Paduda: Choosing Hospitals – Ignore the Discount, Focus on Cost and Quality


Facility costs are the fastest growing component of workers’ comp medical expense, a reality that is going be exacerbated by the pandemic. As of July, hospital operating margins had dropped by 28% from 2019 levels, leaving facilities reeling as they desperately tried to prepare for the current tidal wave of COVID infections. As hospitals and outpatient facilities see their revenue numbers fall off a cliff, they are desperately looking any and all sources of revenue.

The more sophisticated ones already know which payer is the most profitable; workers’ comp. In most states, work comp pays more for inpatient and outpatient facility services than any other payer. Recent research by RAND showed commercial (group health) pays about 2.5 times Medicare reimbursement for facility services. That’s really expensive, but nothing like what work comp pays in states like Alabama, Arizona, Florida, Illinois, Louisiana, Nebraska, Virginia, and Wisconsin.

An excellent study published in the journal HealthAffairs in 2018 found this:

The twenty Florida hospitals with the highest prices [paid] (7.8–14.1 times the Medicare rate)…were all affiliated with the Hospital Corporation of America.

These hospitals generated 24 percent of their commercial net revenue (median) from other payers (including workers’ comp) despite treating a relatively small proportion of patients covered by these payers.

You read that right – HCA’s Florida facilities were paid 7.8 to 14.1 times Medicare.

Similar problems occur in many other states, with some more troubled by Ambulatory Surgery Center costs, others stressed by outpatient hospital expenses, and inpatient costs the major problem in yet others. 

Sure, every payer uses some form of bill review, which ostensibly helps control those costs. I’d note that the Florida – and other state cost data – is what work comp actually paid, not charges. If bill review was effective, insurers would not be paying 780% of Medicare in Florida.

Then there’s quality. The Centers for Medicaid and Medicare Services (CMS) publish Star ratings of every hospital every year. This is publicly available data, accessible for free at Star ratings are 1 – 5, with 5 being the low end, and are based on an average of 37 metrics (some hospitals report more, others fewer). For those looking deeper, you can find details on facility patient safety ratings, clinical quality, patient engagement, and efficient use of medical technology among other indicators.

Does your network provide Star ratings for facilities listed in their directories? Do your nurse case managers check on facility quality before recommending surgery at a hospital? Do adjusters have access to this information?

If we are really concerned about cost and quality, if we are really embracing the patient advocacy role, then we need to do a much better job managing facilities. The data is there, we just need to use it.

By Joe Paduda

Joseph Paduda, the principal of Health Strategy Associates, is a nationally recognized expert in medical management in group health and workers' compensation, with deep experience in pharmacy services. In addition to consulting with managed care organizations, employers, health care providers, insurers and private equity firms, Health Strategy Associates conducts regular surveys on managing work comp pharmacy costs, utilization review, bill review systems and claims systems.

Paduda is also the prolific author of the controversial Managed Care Matters blog and a founder of Health Wonk Review, a collaborative blog on health care policy.

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