Hospital administrators and medical marketing professionals will appreciate the business strategy (and public relations implications) revealed in this Times article. It’s a timely subject as the federal government pushes for transparency, releasing “Medicare data showing that facilities nationwide submitted widely divergent bills for the same treatments.”
It’s a financial recovery story. “Bayonne Medical, which was founded in 1888, was losing nearly $1.5 million a month before it filed for bankruptcy in 2007. By 2011, under new ownership and a new financial model, its patient revenue had nearly tripled and its operating income had reached $9.3 million, according to the American Hospital Directory, a publication that compiles data from Medicare and other sources about health care facilities.”
Looking closely at the business strategy at Bayonne and similar hospital turnarounds, profits increase for four primary reasons:
1. They intentionally stay out or move out-of-network with major health plans and often get higher negotiated reimbursements from insurance carriers than they would receive through in-network contracts with insurers.
2. They focus heavily on marketing, providing and billing for services that are better reimbursing and more profitable.
3. They balance-bill for the portion of the bill that insurers do not reimburse and negotiate a higher co-pay than the patient would have to pay to an in-network hospital. Patients are typically more open to a negotiation with a big hospital than with insurance companies. In some instances, patients will increase their personal indebtedness making co-payments to these hospitals.
4. They write off the larger amount of uncollectible fees based on the inflated charges and receive a greater tax advantage based on charitable contributions for non-reimbursed patient care.
Provisions of the Patient Protection and Affordable Care Act (aka “Obamacare”) will make it somewhat more difficult for this kind of profit strategy, in part, by creating more transparency to medical fee comparisons between competing healthcare institutions.
It’s not clear how these business strategies will endure the rapidly evolving environment of healthcare reform. It seems likely that not-for-profit, religious-based hospitals and health systems will continue to dominate the landscape, but they will be increasingly hard-pressed to limit their losses and remain in business.