2.9 million.
At deadline, Blues executives had not responded to an interview request.
Meanwhile, according to the latest data from the American Hospital Association, the state's 96 acute-care hospitals turned a $258.6 million profit on total revenues of about $9.1 billion in 1995.
The law, enacted last summer, was the culmination of a 16-month fight by the MHA to spread liability for $315 million in annual pool payments. Free-care funding was out of balance, the MHA said, because hospitals were left holding the bag for the full amount.
Though payers were supposed to figure their share of assessments into rates they paid hospitals, the MHA argued that hard bargaining squeezed any recognition of that free-care liability out of rates. The law's purpose was to restore that recognition and make insurers pay a fair share, said MHA spokesman Andrew Dreyfus.
But in its letter, the Blues once again insisted that "our reimbursement rates are inclusive of all applicable payments to the uncompensated-care pool." Under that assumption, the company said it is "now required by law to redirect a portion of the payments that we formerly paid directly to you" to the state instead.
The stance that the Blues' liability is contained in its reimbursements is "false on its face," Dreyfus said. "If that were true, we wouldn't have needed a reform law." In fact, the MHA quoted that same stance taken by the Blues early last year to support a call for specific assessments on payers (April 29, 1996, p. 56).
Ultimately the law reduced hospitals' official liability to $215 million from $315 million. It also nailed down a $30 million annual contribution from the state itself. But the rationale for changing the law was to assign responsibility for a beneficial public fund and keep it stable, not necessarily to bring relief to hospitals, said John McDonough, a state representative who was instrumental in writing the legislation.
With providers bending under an annual strain of uncompensated care approaching $500 million, legislators were worried that access for low-income people would be compromised, said McDonough, who's now out of the Legislature and a professor of social policy at Brandeis University.
The distributed liability for replenishing the pool would make sure that "the decision to provide care was a financially neutral decision." But it was not a hospital relief mission. "Some hospitals are saying this was kind of a $100 million gift to them," he said.
However, "the law was silent" on where payers would raise the assessment. Everyone involved in the bill's negotiations "knew perfectly well" that "the issue of who ultimately would pay . . . would be resolved in the marketplace," McDonough said.
The Blues "probably picked the worst way to do it," with a fait accompli instead of a negotiable attitude, he said.
Payers and providers emerged from the bill's negotiations with a sense of shared responsibility, so legislative leaders "did not anticipate a third-party payer would be demanding a 100% reduction (of pool liability) in their contracts with hospitals," said Jay Curley, a spokesman for state Sen. Mark Montigny, another chief architect of the bill.
But Curley said the law's demand for payment did not constitute a legal requirement to demand reductions in contracts with hospitals, as the Blues asserted in its letter to hospitals.
Estimates by the state Division of Health Care Finance and Policy show the Blues responsible for more than a third of the payers' total share (See chart). The two next largest contributors, however, are raising their share largely through premium increases.
Following a few flat years for rates, Harvard Pilgrim Health Care is telling employers to expect increases of 4% to 5%, of which 1% is "a result of, and a reflection of, the uncompensated-care pool cost," said spokeswoman Patti Embry-Tautenhan. A 1% surcharge also is planned at Tufts Health Plan, said spokeswoman Michelle Davis.