In most states, if your competitor were able to raise prices, you'd probably think, "Where do we get in line?"
But in West Virginia, state regulators set the prices for commercial payers, so one hospital's ability to win a large rate increase does not translate as easily into higher prices for its crosstown rival. An increase can evolve into a competitive threat if the hospital that can charge more is able to invest more in services or recruiting physicians.
That's the scenario shaping up as the two hospitals in Parkersburg, W.Va.-Camden-Clark Memorial Hospital and St. Joseph's Hospital-battle over a rate increase sought by St. Joseph's for 2004.
Not-for-profit Camden-Clark is the first hospital in the state to successfully intervene in a rate request made by another hospital, said Sonia Chambers, chairwoman of the West Virginia Health Care Authority. The consumer advocate at the state Insurance Commission is also intervening in the case.
A hearing on St. Joseph's rate request is set for Jan. 20. Next week, hearings are scheduled on the rate increases sought by Ohio Valley Medical Center, Wheeling; Putnam General Hospital, Hurricane; and St. Francis Hospital, Charleston. St. Joseph's, St. Francis and Putnam are all owned by Nashville-based HCA. Ohio Valley is the flagship of not-for-profit, two-hospital Ohio Valley Health Services and Education Corp., Wheeling.
By one measure, St. Joseph's is seeking only a 4% increase in its average discharge rate, which is the base used to compute inpatient charges, to $9,516.49. The 4% represents the increase from its 2003 projected actual rate of $9,150.47, or the average based on its actual 2003 billings. Compared with the last average discharge rate approved for the hospital by the Health Care Authority, however, the increase is 23.3%, authority documents show.
"If you see that the St. Joseph's case is 4%, that's not a large increase (for 2004)," said Charles Dunn, the commission's consumer advocate. "The difficulty is, it's coming on top of a 19% increase in the actual charges over the allowed charges (in 2003), and that's an increase that we haven't really had a chance to investigate and determine whether it's an allowable charge."
The authority's Chambers said, "The crux of the hearing is to look at why there was a big difference between the 2003 allowed and 2003 actual (rates)."
St. Joseph's spokeswoman Jill Parsons said the hospital operated in 2003 under the average discharge rate approved for 2002. Changes in the hospital's service mix have made comparisons of the 2002 St. Joseph's with today's St. Joseph's an apples-to-oranges comparison, because those changes boosted its case-mix index, Parsons said. The hospital performed twice as many neurosurgeries and more orthopedic surgeries than expected in 2003, and its obstetrics volume declined.
Camden-Clark offered a different explanation. St. Joseph's is charging substantially larger markups on supplies than Camden-Clark, according to Camden-Clark's analysis of the two hospitals' chargemasters. Those higher markups are boosting more of the cases St. Joseph's handles into West Virginia's outlier category, said Camden-Clark spokesman Greg Smith.
Under West Virginia rate regulations, outliers are cases whose treatment costs exceed $44,000, Chambers said. This category is similar to Medicare's outlier payments, which reduce the losses hospitals take on the sickest patients, but West Virginia applies the term to private-pay patients, too.
Medicare outlier payments have been a hot topic for more than a year, most prominently regarding the relatively high level of outlier payments made to Tenet Healthcare Corp., Santa Barbara, Calif., (Nov. 11, 2002, p. 6). Subsequent analysis showed that many not-for-profit hospitals, especially in New Jersey, also relied heavily on outlier payments (July 14, 2003, p. 4).
Parsons said supplies are just one piece of a patient's bill. St. Joseph's hasn't increased its gross prices since 2002, given that the Health Care Authority hasn't approved its rates since then, she said.
Camden-Clark officials are concerned that St. Joseph's would have a competitive advantage in raising funds for investing in services and physician recruitment if it wins the rate increase, Smith said. They are also concerned that other hospitals across the state would win similar increases, raising health insurance costs for every employer, including Camden-Clark, which is self-insured, Smith said.