This rural health system has nearly a decade of experience offering cash-only package pricing for medical services including, most recently, inpatient stays
While healthcare networks and hospital organizations nationwide argued over pricing transparency, Pomerene Hospital in Millersburg, Ohio, embraced the concept. The not-for-profit hospital developed packages of care that include “one all-inclusive price for tests, procedures, and episodes of care, rather than a lengthy list of itemized charges that didn’t even include professional fees” for its self-paying customers, Modern Healthcare reported.
A companion proposed rule (CMS‑9915‑P) will, if passed, require health plans and healthcare insurers to disclose covered healthcare costs to customers upon request, including “an estimate of such individual’s cost-sharing liability for covered items or services furnished by a particular provider.”
These rules have created a fire storm of controversy. Hospital systems and healthcare organizations like the American Hospital Association (AHA) argue that revealing payer-negotiated rates will undermine health networks’ negotiating power with insurers and increases hospital prices.
They may be right. But that hasn’t stopped one health
network in rural Ohio from providing a blueprint on price transparency that
could be a model for the rest of the nation—at least for one segment of its
customer base.
Bundled Care Packages Increase Revenues at Pomerene
Pomerene is a not-for-profit healthcare provider established
in 1919. Originally, the tiny hospital had “a six bed women’s ward, a three bed
men’s ward, six private rooms, a three bed OB ward, and a nursery with five
cribs. There were ten physicians on staff,” notes the hospital’s website.
Today, Pomerene has more than 325 employees, 80 physicians, and 55 licensed beds. The hospital has 30 departments on three floors and is one of the largest employers in Holmes County.
Pomerene has developed bundled care packages for more than 300 services—including inpatient care—for Amish and Anabaptist patients, as well as any other self-pay patients who pay their bills in full at the time of service, Modern Healthcare reported.
The initiative came in response to concerns raised by the
area’s Amish and Anabaptist communities, which make up roughly 40% of the
county’s population. They do not use commercial health insurance. Instead, they
pay their medical bills out of pocket, and when they are unable to pay for
medical services, benefit actions and church support fill the financial gaps.
Church members asked Pomerene for guaranteed bundled pricing.
They did not want the uncertainty of hospital bills that might include lists of
itemized charges, but not professional fees and other potential costs.
“We have our own healthcare,” a retired Amish carpenter (who asked that his name not be used) told Reuters. “They (hospitals) give you a bill. If you can’t pay it, your church will.”
Both religious groups also value thriftiness and are known
to be fierce negotiators. In recent years, they lobbied Pomerene Hospital to
include inpatient care in its all-inclusive pricing structure.
“We assume a certain level of risk with this financial arrangement,” Pomerene Hospital CEO Jason Justus, who at the time was Pomerene’s Chief Financial Officer, told Modern Healthcare. “But it’s about saying what we’ll do and doing what we say. That builds a great deal of trust in the community.” Justus took over as CEO in July, 2019, reported The Daily Record.
Jason Justus, CEO, is shown above to the right of Tony Snyder, former CEO of Pomerene Hospital until July of 2019. Initially, Snyder was concerned that posting the hospital’s prices would discourage the Amish from seeking care at his hospital. “They are shrewd business folks, they are price sensitive, and they will shop,” he told Modern Healthcare. “They don’t expect you to lose money, but they don’t want to be paying exorbitant margins.” Fortunately, price transparency had the opposite effect. “We were holding our breath,” Justus said. “We were optimistic it would work, and we were pleasantly surprised when it did.” (Photo copyright: The Daily Record.)
In total, nearly one-quarter of the hospital’s patient revenue comes from bundled-service packages, with 3,387 packages provided last year, Modern Healthcare reported. In 2018, Pomerene brought in $36,971,931 in operating revenue, according to Modern Healthcare Metrics.
Bundled Payments Drive Innovation
Bundled payments also have forced hospital administrators and staff at Pomerene to find innovative ways to cut costs by shortening patient stays. For example, Modern Healthcare reported that the length of hospital stay for childbirth, which at the time averaged two-to-four days, dropped to 24 hours after the hospital created a 24-hour package for obstetrical deliveries. Within 18 months, 80% of childbirth cases fit the 24-hour model.
“Here is free market economics at work,” said Robert Michel,
Dark Daily’s Editor-in-Chief. “This hospital understands that it must
meet the needs of this unique group of patients with good service and quality
at a fair price. That understanding comes with an incentive for the hospital’s
staff to identify and implement innovations to cut costs while improving
quality.”
However, Pomerene Hospital’s policy of disclosing prices to patients in advance of services remains uncommon in the healthcare industry. “Outside of Medicare, bundled pricing is rare-to-nonexistent among full-service US hospitals, most of which say they don’t know their actual costs for providing care and, therefore, can’t offer such prices,” Modern Healthcare stated.
For competitive reasons, Pomerene does not publicly post its
package prices and only prospective cash-paying patients are provided the cost
breakdowns. That will most likely change following enactment of the CMS final
rule.
Other Health Systems That Bundled Prices
Though Pomerene does not shares its price-packaging methods
with other hospitals, its track record for attracting cash-paying patients made
it an example to other hospitals serving similar religious communities.
The Medical Center at Scottsville in Kentucky followed Pomerene’s lead and discounted cash prices—paid upfront or before discharge—by 25% for 300 medical services, including childbirth and common surgical procedures. This was to attract the area’s Mennonite population, noted Quartz magazine.
“I will tell you they are very conscientious about cost.
They are very business-savvy and will shop around,” Eric Hagan, Regional
Vice President of Operations at Med
Center Health and Administrator of the Medical Center at Scottsville, told Quartz.
Will Americans as a whole be just as eager to shop for
medical services? The answer to that question may determine whether increased
price transparency throughout healthcare, including clinical laboratory testing
and anatomic pathology services, results in lowering their healthcare costs.
Negative financials, low population growth, and excess inpatient capacity cited as reasons communities—especially rural areas—may lose their independent hospitals, including access to nearby clinical laboratory testing and anatomic pathology services
Could America’s independent rural hospitals actually disappear
altogether? Metrics compiled by multiple healthcare monitoring organizations
suggest that, with the increase in mergers and acquisitions of health networks,
it’s a distinct possibility.
If so, what would happen to all the clinical laboratories affiliated with and servicing those hospitals? And how might hospital-based medical laboratories that are absorbed into larger healthcare networks be required to alter their workflows? For almost three decades, the clinical laboratory profession has seen similar hospital acquisitions lead to consolidation, standardization, and regionalization of the medical laboratories inside these hospitals. Often these organizational restructurings mean layoffs of lab managers and medical technologists.
Probably the more serious challenge is what will happen to
all the rural patients who cannot get to larger health networks located in
urban settings.
Hospital Closings Create Risks for Rural Communities
Experts say rural hospitals—especially providers serving
small populations in southern and midwestern states—are in precarious positions
going forward.
Kaiser Health News (KHN) reported in August that more than 100 rural hospitals closed since 2010, and these closures have serious implications for patients, such as a lengthy transport to another hospital’s emergency department.
“Across America, rural patients spend more time in an ambulance than urban patients after a hospital closes,” Alison Davis, PhD, Professor of Agricultural Economics at the University of Kentucky, and Executive Director of the Community and Economic Development Initiative of Kentucky, told KHN. Her team analyzed ambulance call and transport time data and found that a trip can grow from an average of 14 minutes before a hospital closed to 25 minutes after, KHN reported. (Photo copyright: Northern Kentucky Tribune.)
430 Rural Hospitals Likely to Close!
Rural hospitals usually do not have many nearby competitors. So, what brings so many of them to the brink of closure? According to a Navigant (NYSE:NCI)) analysis of more than 2,000 rural hospitals, “21% are at high risk of closing based on their total operating margin, days cash-on-hand, and debt-to-capitalization ratio. This equates to 430 hospitals across 43 states that employ 150,000 people!”
Navigant identifies the following as factors in the decline
of these struggling rural hospitals:
“Low rural population growth;
“Payer mix degradation;
“Excess hospital capacity due to declining
inpatient care; and
“An inability for hospitals to leverage
technology due to lack of capital.”
Navigant goes on to state, “Further review of the community
essentiality (trauma status, service to vulnerable populations, geographic
isolation, economic impact) of rural hospitals at high financial risk suggests
64% or 277 of these hospitals are considered highly essential to their
community’s health and economic well-being. In 31 states, at least half of
these financially distressed rural hospitals are considered essential.”
After reviewing the 2,000 rural hospitals Navigant’s analysts concluded that, unless trends reverse, one-in-five rural hospitals (21%) risk closing, a news release stated. And these hospitals are “essential” to the area’s residents.
“We show that two in three of these hospitals are considered highly essential to their communities: that’s 277 hospitals nationwide,” wrote David Mosley, Navigant’s Managing Director, in a STAT blog post. “Furthermore, if these hospitals close, already fragile rural economies will crumble while residents will be forced to travel long distances for emergency and inpatient care.”
Fierce Healthcare noted that “Of Montana’s 12 at-risk rural hospitals, all of them are considered essential to their communities. Kansas has 29 total at-risk rural hospitals with 25 of them—or 86%—considered essential to their communities. Georgia and Mississippi have seen 77% and 61% of their essential rural hospitals at financial risk, respectively.”
Navigant’s list of states with the highest percentage of
rural hospitals at risk of closing includes:
Alabama: 21 hospitals (50%)
Mississippi: 31 hospitals (48%)
Georgia: 26 hospitals (41%)
Maine: eight hospitals (40%)
Alaska: six hospitals (40%)
Arkansas: 18 hospitals (37%)
Oklahoma: 17 hospitals (29%)
Kansas: 29 hospitals (29%)
Michigan:18 hospitals (25%)
Kentucky: 16 hospitals (25%)
Minnesota: 19 hospitals (21%)
Comparing Independent Hospitals to Health Networks
But it’s not just rural independent hospitals that are
struggling. Modern
Healthcare Metrics reports that 53% of all stand-alone hospitals in the US
have suffered operating losses during each of the last five years (2012 to
2017). Conversely, about half (26%) of health system-affiliated providers have
lost money.
Statistics compiled by the American Hospital Association (AHA) show there are approximately 5,000 non-federal acute care community hospitals in the US. In 2017, about 75% of them were part of multi-hospital systems, an increase from 70.4% in 2012, Modern Healthcare Metrics data indicated.
Average length of stay increased 6.4% at
independent hospitals, while it decreased at health system hospitals by 23.5%;
Occupancy rates fell to 43.6% from 53.9% at
independent providers, compared to rates falling to 53.7% from 61% at
system-owned hospitals;
Independent hospitals seem to rely on patients
having longer lengths of stay;
Hospices and skilled nursing facilities compete
with stand-alone hospitals.
Change is coming to parts of the nation that depend on
independent hospitals, and it’s not good. Medical laboratory leaders are
advised to prepare for serving patients who may lose access to nearby tests and
diagnostic services. On a positive note, medical laboratories in independent
hospitals that consolidate with healthcare systems could bring expertise,
adding value to their new networks.
