What is the Council?
he Massachusetts Council of Community Hospitals (MCCH) is a 15-year-old organization of a cross section of the Commonwealth's community acute care hospital system. We are currently composed of 24 community hospitals covering the service area of 200+ cities and towns. It is structured to be inclusive of a representative sample of disproportionate share hospitals and community teaching hospitals. This organization represents about 50% of the community hospitals in Massachusetts.

Concerns of the Community Hospital Sector

Financial Issues
The community hospital sector is a provider sector that is at risk for not being able to live up to its potential to meet the growing health care needs of the communities which they serve. It is a sector that for historical reasons operates in the shadow of a well established and growing teaching hospital sector. Nationally, annual acute care admissions to teaching hospitals approximate 18% while in Massachusetts teaching hospital admissions approximate 50%. The estimated annual excess cost of secondary care rendered in a teaching setting is $1.7 billion. In 2004, our hospital per capita health care expenditures were about 45% higher than the national average. This excess cost has a direct bearing on the cost of public financing of programs such as Medicaid and the Safety Net Trust Fund as well as the premiums of the private insurer's, principally, Blue Cross, Harvard Pilgrim Health Plan and Tufts Health Plan.

Some researchers have argued that Massachusetts health care insurance premiums are the highest in the nation. The issue for community hospitals is that although premiums are very high, the premium allocated to the community hospital sector to support their cost of care is skewed away from the sector to favor the teaching sector. The historical result of this condition is that most community hospitals have had very poor profitability leading to an impaired ability to acquire needed capital to compete effectively for the secondary care that more properly should be performed in a community setting versus a teaching setting. Dr. Edward Moscovitch, of Cape Ann Economics, identifies, in a 2005 study, the unfavorable economic situation facing our community hospitals as of 2002. The financial situation has only deteriorated since this report was published.

This same study points to a growing need for bed expansion to cope with a steadily rising elderly population, but points out the community hospital sector is in a poor position to expand. On a more positive note, the consistent high quality of care in community hospitals is generally acknowledged, and supported by independent studies, and in some aspects, equals or exceeds the quality of care provided in teaching settings. An October 2006 state study focuses, on End of Life Care (EoL) as conducted in a teaching setting and community hospital setting and concluded that the cost of EoL in a teaching setting was 100% more expensive.

It would appear that simply publishing such information would automatically result in a reallocation of patients and thus capital to the more efficient sector. For a variety of reasons that is not the result of such transparency of information. The reality we must face is that our well regarded teaching hospitals (17) are in a fierce local, national and international competition for reputation, research dollars, and clinical expertise. Our four (4) medical schools and associated Academic Medical Centers (AMC's) are in a fierce competition for teaching material, meaning patients, which unfortunately can only now come from the community hospital sector. With only a finite number of tertiary patients, the teaching sector must continually expand into the secondary care market no matter what the societal cost.

One result of this competitive tension is that approximately one community hospital has closed annually, over the last twenty years, and many of their patients are absorbed into the teaching sector. The result of this competition is clearly an overspending for new facility, redundant medical technology, duplicative services and extraordinary wage levels, but with no apparent increase in quality. This financing and delivery model for acute care has been with us for years and is accepted by the various payers and employers who bear these high premiums. It is a topic that occasionally gets a public viewing but little sustainable interest.

What do we see that others don't?
As the teaching hospital sector continues to grow health care cost will be added to the already perceived high cost of living attributed to housing and energy. Reasons often cited by employers to abandon Massachusetts or to not expand. Recent signs of stagnating population growth in absolute numbers and even more disturbing trends in income levels of outflow population versus inflow population are warning signs we must not ignore. A robust and growing community hospital sector could be an important tool in improving the economic attractiveness of the Commonwealth. The current path we are on where only the teaching sector is able to expand can only lead to higher overall costs. We see lost opportunity in job creation. For every dollar in labor spent in Boston we can create 20-30% more jobs in other parts of the Commonwealth. This could lead to economic expansion and the creation of more affordable housing opportunities. Without capital, the community hospital sector cannot play this optimal role.

Health Reform
We see the possibility of improving patient care overall, mitigating the cost of care increases and improving the economic attractiveness of Massachusetts slipping away unless we can improve the stature of community hospitals and ultimately their ability to acquire capital. In the near term we have to stabilize the current financial situation. In the spring of 2006, the Commonwealth passed health reform insurance legislation (Chapter 58) which creates a new opportunity to recalibrate the acute care financing and delivery system. It is envisioned that through the new insurance vehicles that can arise through this legislation, the approximately 600,000 currently uninsured or underinsured people in Massachusetts will have better access to affordable product and thus the reliance upon the Safety Net Trust Fund will be minimized. Since the Uncompensated Care Pool UCP (predecessor of the Safety Net Trust Fund) was historically badly managed and under funded the community hospital sector sees the possibility of Health Reform leading to a better insured population and thus an opportunity to improve access to capital. In fact, there is language that suggests that emphasis will be placed in directing patients to the most effective site of care. An apparent win for the community hospital sector; or is it? It remains to be seen.

Health Reform Pitfalls
There are several pitfalls that exist which could undo the successful implementation of Health Reform and thus are of immediate concern to the community hospital sector. They are:

• The ability of the selected MCO's to successfully enroll and effectively manage the care of enrollees is in doubt.
  Four organizations have been granted exclusivity for 3 years to enroll from a pool of 200,000 individuals. These organizations are Boston Medical Center (BMC), Cambridge Health Alliance (CHA), Neighborhood Health Plan, and Fallon Health Plan. Under the previously approved Sec. 1115 CMS waiver these plans had operated for many years as Medicaid Managed Care Organizations with BMC receiving the lion's share of the funding. However, little public information was ever made available regarding the actual performance of these organizations to deliver effective care, and certainly no replicable state-wide or nationwide model ever emerged from this experiment.
  
  The community hospital sector is concerned about the ability of these organizations to create a sustainable product. The enrollment goals fall well below the enrollment volumes for successful managed care organizations and individual products lines. Investments are likely going to be needed to bring in expensive expertise or accept a long and expensive learning curve. If the products are not efficiently provided at every step in the process, or the product is priced inappropriately in order to secure business from the Connector, then there will be great financial pressure to support the inefficient premium with dollars that are most accessible to government - diverting Safety Net Trust Fund funding to support the subsidized premiums and/or increasing the hospital assessment (a provider tax now at $160m) that supports the Safety Net Trust Fund. Thus we fear continued under funding of the pool will result should these organizations fail.
  
  We also fear the concentration of power in a few organizations will be used to gain competitive advantage over competing systems. It is not impossible to envision one hospital receiving a high payment for a newly insured patient while its neighbor continues to pay an assessment and receives almost no payment from the Safety Net Trust Fund for a similarly eligible but not enrolled patient. We believe greater public transparency and oversight over this issue can minimize or eliminate this issue and allow for corrective feedback to occur very quickly.

• The ability of the community hospital sector to receive a fair allocation of Medicaid payment relief is in doubt.
  It has been long noted that Medicaid payment for many community hospitals fell well short of the cost of care. Health Reform includes additional dollars (90M cumulative incremental annual increases over three years) which is meant to improve the cost to payment ratio. The success of having the legislature agree to make annual commitments to improve Medicaid payments has value to the community hospital sector, if it actually receives the funding and it is not diverted to the teaching sector to support the "soft" costs of teaching and outlier payments or pay for the excessive costs associated with providing secondary care in a teaching setting. The high cost of providing Medicaid recipients secondary care in a teaching sector places great pressure on the teaching sector to use its' political muscle to support these costs. We are concerned that great distortions will continue to exist for secondary care payments for Medicaid patients, thus preventing the community hospital sector to receive the capital it needs to support their mission of serving their underserved populations.
  
  We believe that uniform fee schedules for care are effective tools for distributing limited funding fairly across all communities, while still protecting the safety net providers.
  
  We argue that the introduction of performance standards should give weight to historical underpayments that have prevented the introduction of advanced information systems and other technologies which we believe argue for extraordinary payments to such providers to acquire needed systems.

• The ability of community hospitals to effectively compete with niche providers, which are given unfair cost advantage in the marketplace and compromise a hospital's ability to subsidize critical community services.
  The Moscovitch report pointed to the extraordinary utilization of hospital outpatient services. The report noted that if Massachusetts ambulatory care utilization mirrored the national average, hospital costs would be approximately $2.2B lower annually. The cause of this discrepancy is not documented although it was noted we use 18% more surgical procedures than the national average and 22% more emergency room visits.
  
  Elsewhere in the country niche providers are thought to be more extensively entrenched and thus the volumes not reflected in hospital operations. Another factor could be the higher utilization of ambulatory services available and used as a result of the extensive use of a teaching model. There are likely many other possible explanations. The issue for community hospitals is that whatever the reason the rapid expansion of for profit medicine through free-standing ambulatory surgical centers and other technology centers such as imaging are a threat to the financial viability of the hospital and most importantly their ability to sustain their mission. Most hospitals lose money on inpatient care and make money on ambulatory care. With overall community hospital profitability barely marginal a loss of outpatient profit will greatly compromise a hospital's overall ability to subsidize needed community services such as mental health, emergency room and many other critical services.
  
  Nationwide there is evidence that the patient selection tactics used by niche providers yields high profits to physician investors and others at the expense of broader health care needs. We believe that a more rational allocation of resources will result if such providers were no longer excused from the societal costs that are carried by the community hospitals. Such costs are the provider assessment supporting the Safety Net Trust Fund, Determination of Need (DoN) Regulations that require compliance and other regulation that drives the cost of care in hospitals. We believe all niche providers, especially Imaging, Radiation Therapy, and Ambulatory Surgical Centers should be subject to a DoN process.

• The ability of community hospitals to receive a higher allocation of private pay premium remains problematic
  Community hospitals have an uneven ability to negotiate for an appropriate level of payment for the care they provide. The lack of leverage of providers to receive fair payment becomes a significant issue of public policy if in fact there is a misallocation of capital to the teaching sector as a result of their greater leverage. The market is being manipulated in some way if the provider with the greater leverage is the least efficient provider of the service.

  The view of the community hospital sector is that such manipulation seems to be occurring. Little evidence exists that suggest the acute care market has any of the attributes of a free market. If good public policy resulted from this condition it would be more accidental than planned. Rather, we see an expensive system whose overall quality outcomes do not appear to justify the overall expense (see Connector Board presentation-Health Care Quality and Cost Trends August 2006).

  The payer market is best characterized as an oligopoly. This condition appears to contribute to a misallocation of resources. There has been little competition between the plans. Recent market share changes between plans are thought to be the result of failures of business acumen rather than the result of innovation. Insurance product that favors community based medicine such as consumer driven health plans or products that reward selection of cost effective providers has been generally unsuccessful to date. Some speculate that the product offerings, thus far, offer very little financial penalty to the consumer for selecting high cost providers. To date, whether it is fear of political reprisal in some form or employer backlash toward restrictive products or some other reason, there is little incentive for payers to recalibrate their premium payout strategies to allow for community hospitals to grow. To date, employers apparently have a large appetite for continued double digit premium increases.

  Conversely, community providers have no appetite for institutional consolidation in order to achieve greater leverage with the payers. At the present, this standoff is a great disadvantage to the community hospital sector. If this condition continues there is some likelihood that the resulting loss of capital to attract and retain clinical manpower resources, technology and upgraded facilities will eventually appear in quality indicators that thus far have been favorable to the community hospital sector. If and when that occurs we would mark it as a lost opportunity to mitigate the ever rising cost of Massachusetts health care.

• The ability of community hospitals to resist inappropriate incursions of the teaching model and services into their communities is compromised due to a lack of capital.
  The growth of teaching hospital sites of care into the suburbs and outlying communities is relentless. Our members are very much supportive of associations with the teaching sector where the goal of the relationship is quality improvement driven. In this regard the teaching sector is performing an appropriate service. However, when the action is one which is directed to simply securing new patients for secondary care we should resist.

  Placing new sites of care in well served areas is simply creating redundant facilities and weakens the ability of the local community provider to remain economically viable. These sites are established after very detailed patient profiling has occurred and target a well insured population. It may be a very important tactic for any individual teaching facility to advance for its own survival as it competes with other teaching hospitals, but it is clear to us that their battle for dominance is causing collateral damage to the community hospital sector. Capital is very limited in the community hospital sector. We believe the teaching sector has been over rewarded with capital not as a result of the operation of a free market, but rather as a result of an artificial market construct. To use this excess capital to raise wages to attract clinicians from the community hospital, to subsidize services below their cost of care, to gain initial market share, and to support advertising that leads to inappropriate over utilization of services are very real threats in our mind and very poor public policy.

What is the path going forward?

1. Community hospitals must educate consumers, employers, and payers that a legitimate threat to the economic well being of Massachusetts exists and that a misallocation of capital within this sector can jeopardize the overall quality of care to our citizens and squander dollars better spent in other sectors of the economy.
2. Identification of options that could create a win-win scenario for most if not all of the players. The current trajectory of cost and quality can only produce winners and losers. Other strategies exist that can strengthen all providers but it requires a political will to undo the status quo.
3. Temporary measures can be put in place to redirect public monies to better compensate community hospitals for their capital needs. One possibility is a redirection of capital from the teaching sector to the community sector for a four year period. Other possibilities are for the Commonwealth to guarantee the debt of new public issues for community hospital capital projects, allow for the use of moral obligation bonds, or to provide a fund for capital projects. Measures to inhibit the unfettered expansion of niche providers would contribute to stabilizing the current capital outflow from the community hospital sector.