The state's largest health insurance company is waging battleagainst a high stakes, multi-million dollar proposal to raise pricesat West Virginia's newest hospital.
Officials at United Hospital Center in Clarksburg are askingstate regulators to allow a 21 percent increase in the prices thehospital can charge patients.
If approved, the increase could be the largest ever granted bythe West Virginia Health Care Authority, which oversees the statehealth care system.
Customers covered by the state's largest insurer, Mountain StateBlue Cross Blue Shield, would end up paying $9.5 million a year tocover the new costs, according to regulatory filings.
The hefty request comes as United Hospital Center is preparing tomove into an eight-story, $300 million building just off Interstate79 exit 124 near Bridgeport. The new UHC facility opens in Octoberand replaces a smaller, aging building in Clarksburg.
To pay off the loans for the new building, hospital officialsneed an additional $14 million a year over the next three decades.
To raise the money, they are asking the health care authority toraise the average rate the hospital can charge a patient for care by21.25 percent.
Right now, the average outpatient visit is $507. If UHC's requestwere approved, the average outpatient visit would cost $614 a year.
Inpatient costs would go from $12,200 to $14,800 for an averagestay.
UHC President Bruce Carter said there has been some stickershock.
'UHC has received a certain amount of criticism because peoplereact viscerally to that number out of context. I don't blame them;I would, too,' he said.
But Carter said even if the whole increase is granted, UHC stillwould be charging less than some of its peers.
'Even if the authority approved our rate increase of what werequested, our rates would still be below average,' Carter said. 'Ithink that's the rub of the matter.'
Without the increase, Carter said the hospital would lose severalmillion a year; risk exhausting its cash reserves to buy equipmentand pay staff; and could eventually face bankruptcy if there arechronic revenue shortfalls because of price controls.
But private insurance companies, whose customers will end upfooting much of the bill, call the increase unreasonable andunnecessary.
Those companies will bear much of the burden of the price hikebecause the increase won't apply to government insurance programslike Medicare, Medicaid or PEIA. The government insurance programs,which cover most of the customers at UHC, are able to negotiate orset their own prices at rates below what hospitals want to chargeand below what private companies pay.
Mountain State referred questions about its position to itsfilings with the state health care authority.
In one of the filings, Mountain State called the request'excessive, unreasonable and premature.'
In a separate brief from The Health Plan of the Upper OhioValley, another private insurer, attorney Robert Kota suggested direoutcomes if the increase is granted.
'It's getting to the point where employers, employees andindividuals may not, and in some cases cannot, afford the premiumsnow, and higher hospital and doctor rates just exacerbate theproblem,' Kota said.
The consumer advocate from the state Office of the InsuranceCommissioner called the request 'unprecedented' and said granting itwould open the door to other large requests.
A 21 percent increase 'would open Pandora's box as hospitals fromacross the state would be lining up to file similar unnecessary andimproper rate increase requests,' said consumer advocate DennisGarrison.
He instead recommended a 6.25 percent increase.
The health care authority, which has overseen rates at statehospitals since the 1980s, is expected to make a decision withinweeks. Depending on the outcome, it could be appealed.
Sonia Chambers, the president of the authority's board ofdirectors, said UHC's request was unusually high but was also thefirst rate increase request she'd heard following the constructionof a new hospital.
'We have very rarely gone into double digits,' Chambers said.
A long process
The request case highlights the complicated nature of health careregulations.
The West Virginia Health Care Authority is one of only twohospital rate-setting programs in the country.
Since the 1970s, seven states have tried similar systems. Butonly Maryland and West Virginia continue, according to a Decemberpolicy paper released by The Commonwealth Fund, a private foundationthat studies the health care system.
West Virginia's authority acts much like the state Public ServiceCommission.
The 21 percent rate increase itself is a bit misleading.
Few patients actually pay the current average of $507 for anoutpatient visit or $12,200 for a stay.
That's because of the wide variance in services patients receive.One person might come in for a simple exam and pay less than theaverage; another person might have a long-term illness and pay farmore.
But getting approval to raise rates allows the hospital to raiseprices on a host of services so that the average goes up. That isdone by tweaking prices that are contained in a rate book that is anexhaustive list of the thousands and thousands of charges thathospital can make, from a single pill to an entire surgery.
If a hospital exceeds its rates in a year, the authority canpunish it by trimming what it can charge to bring it back withinlimits. Hospitals can get a pass from regulators if they have todeal with an unusually high number of severe cases.
The authority considers two types of rate increase applications.One, known as the 'benchmark' rate, is a standard, year-to-yearincrease granted to allow hospitals to keep up with rising costs,like inflation.
The other type of increase is known as a 'standard' increase,even though it's used less often. Asking for that type of increaseforces hospitals to justify their proposed rate.
The 21.25 percent increase UHC is asking for includes a 6.25percent benchmark increase - which would have been givenautomatically had UHC not applied for a standard increase - and a 15percent increase for costs associated with the new hospital.
UHC originally filed its rate increase request in mid-October.
Insurance companies quickly jumped in to request a hearing, whichhappened in February. Lawyers filed closing briefs in early April. Adecision could come by the end of this month.
Since January, UHC has been operating on an interim rate increaseof 2.5 percent. Even if it gets its full 21 percent increase, therate is not likely to be retroactive, meaning the hospital alreadyexpects to lose several million dollars because of the delay.
Hospital officials point out the 2.5 percent increase they havebeen operating on is below the inflation-adjusted benchmark 6.25percent increase they would have been given automatically had theynot submitted a standard request.
But they also say the full request itself is being blown out ofproportion.
Mike Garrison, an outside attorney hired by the hospital, said ina filing that 'emotionally charged hyperbole' from insurancecompanies and the consumer advocate diverts attention from how UHC'srates after the increase would still be comparable or even belowsimilar hospitals.
UHC's filing said if its request were granted, its outpatientcare would be the fourth lowest in its peer group. Its inpatientcharges would, by some measurers, be 'at or below' average.
'No amount of smokescreen or rhetoric from the affected partiescan transform 'average' into 'excessive,' ' Garrison said in thefiling.
Cost shifting
There is another misleading element in the rate increase: Fewpatients actually pay the stated charges.
Because the discounted rates government insurers pay hospitalswould be unaffected by the increase, private insurance companies andtheir customers will be stuck with the bill.
About 80 percent of UHC's customers use government programs likeMedicare, Medicaid or the state's Public Employees Insurance Agency,Carter said.
So, when UHC wants to raise money, it can't spread the costs toall of its patients because most of them are unaffected by therates. That means when the hospital needs to raise money, like the$14 million it wants now, it has to get all of that from the 20percent of the customers who have private insurance. And even largeprivate insurers have negotiated their own, lower rates.
Carter also notes the hospital provides $30 million a year incharity care for low-income citizens and does not turn people away.
It would be like visiting a McDonald's where almost nobody paysmenu price.
A McDonald's operating like UHC might get an average of $1 for aDollar Menu item, but it does that only by charging a select numberof customers more than $1 because most of its customers are able topay 50 or 60 cents.
And, for example, if that McDonald's wants to raise its averagetake from a $1 to $1.02, it has to charge the select number of full-price customers something like $1.05.
'Here's what's unfair, when I increase the rates 5 percent to getto 2 percent, somebody's going to pay the 5 percent,' Carter said.
Carter - who also advocates a single-payer national health caresystem - said if everybody paid equally, the 21 percent increasewould have been just under 10 percent.
Instead, private insurers like Mountain State pick up the wholetab.
'The people who are going to be (private) charge payers are goingto react negatively to the 21 percent because for them, it's real,'UHC's Carter said. 'For most payers it's not real - it's not goingto have any effect.'
Insurer's position
And, yes, the insurance companies have reacted negatively.
They've seized on a host of arguments, including questioning whyUHC doesn't dip into its sizeable cash reserves to handle the costsassociated with building its new building.
Mountain State also argues that UHC used less of its own cash tobuild the hospital and took out more loans that were necessary. Thecompany said in a filing with the health care authority that UHC hasmore than $150 million in cash on hand.
'Basically, UHC's position is why spend your own money when youcan ask the authority to raise rates to cover the costs,' MountainState's outside attorney Robert Coffield said in the filing.
Hospital officials argue that the low-interest loans they tookout pay for themselves over time because the hospital was able tocontinue earning higher interest from the cash it has in the bank.
Carter said a rule of thumb is that the earned interest should beenough to help to cover half of the costs each year of newequipment, computers, remodeling and other capital costs.
If the hospital dipped into its reserve and then had to take outmore loans, then it would be putting itself in the hole, Cartersaid.
'If you don't do that, you're running 90 mph down the interstatehoping there is a gas station down there.'
Without the increase, Carter said the hospital would have'extreme losses' of $5 million to $10 million a year. The hospital'sbudget is about $200 million a year, he said.
With those kinds of the losses, Carter said the hospital wouldhave two choices: cut costs or operate with losses year after yearuntil it exhausted its cash reserves.
He said if UHC does not get the full increase, he will not 'takeit out' on patients and staff by forgoing the purchase of newequipment or understaffing the hospital.
Health Plan of the Upper Ohio Valley's Kota said Wall Street's'love of cash on hand' was contrary to UHC's purpose.
'They're in existence to serve their communities, and keepinglarge cash reserves on hand doesn't really help the community,' hesaid in the insurer's filing.
But Carter said if UHC is forced to operate with losses eachyear, there is risk to the whole West Virginia United Health System,the state's largest employer. The system includes UHC, West VirginiaUniversity Hospitals, City Hospital in Martinsburg and JeffersonMemorial Hospital in Ranson.
If bond-rating agencies see UHC operating at a loss, Carter saidthey could downgrade the whole system's bond rating, making it moreexpensive for the system's hospitals to finance new capitalpurchases.
'This becomes self-defeating prophecy. By seemingly saving moneyup front, you're going to increase our cost over the years,' Cartersaid.
Another big question is whether the increase needs to be grantedall in one year.
Under questioning at the February hearing, Carter suggested therewere other ways to get the money.
'Do you feel that it is absolutely necessary in one year?' Carterwas asked.
'No,' he replied.
Moments later, Carter was asked why UHC had requested all 21percent in one year.
'Why not?' Carter replied.
Kota said Carter's comment showed UHC was trying to mislead thehealth care authority.
'I would think that a regulated entity would be more careful andhave more respect for the regulator than to 'cry wolf' about analleged 'pending disaster' (i.e. his above-mentioned letter and thenglibly stating, in essence, 'aw, we really didn't need it.')' Kotawrote.
In a response filed with the authority, UHC lawyer Garrison saidthe hospital was not against two or three years of gradual increasesbut said Carter was only suggesting that other scenarios werepossible.
But Carter thinks those scenarios would only create losses andforce the hospital to play catch-up.
Carter said in an interview he hopes for a fair shake from theauthority.
'We believe that the authority will fairly look at both argumentsand will make a logical, ethical and financial decision, and Ibelieve it will be favorable to UHC because I don't believe there'sany reason not to,' he said.
But he said what would look good politically would not be in thebest interest of patients.
'I can't take care of sick patients here in Harrison Countypolitically,' Cater said.
In the telephone interview last week, Carter said he had severalhundred patients above him at that very moment.
'They do not want to hear about not having enough nurses up thereright now. They don't want to hear it, and I don't blame them,'Carter said. 'They expect there are sufficient resources here totake care of them.'
Courtesy photos Officials at United Hospital Center in Clarksburgwant to increase the prices they can charge patients by doubledigits.
Gov. Joe Manchin spoke at the groundbreaking for the UnitedHospital Center on June 29, 2006. James Christie, mayor, City ofBridgeport; Neta Matthey, president, Auxiliary to United HospitalCenter; Robert DAlessandri, vice president, Health Sciences Center,West Virgina University; Thomas Hansberry, chairman, UHC Board ofDirectors; Gov. Joe Manchin; David C. Hardesty, Jr., chairman, WestVirginia United Health System Board of Directors; J. Thomas Jones,president, West Virginia United Health System; Bruce C. Carter,president and CEO, United Hospital Center; Gerald Wedemeyer,president, UHC Medical Staff; and Joyce Perine, UHC associate.
