Citing a rash of price increases, a New Jersey payers' cooperative is attempting to inject price competition into the hospital market by forcing hospitals to bid for its business.
The head of the Health Care Payers Coalition of New Jersey, which manages a provider network for self-insured businesses and unions, acknowledged last week that its attempt to form an "exclusive provider organization" including about one in three of the state's hospitals will be a challenge.
Executive Director Edward Geisler said hospitals have shifted a disproportionate share of costs to smaller payers such as the coalition, which lost two of its approximately 50 members this year. He said the members switched to large health plans because of cost concerns.
The coalition represents about 175,000 beneficiaries, less than 1% of the state population.
"As an alliance of business and labor, we must respond to our members' continued requests to reduce or at the very least stabilize hospital costs," Geisler said. He said beneficiaries "are going to have to be more selective about the hospitals they use" unless they can pay higher out-of-pocket costs for using non-network hospitals.
Nationally, hospitals are facing a backlash after years of price increases to private payers, as health plans and employers increase copayments and other cost-sharing arrangements with beneficiaries to direct business to cost-efficient providers. The pricing controversy has been particularly acute in New Jersey.
In May, the coalition released a report saying that per diem charges at 75 New Jersey hospitals rose 93.7% overall from 2000 to 2002, with nine hospitals increasing rates by more than 200%. Geisler called that a "staggering burden for healthcare consumers."
A spokesman for the hospital association, Ron Czajkowski, said, "We've met once with the payers coalition on this (pricing) issue some years ago. Since then, we have only heard of their concerns through the media."
Geisler said a requirement of hospital participation in the new network will be no stop-loss coverage, in which high-cost cases are paid on a percent of charges rather than a per diem rate. Geisler said coalition members have been hit with extremely high charges from some hospitals with stop-loss provisions. Stop-loss provisions in commercial contracts resemble the Medicare outlier program, which has encountered disproportionate charges from New Jersey hospitals (July 14, p. 4).
Geisler believes his coalition's pricing report spurred the New Jersey Hospital Association to release a study in July showing that New Jersey hospitals rank No. 6 nationally in cost efficiency (See story above). The association conducted the study in-house, then had it validated by a University of Pennsylvania researcher and the Lewin Group, a healthcare consulting firm in Falls Church, Va.
Asked about the association's study, Geisler said last week, "We don't think that holds a lot of water. There are at least half a dozen independent sources that say New Jersey is a high-cost state."
Aetna and Horizon Blue Cross and Blue Shield of New Jersey, two of the state's largest health plans, declined to comment on the efficiency study last week. The New Jersey Association of Health Plans did not respond to requests for comment.
Geisler said the coalition will set quality standards for network participation, including participation in the Leapfrog Group survey on hospital safety measures. He said it expects to solicit formal responses from hospitals this month and complete the network by year's end.
"It's very aggressive, but we think we need to do that to protect the member organizations that we serve," Geisler said. He added, "If the hospitals do not embrace payers like us, we'll go the way of the dinosaur and they will be forced to deal with the Blue Cross and Blue Shields of the world. We think it's going to be a lose-lose situation."