Hospitals: Patients won’t be paying price for facilities, technology [The Janesville Gazette, Wis.]

Dec. 12--JANESVILLE -- How much will it cost me?

That's an obvious question for consumers as health care providers pump hundreds of millions of dollars into new buildings and expansions they say are designed to meet customer demand with convenient access to top-notch physicians and services.

John Cook, Mercy Health System's chief financial officer, understands patient fears that "if they build it, I will pay for it."

So, too, do Cook's boss, Mercy CEO Javon Bea, and Charlie Johnson, chief financial officer of SSM Health Care of Wisconsin.

All three health care executives, however, said that patients will not see line items on future bills that say "construction, new hospital" or "expansion, Mercy Clinic East."

Most health care pricing is set on fixed-price margins, they said. Medicare and Medicaid reimbursements are fixed, and all indications are that they will decrease. Also, insurance providers negotiate prices specific to a wide range of procedures and services, often determining what health care providers can charge.

"I know that consumers, patients are concerned that when they see a big expansion, they think, 'Well, it's going to cost me more,'" Cook said. "Just because we improve our facilities, improve the technology and improve the state-of-the-art health care facilities all in order to provide the best care to our patients, what it doesn't mean is that Medicare, Medicaid and insurance companies are going to pay us any more."

Bea compared his system's projects to home improvements.

"If you take out a home equity loan to put a new roof on, I don't think (your employer) is going to pay you ... more," Bea said. "He's not going to raise your salary. No, you've got to pay that out of your earnings.

"That's what we have to do. We have to pay for these projects out of our normal operations. People say that's going to raise my costs. No, we're paying for them over 25 or 35 years."

Providers typically pay for larger projects with bond issues that run for decades. The debt service is spread over many years, and operating revenues from all components in the far-reaching Mercy, SSM and Dean systems support the local projects.

That doesn't mean providers don't have short-term construction obligations. They do, and those payments typically come from what Bea refers to as normal earnings.

He and the others said providers can't pass on much -- if any -- of capital expenditure costs in the form of higher prices. Instead, they must become more efficient in their operations and use gains there to pay short-term construction costs.

Head to head

In Janesville, cost control will soon take on an added incentive when SSM and Dean Health System open their $145 million hospital and clinic in January.

For the first time in Janesville, two fully integrated health care systems will be pitted against one another.

"In a one-hospital town with the possibility of another coming in, the issue becomes: Will the new hospital perhaps engender positive competitions?" said Alwyn Cassil, director of public affairs for the Washington, D.C.-based Center for Studying Health System Change.

"There often is a lot of talk about competition, but it rarely focuses on price or quality. It tends to come down on the side of who has the latest and greatest amenities."

True competition on price and quality benefits a community, said Cassil, who said she has no direct knowledge of the health care market in Janesville and could only speak in generalities.

"But if the competition is based on perceived quality because of amenities, then it's not so much of a benefit," she said.

With more than $70 million committed to high-visibility construction projects in Rock and Walworth counties, Mercy has launched an advertising campaign emphasizing community and employees who provide the "very best care."

On Jan. 9, SSM and Dean will throw open the doors to their facility on Janesville's southeast side, and there has been no shortage of ads and billboards touting that project.

Johnson believes that stiff competition is good for health care consumers.

He sees it every day in the highly competitive Madison market, as well as others.

"We believe that choice in health care will improve health care for all," he said. "We believe a second hospital will actually help control health care costs in Rock County, so not only will you have improved access, you'll have choice."

The Federal Trade Commission has studied choice and its role in providing high quality, cost-effective care and found that vigorous competition can provide important benefits and hospital cost controls, he said.

"If you look at the Madison market, we have extreme competition here, and you compare the health care costs structure of Madison to other markets, even in Milwaukee where they're dominated by just a few systems, and our costs, quality and access rate very highly," he said.

"We actually think there are a substantial number of benefits to employers and certainly our patients and customers in general."

Johnson said the SSM/Dean studies that showed substantial out-migration from Janesville build the business case for the new hospital and clinic.

"When you capture the local health care element that should be being done in Janesville that is leaving, that will way more than offset any incremental costs to your community," he said. "And it keeps us from having to do a further expansion in Madison as we continue to grow.

"...It makes less sense to do an expansion in Madison than where the patients actually are. We want to meet their complete needs, not only on the insurance side and the physician side, but also on the health care side by keeping health care local where it can be done in a more economical way."

Since plans for the new hospital were unveiled, Mercy's Bea has said St. Mary's 50 beds are unnecessary. The area, he said, already has too many hospital beds, particularly as the industry shifts its focus to more outpatient procedures.

There's no formula that says a city should have a given number of hospitals, but an industry benchmark suggests that a population should have 2.6 hospital beds per 1,000 residents.

SSM officials have said that Rock County is expected to have a population of 161,000 next year. That would require about 420 beds.

The county has three hospitals: Mercy in Janesville, Beloit Memorial Hospital and Edgerton Hospital and Health Services. Together, they staff just more than 300 beds, which supports the contention of SSM and Dean officials that the area will need 100 more hospital beds.

But the three existing hospitals are licensed for 414 beds.

Throw in St. Mary's 50 beds, and the licensure level in Rock County will increase to 464, with about 370 of them staffed.

SSM and Dean officials have said the new beds will be filled by Dean patients who were charged a premium for inpatient services at Mercy, as well as patients who previously left Rock County for hospital services.

Mercy typically averages about 100 inpatients a day at its hospital, and about 30 percent of those have been Dean patients that -- at least in theory -- would immediately fill 30 of the 50 beds at St. Mary's Janesville Hospital.

It's that time of year

Local employers and employees are once again wrapping up that time-honored tradition, the meeting at which they discuss changes in employer-sponsored benefits for the coming year.

Often, one of the most significant changes is the cost of health insurance premiums, both to the employer and employee.

After several years of relatively modest premium increases, annual premiums for employer-sponsored family health coverage increased 9 percent in 2011, according to the Kaiser Family Foundation.

On average, workers pay $4,129 and employers contribute $10,944 toward a premium that this year totaled $15,073.

Premiums increased significantly faster than workers' wages (2.1 percent) and general inflation (3.2 percent).

Since 2001, family premiums have increased 113 percent, compared with 34 percent for workers' wages and 27 percent for inflation, the foundation reported.

Bea, citing industry reports, said that neither construction costs nor health care costs appear to be fueling this year's increases.

"The health care providers haven't contributed to the new premium increases," he said. "Have there been periods when health care costs have caused premium increases? Absolutely, but we're not in one of those periods right now."

Bea said much of the increase is due to uncertainty, including provisions of the 2010 Affordable Health Care law.

One example, he said, is the provision that extends coverage to age 26 for dependents on their parents' plans.

Kaiser estimates that change provides coverage for an additional 2.3 million people.

Bea knows this because he is also chief executive officer of MercyCare Insurance, which covers 40,000 lives, including 23,000 in Rock County.

At many company meetings, his MercyCare plans compete with Dean plans associated with the new hospital and clinic that will open in January.

Construction or no construction, Bea expects the two plans will be competitive.

"I think we've been very competitive," he said. "We're providing care pretty cost effectively."

Lon Sprecher is chief executive of Dean Health Plan, which insures about 20,000 people in Rock County. He expects the same competition.

"I think the competition will really find its way into the competing health plans in the marketplace," he said "The underlying provider cost and quality will find its way into MercyCare now, and it will find its way into Dean Health Plan.

"In the past, 38 percent of our cost was controlled by somebody else besides us, so I think there will be more price competitiveness on the two health plans now than what there was historically."

Does that mean Sprecher expects costs will decrease?

Hardly.

"Will you ever see costs going down? I don't think so," he said. "But will you see a bend in the cost curve? I think the answer is absolutely yes."

Competition appears to be working

Bill Boyd is a partner and chief financial officer of Boyd Consulting Group in Janesville.

Since its inception in 1995, Boyd Consulting Group has grown from a two-person operation to a company that designs and implements employee benefit plans for more than 100 companies in six states.

Many of those are in the Janesville area, and Boyd is seeing health insurance plans with single-digit premium increases.

From his experience this year, Boyd said the increases for Mercy and Dean plans have been highly competitive, in some cases offering no increases.

"In many cases, those two have easily been the lowest," Boyd said. "I really think it has to do with the competition.

"They are very competitive with each other."

Boyd said he's seen substantial increases in some other plans not sponsored by Dean or Mercy.

"I think the competition is good, and our residents, our community will benefit and come way out ahead," he said. "I also think it will last, as the competition isn't going to go away."

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(c)2011 The Janesville Gazette (Janesville, Wis.)

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