Two Chicago hospitals have been denied state reimbursement for Medicaid patients, except under emergency conditions, because they allegedly charge too much for care. It is the first time a city hospital that wants to participate in the medical plan for the poor has not received a contract.
The hospitals are St. Joseph Hospital and Health Center, 2900 N. Lake Shore Dr., and John F. Kennedy Medical Center, 5645 W. Addison St. The state action was effective Sept. 1.
Meanwhile, University of Chicago Hospitals, one of the city`s largest teaching institutions, said it will begin controlling the number of Medicaid patients it admits because more of them are seeking U. of C.`s care than was expected. Some Medicaid patients who have not been treated at the hospital previously will be transferred to neighboring community hospitals, an official said.
The changes are the result of the latest round of Medicaid contracts with city hospitals under the state`s ICARE program. ICARE is an acronym for the Illinois Competitive Access and Reimbursement Equity program. The full results of the contracts, including the price each hospital charges for care, will not be made public for about a year, but were confirmed by hospital and state officials.
Under ICARE, the Illinois Department of Public Aid contracts with individual hospitals to provide a fixed number of days of care to Medicaid patients at a set price to the state. Previously, the state paid all hospitals for a potentially unlimited number of Medicaid patients based on a hospital`s own costs.
State officials say the purpose of ICARE is to get hospitals to compete for patients. That, they say, will allow Medicaid recipients to get the best possible care for the lowest possible price.
”The whole system is based on competition,” says Martha Thompson, chief of the department`s bureau of hospital services. ”What we`re saying is we`re going to be a prudent purchaser of care for our patients.”
Critics, however, say that the state`s limit on the days it allows each hospital hurts patients by rationing health care.
”I think the most morally unacceptable part of the ICARE program is the limitation on the number of days and the willingness of the state to contract with the hospital for less than the normal days they would be getting,” says Michael A. Gelder, who heads his own consulting firm.
Gelder, who helped design the ICARE system when a staff member of the state legislature, says the original plan became a ”mutation” when a limit on the number of days was added to the competitive bidding on price. ICARE was modeled on a similar California plan that uses competitive bidding by hospitals along with state review of whether admissions are appropriate.
ICARE ”just sets up a system where (hospitals) have to ration care,”
Gelder charged.
ICARE emerged from efforts by the General Assembly to control the cost of hospitalizing public aid patients, which soared by nearly 50 percent from fiscal 1979 to fiscal 1981. After hospitals successfully fought off tighter regulatory controls, lawmakers turned to competition to control price increases.
The first round of ICARE contracts took effect June 15, 1985. In them, the state agreed to pay hospitals a fixed price for services; there was no provision for ever changing the price. After hospitals objected, the state agreed to write contracts for a set period of time.
The current two-year contract, which began for city hospitals on Sept. 1, contains a price increase to hospitals of about 5.3 percent, according to the Illinois Hospital Association. Negotiations with suburban hospitals are expected to be completed this week, with hospitals in three other regions of the state following on a schedule that runs through the middle of next year.
Quality questions aside, the program has certainly saved money for the state. In the first year alone, the state saved $84 million over the old Medicaid program, according to an audit by Peat Marwick Main & Co., an accounting firm. The Public Aid Department pegs the second year`s savings at $116 million and estimates that the new contract will save taxpayers up to $120 million in its first year.
Indeed, while the federal government and corporations have been struggling to control the increase in health care costs, state officials can point to a steady decline in the cost of inpatient care, from $717.1 million in the year ended June 30, 1985, to an expected $625 million in the year ending June 30, 1988.
Thompson says much of the savings results from switching patients from expensive hospitals to less expensive ones. The University of Chicago`s decision to transfer some Medicaid patients to South Chicago Community, Mercy and Hyde Park Hospitals ”is good management,” she said.
Starting Monday, patients who don`t already have a relationship with a staff physician may be transferred to a community hospital near the Hyde Park teaching facility, depending upon their condition, said Ralph W. Muller, president of the U.of C. hospitals.
Muller said the controls were necessary because the state gave the hospital fewer Medicaid days than it requested. The controls will keep U. of C. from losing an estimated $4.5 million this year on care that it would not be paid for, Muller added.
Said Muller, ”We`re not happy. We would prefer that the people who come here would be taken care of here.”
But Thompson maintains that the plan ”provides better access to community hospitals in the community in which (patients) live. A
disproportionate amount of our patients were concentrated in the city`s teaching hospitals.”
Executives of St. Joseph and JFK hospitals said the state told them they were excluded from the ICARE program because their price for service was too high, a charge they deny. Thompson says she can`t comment, but notes ”we were able to negotiate contracts for all the services at needed prices without including them in the system.”
Michael Connelly, president of St. Joseph, said his hospital is less costly than neighboring institutions. He is suing the state for access to its individual contracts.
At JFK, Peter Rusin, executive director, said he also believes the hospital`s prices are competitive, but adds that he concluded that legal action against the state would be unsuccessful.
Kenneth Robbins, president of the Illinois Hospital Association, said the state is still paying hospitals only about 70 percent of what it costs them to treat Medicaid patients. Hospitals are willing to accept the lower payout because they have empty beds. They hope to at least cover their fixed costs with some of the almost 1.2 million people eligible for state medical assistance.
Meanwhile, teaching hospitals have no choice but to bid for the patients, Robbins said. ”If you don`t take the patients, you don`t have a way to educate your physician population,” he says. ”There are a lot of disease entities you may not see if you don`t treat this patient population.”
Community hospitals, too, want to make sure their physicians can admit any one of their patients. St. Joseph, for instance, operates a family health center near the Cabrini-Green public housing project.
An objective assessment of whether the state`s hard line on cost hurts quality may be awhile in coming. Because the Medicaid program is jointly funded by the federal and state governments, the federal government had to give its permission to the state to change its Medicaid procedures and set up ICARE.
However, the Department of Health and Human Services is not expected to publish its first conclusions about ICARE`s effects on a patient`s access to care and the quality of care-as well as on the state`s costs-until September, 1988. At that time, the program will be entering its fourth year.
