A system of children's hospitals rooted in the philanthropy of a fraternal order is changing its business model, a lingering effect of financial volatility nearly two years after markets reversed a precipitous slide.
Shriners system gets go-ahead to bill insurers
Shriners Hospitals for Children, which opened its first hospital more than 80 years ago, will start to bill insurers for the first time in its history after investment losses depleted the system's assets by $3 billion and left it with roughly $575 million in operating losses in 2008.
The tumultuous year “took us over the edge,” said Douglas Maxwell, president and CEO of Shriners Hospitals. The system, which owns 22 hospitals and was founded by the Shriners International, will gradually introduce billing at its 20 U.S. hospitals, beginning with a half-dozen already equipped and prepared for the switch, he said.
The health system, based in Tampa, Fla., began preparing for insurance billing more than a year ago, Maxwell said, but learned only this month that authorities approved the plan.
Last week, HHS' inspector general's office published an advisory opinion that said an unnamed system of children's hospitals could bill insurers and that waiving patients' cost-sharing obligations would not be viewed as kickbacks to patients. Maxwell confirmed Shriners Hospitals as the unnamed requester.
The conclusion is attributed in part to the organization's history of free medical care for children. The proposal “represents a singular vestige of the requestors' founding and continuing charitable mission,” the opinion said. “This institutional history merits deference” inappropriate for other institutions.
The inspector general's office also noted that Medicaid generally does not require cost-sharing for those younger than age 18 and few Shriners Hospitals patients are enrolled in Medicare or Tricare, which means there's less chance the policy would lead to unnecessary treatment or overuse of medical care paid for by the government.
And demand for the system's specialized medical care—including spinal cord injuries and burns—already exceeds capacity, the opinion said, so it appears “implausible that the requestors, already faced with more qualified patient applicants than they can accommodate, would waive the small aggregate cost-sharing amounts at issue here in order to generate additional referrals.”
Maxwell said Shriners faced closing hospitals without insurance revenue. In 2009, the organization proposed closing six hospitals after its investment portfolio plunged. The sharp drop in assets followed years of steadily rising medical costs that left the hospitals dependent on investment income to cover operating losses, he said. “Up until that point we hadn't talked about having to close anything,” he said.
In 2008, Shriners Hospitals reported investment income losses of $214.6 million that left the system with $42.6 million in total revenue that year and expenses of $617.6 million. The prior year, Shriners Hospitals reported $580.5 million in investment income, or roughly 71% of the system's $812.2 million in total revenue.
The organization decided to begin billing insurers rather than closing hospitals, he said. The cost of the changeover is projected to be $16 million to $20 million. “Coding is apparently everything,” he said.
Roughly 58% of the system's patients have some form of insurance. Maxwell said hospitals will begin billing in groups of four so the switch doesn't overwhelm employees. “This is, I think, going to be fine,” Maxwell said.
Shriners Hospitals requested the advisory opinion to find out whether its financial-aid proposals for patients might violate the anti-kickback statute or cause the inspector general's office to invoke its authority to penalize providers that reward Medicare or Medicaid beneficiaries for their business.
Other reasons the inspector general's office cited for its approval included that the system pledged not to advertise or discuss its payment policy prior to admission, and said it would waive cost-sharing for every patient. Shriners hospitals also provide highly specialized care that is not generally overused, and their doctors are not paid based on volume or the value of the services they provide.
Julie Kass, a principal in the law firm Ober Kaler who specializes in healthcare fraud and abuse, said the particular history and model of Shriners Hospitals means other providers should not consider the advisory opinion an opening to draft similar policies. The inspector general's office “goes out of its way” to stress the unique circumstances that led to its approval for Shriners Hospitals' cost-sharing waivers, she said.
Kass said other providers may find more useful guidance in the opinion's analysis of Shriners Hospitals subsidies for lodging and transportation based on medical and financial need.
In clearing those subsidies from the threat of civil monetary penalties, the inspector general's office cites a section of the Patient Protection and Affordable Care Act that allows leeway for assistance that improves access to care with minimal risk of influencing where Medicare and Medicaid patients pursue care.
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