A month after the CMS raised its average reimbursements to hospitals, a study released last week reported that 2003 saw the highest one-year spike in at least a decade in hospital prices, even as overall hospital and healthcare spending trends were slowing.
Hospital prices increased for the sixth year in a row and last year's 8% jump represented the largest one-year spike since negotiated hospital prices were first tracked a decade ago, according to a report released by the Center for Studying Health System Change. In 2002, hospital prices rose 5.2%.
Caroline Steinberg, vice president of trends analysis at the American Hospital Association, said the jump in prices reflects the cost of providing care.
"We have not seen an improvement in the finances of hospitals," she said. "About one-third of hospitals are still losing money."
Mary Grealy, president of the Healthcare Leadership Council, a coalition of healthcare executives, offered a simpler explanation for the hospital price increase. "You wouldn't want to see this trend continue," she said, "but I think it's a bit of catch-up" for years during which hospitals had little bargaining power with employers and insurers.
That's similar to the conclusions drawn by the study's authors. The hospital price increase, they said, is the result of better negotiating power on the part of hospitals with insurers. In trying to stem a worker shortage, hospitals also have had to increase wages and have sought to pass those increases on to payers (See story, p. 22). The report also points out that hospitals have typically charged private payers more in order to make up for the shortfall in reimbursements from public payers such as Medicare and Medicaid.
In recent years, hospitals and insurers have sniped at each other over who's to blame for rising costs. Last week, however, Karen Ignagni, president and chief executive officer of the managed-care association America's Health Insurance Plans, said the study should provide an impetus for industry players to work together to bring down costs and improve quality.
According to the study, the slowdown in the rise in spending for hospital services-a 9% increase in 2003 compared with a 10.8% increase in 2002-was reflected in overall health spending. Overall, healthcare spending per privately insured American grew 7.4% last year, down from 9.5% in 2002, making 2003 the second year in a row that the healthcare spending increase slowed.
According to the study, the overall hospital spending increase eased largely because of a dramatic slowdown of the increase in utilization. In 2003, utilization increased 0.9%, sharply down from a 5.3% increase in 2002.
Authors of the study attributed the slowdown to changes in the way managed-care plans began to handle patient access to hospitals several years ago. With that cycle nearing its completion, authors said, the upward trend naturally slowed.
Last month, as required by the new Medicare reform legislation, the CMS proposed an average fiscal 2005 payment increase of 4.7% to urban hospitals that participate in a national quality reporting initiative, up from 1.5% in 2004. Average payment rates to rural hospitals will increase to 6%, up from 5.8% in 2004.
Against such a backdrop, will the study lead to an about-face in policy, resulting in the ratcheting down of payments to hospitals in the near future?
Not likely, legislators said.
Laura Hayes, a spokeswoman for Sen. Max Baucus (D-Mont.), said there is no thought being given at this point to cutting hosp- ital reimbursements.
"Our big focus is on linking costs to quality," she said. Baucus has been a major proponent of raising payment rates to rural hospitals and was instrumental in including provisions to do so in the Medicare reform legislation that became law last year.
A healthcare aide to a high-ranking Senate Republican, who spoke on condition that he not be identified, also said that any changes to hospital payments will be the result of budget constraints, not the trends outlined in the study.
"It's not so significant that it would cause policy reversal on its own," he said.
Growth in hospital spending last year accounted for 53% of the overall healthcare spending increase, making 2003 the third year in a row that the spending growth in hospital care accounted for more than half of the overall increase.
Steinberg said that for hospitals, spending increases are tied directly to improved technology and increased services for patients. "Whenever we talk about rising costs, we need to be certain to keep the value of healthcare dollars at the forefront of the discussion," she said.
Though Washington legislators may not take action as a result of the study, local communities take notice of it and local leaders may want more accountability from hospitals for their prices, said Paul Ginsburg, co-author of the study and president of the center. In addition to putting hospitals in the position of having to justify future price increases to their communities, local health facilities may also find employers tougher to negotiate with, he said.
"They will be less ready to accept sharp increases," Ginsburg said. The CMS' proposed increase in payments to hospitals should bring hospital prices down in the future, he added.
Despite the slowdown in healthcare spending, the 7.4% overall increase was nearly twice the 3.8% rate of overall economic growth, authors of the study said.