A surge in healthcare construction is hitting consumers’ wallets.
That’s the assertion of Allan Baumgarten, a healthcare analyst and author of the just-released Florida Health Market Review, which analyzes the performance and competitive strategies of Florida’s healthcare payer and provider organizations.
The new report found continued consolidation by health insurers and hospitals systems combined with coverage expansion has improved profits for both.
Providers say that mergers and consolidation provide new capital for improvements at the hospitals that are acquired, along with best practices and protocols to improve the quality of care.
According to Baumgarten, it’s more about market power.
“The major organizations, both health plans and hospitals, are making good money. Through capital investments and acquisitions, they’re trying to gain additional market power. For hospitals, it is so that they can get increased payments from the health insurers. The health plans would say they want better discounts and deals from the providers. But in the process, since they’re both making good money, it has to come from somewhere … and a lot of it falls on employers and individuals to pay higher prices,” Baumgarten said.
The report breaks down specific financial information for about 200 Florida hospitals, including the hospitals in the largest health systems in Tampa-St. Petersburg, as well as major unaffiliated hospitals in the area.
The hospitals as a group had an average margin of 8.8 percent. Healthy margins are important, Baumgarten said.
“Whether you are a tax-exempt nonprofit hospital or an investor owned for-profit hospital, you need to generate revenue that more than covers your costs, because you need to be able to reinvest in new technology, new equipment. You need to subsidize access to health care for those in the community that can’t afford it,” he said.
Bayfront Health, a regional network that includes Bayfront Health St. Petersburg, and the only health system to show a loss, said in a statement that the numbers in the report don’t reflect actual results.
“The 2018 reported loss includes non-cash impairment charges and does not accurately reflect the operating results of Bayfront Health St. Petersburg or the Bayfront Health Network,” the organization’s statement said.
“While the current financial performance of Bayfront Health St. Petersburg does not yet reach its full potential, we are actively investing in the hospital and its services, recruiting physicians to the community, and enhancing the services we provide for the community.
“Across the Bayfront Health Network, we have invested approximately $300 million over the past five years as part of our commitment to provide critically important healthcare services for all the communities we serve, and we expect the investments will help improve operational and financial results and facilitate growth, access to services, quality care, and a good patient experience.”
While Baumgarten said he didn’t know the specific reason for Bayfront’s loss, he suggested some of it could be related to issues at Bayfront’s parent company, Community Health Systems (NYSE: CYH).
“They over-extended themselves, especially with the acquisition of the old HMA hospitals, which were a lot of small often rural hospitals. It gave them an impressive number of hospitals across the system, but it was a hard group of hospitals to manage profitably. They’ve been spending the last several years trying to shed a lot of those hospitals and refocus their efforts on those markets where they have the biggest presence or the most strength, which would include this area,” Baumgarten said.
Rhetoric versus reality
There’s been discussion for years about changing the way hospitals and doctors are paid, shifting from a fee-for-service system – where payments are made for each service provided and are based on quantity – to value-based payments designed to incentivize high-quality care. But the shift has been slow to occur, Baumgarten said.
“The rhetoric says yes. The actual numbers say no,” Baumgarten said.
The Florida Health Market Review report showed only a handful of the state’s health insurers base payments on capitation, or a system designed to hold down costs. Those insurers that do are primarily Medicare Advantage HMOs.
By building new hospitals, health centers and free-standing emergency departments, healthcare systems are sending a message that they don’t think a big change will happen anytime soon, he said.
“I think a lot of this investment and choice about what to invest in and where to invest, are based on an assumption about fee for service payment to providers. They’re saying, we think that we’re going to continue to get the vast majority of our revenue from payers, whether they are insurance companies for employers or Medicare or Medicaid, paying us for every unit of service. So our incentive to increase revenue is to increase units of service — more inpatient days, more tests and procedures, more facilities,” Baumgarten said.