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Stones & Bones / health care / volume 12 number 5 (web), May 2010, print June 2010 DOSE OF REALITY Something is fishy about a document recently sent out by Wells Fargo Insurance Services to beneficiaries of the AlaskaCare Retiree Health Plan. (I suspect that the beneficiaries of the AlaskaCare Employee Health Plan received a similar notice.) Wells Fargo is the insurance company that the State of Alaska uses to administer these two health plans, which are designed to provide health insurance to state employees and retirees, including those like me who are or have been teachers. For reasons not obvious to most of us, the state seems to shift health plan administrators fairly often. It used to be Aetna, then it was Premera Blue Cross, and now this year it is Wells Fargo. A person wonders why these changes are made. Each one causes a certain amount of work and perhaps frustration for beneficiaries. The document announces that Wells Fargo has entered into a preferred provider agreement with Alaska Regional Hospital to replace one it previously had with Providence Hospital. For AlaskaCare retirees the change means little because the system pays identical benefits regardless of hospital, mainly because for persons sixty-five and older Medicare, not the insurance company, determines the benefit. However, active employees in the AlaskaCare program must use the preferred provider hospital if they want to avoid being assessed a 20 percent penalty on benefits. The reason for the change in preferred provider, the Wells Fargo document implies, is to save money. In support of that idea the document contains a table showing dramatically different costs for medical procedures undertaken at Alaska Regional Hospital and Providence Hospital, both in Anchorage. This is the fishy part: the cost figures given are so different for the two hospitals that something has to be wrong and probably purposely misleading. The table:
Accompanying the table is the statement, “The cost information shown is the result of sampling of claims and is representative of the pricing available to AlaskaCare members across a wide variety of procedures.” Looking at the table in detail a person sees that the stated Providence costs range from 1.5 to 9.2 times the stated Alaska Regional costs, and (by adding up all the costs) that the average of the stated costs at Providence is 3.4 times the Alaska Regional costs. Wow! That is quite a difference. Note that the claim is that the pricing is representative of a wide variety of procedures. The intended implication obviously is that these figures pertain across the board. Having previously looked a bit at the pricing structure and markups over cost of these two hospitals, I could not accept the idea that to be treated at Providence, on average, costs AlaskaCare members 3.4 times as much as at Alaska Regional. To check on this further I went to the website www.newchoicehealth.com/Directory/States/Alaska, which gives cost figures at Alaska Regional and Providence for ten common procedures. The site shows much variation in costs between the two hospitals with most procedures costing more at Providence, but when the ten costs are averaged the results show overall equality in cost. Next, I went to the website of HealthGrades, the rating organization the Wells Fargo document cites as the authority the insurance company used to evaluate hospital costs and quality. First, on the matter of quality: On 21 of the 29 rated procedures performed by both hospitals, HealthGrades gives Alaska Regional the same medium rating as Providence. HealthGrades rated Providence as better on four of the procedures, and Alaska Regional is also better on four. So, on the basis of quality, it looks like a toss-up between Alaska Regional and Providence. (Interestingly, in a few cases Fairbanks Memorial Hospital or Mat-Su Regional Medical Center rated higher than both Anchorage hospitals.) Now how about the costs? The HealthGrade’s site states in one place that Alaska Regional’s costs are at the state average in 8 of 11 procedures and that Providence’s are at that average in 11 of 12 procedures. The site gives a more detailed picture by rating the costs in various specific procedural and diagnostic areas including cardiac, orthopedic, pulmonary, and a category of eight conditions it calls “hospital service lines” common to both hospitals. That comes to a total of twenty rated procedures or diagnoses. Alaska Regional does not fare well in the comparison. HealthGrades rates Providence costs as “average cost” in sixteen of the categories and as “higher cost” in four. That set of numbers looks pretty good compared to the ratings given Alaska Regional. These ratings state that Alaska Regional has average costs in only eight cases but higher cost in twelve cases. So based on this set of data—not selected numbers but rather the complete set as given on the HealthGrades site—Alaska Regional’s costs are higher than Providence’s overall. That makes sense to me because it agrees with analyses of hospital costs reported in my book Mired in the Health Care Morass (pages 63 to 70). I found that Alaska’s Medicaid program during 2007 had to pay higher per diem rates to Alaska Regional ($2,396) than to either Providence ($1,934) or Fairbanks Memorial ($1,835). In that year, Alaska Regional’s reported markups over cost (276 percent) were also higher than Providence’s (209 percent) and Fairbanks Memorial’s (153 percent). Referring to per diem rates on page 69 of my book, I state: “The entries indicate that of the three major hospitals, the nonprofit Fairbanks Memorial Hospital costs are slightly lower than those of nonprofit Providence Alaska Medical Center, and that both are 15–20 percent lower than those of for-profit Alaska Regional Hospital.” Also in my book I note that for-profit hospitals like Alaska Regional generally have higher markups than do the nonprofits like Providence. Unless they can lower their costs and levels of service to patients, the only way the for-profits to provide income to shareholders is employ the higher markups. That also allows them to give higher discounts to insurance companies like Wells Fargo. Fairbanks Memorial gives a discount of only a few percent, and I have seen figures indicating that Providence’s discount is about 35 percent. I don’t know what discount Alaska Regional gives but I suspect it is 50 to 60 percent, a percentage typical of for-profit hospitals with this level of markup. So putting all this cost information together, it seems strange that Wells Fargo can claim cost savings are resulting from shifting its preferred providership in Anchorage from Providence to Alaska Regional. And most certainly there is something fishy about the numbers Wells Fargo has presented in its document cited above. If these numbers are real they obviously have been selected from a much larger set of numbers that if looked at in entirety would present a quite different picture. Wells Fargo’s implied claim that Providence’s costs to AlaskaCare are more than three times the costs of Alaska Regional’s has to be incorrect. Something is radically wrong here. It looks like someone is not playing fair. I don’t know who or why, but it looks to me to be a situation worthy of review by the State of Alaska Department of Administration or other government body. Neil Davis is a retired geophysicist and author of several fiction and nonfiction books. His most recent book is Mired in the Health Care Morass. More on health care issues can be found at his blog, http://healthcaremorass.blogspot.com. Neil can be contacted at neildavs@mosquitonet.com. | ||
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