Less than a month after reporting record
profits, the Blue Cross and Blue Shield Association released a study
fingering hospitals as the key culprit behind the nation's rising
healthcare costs.
The Blues' third annual compendium of
secondary research and analysis, dubbed the Medical Cost Reference
Guide, examined the financial impact of several industry factors,
including pharmacy costs, physician services, and payment and lifestyle
trends. But as in past years, the 76-page report found hospitals
to be the primary driver of insurance premiums, which are expected
to climb at double-digit rates for the fifth straight year in 2005.
" Hospitals are the largest component
of healthcare expenditures, accounting for over half of private insurers'
spending growth in 2003," said Maureen Sullivan, senior vice
president of the Blues association, adding that "Private payers
reimburse hospitals more than it costs to care for their members."
The report irked some hospital groups,
which have been working to recraft their image amid mounting criticism
of hospitals' aggressive pricing, billing and collection practices
(Feb. 2, p. 6). "The study fails to tell the whole story when
it comes to hospitals," said Richard Coorsh, spokesman for the
Federation of American Hospitals, which represents investor-owned
hospitals.
According to the report, the average
cost per hospital admission climbed 11% to $7,353 from 2000 to 2002,
even as the average length of stay dipped slightly to 5.7 days from
5.8 days over the same period. The increase in inpatient costs was
attributed primarily to hospital consolidation, higher labor costs
and the growing use-and potential overuse-of expensive new medical
technology, particularly diagnostic imaging.
The number of MRI scans performed nationally,
for example, is expected to balloon to nearly 500 million in 2008
from 300 million in 2001, the report found. And Barbara Rothenberg,
a senior consultant with the Blues association, pointed out that
while providers are adopting newer MRI, CT and PET scans, they aren't
necessarily phasing out older technologies like X-rays. "There
has actually been an additive effect," she said.
While proper use of these new imaging
technologies can lead to greater efficiency and better care, Rothenberg
said, "Long-term evidence suggests that some of the procedures
being done aren't appropriate or necessary."
The Blues association began publishing
the Cost Reference Guide in 2002 as part of a broader initiative
to help keep healthcare affordable. But hospital groups have complained
that the annual report is politically motivated and does a disservice
by unfairly singling out certain trends while omitting others (Oct.
28, 2002, p. 6).
" They don't sufficiently take into
account changing medical practices, pressure on hospital payments
and total value to the patient," Coorsh said, referencing a
study released by the federation and other industry groups in January,
which found that each dollar spent on healthcare generates health
improvements valued at $2.40 to $3. "A focus on costs merely
as a problem overlooks the substantial return on investment from
those dollars," he said.
Coorsh and others also questioned the
timing of the report, released as the Blues are enjoying record growth.
The Blues association announced last month that its 41 indepen-dent
affiliates posted combined net income of $3.7 billion in the six
months ended June 30, up 32% from $2.8 billion in the same period
of 2003 (Nov. 15, p. 10). Profit margins expanded to 3.2% from 2.8%,
and total cash reserves grew 48% to $41.3 billion. The results build
on a 53% earnings gain in 2003 to $6.1 billion and a 43% gain in
2002 to $4 billion.
In addition, the nation's two largest
for-profit Blues plans, Anthem and WellPoint Health Networks, last
month completed their $16.4 billion mega-merger in a move that will
trigger up to $600 million in severance and retention bonuses for
293 WellPoint executives, including a $42 million change-of-control
payment earmarked for WellPoint Chairman and Chief Executive Officer
Leonard Schaeffer (Dec. 6, p. 8).
Caroline Steinberg, vice president of
trend analysis for the American Hospital Association, pointed out
that WellPoint's operating margin grew to 8.1% in 2003 from 7.1%
in 2002, while Anthem's grew to 7.8% from 6.6%. By comparison, the
hospital industry's overall operating margin slipped to 3.3% in 2003
from 3.7% in 2002.
" When you see those trend lines,
you know a fair amount of additional dollars are being tacked on
to premium costs," Steinberg said. "Insurers' profits are
part of the (cost) picture and need to be considered part of the
picture."
The Blues' Sullivan, however, said insurers'
burgeoning bottom lines simply reflect a temporary upswing in the
underwriting cycle and "are not a major driver" behind
ongoing rate hikes. "Rising healthcare costs directly drive
premium increases, while administrative costs and (profits) remain
small components of premiums," she said.
The Blues association said it plans in
early 2005 to release additional cost studies on topics including
specialty hospitals, the aging population and consumer-driven healthcare.
