Study: Ohio Hospitals Are Gouging State Bureau of Workers' Compensation

An analysis of hospital billing records shows that Ohio hospitals rake in outlandish profits from the Ohio Bureau of Workers' Compensation (BWC) when the agency reimburses hospitals for the treatment of injured workers, according to the Service Employees International Union (SEIU) District 1199 and a report in the Columbus Dispatch.

The analysis of Ohio BWC hospital payments from 1998 through 2004 indicates the agency paid $543.6 million more for the medical treatment of injured workers than the actual cost of providing those services, according to a recent report in the newspaper, which was based on research conducted by the union.

The Columbus-based SEIU District 1199, which represents about 30,000 health care and social service workers in Ohio, West Virginia and Kentucky, says it compiled data from hospital billing records obtained from Ohio BWC and from cost reports filed by Ohio hospitals with the federal Centers for Medicare and Medicaid Services.

Rather than summarize the results of its findings in a report and release it to the public, the union first "opened the data up to the Columbus Dispatch," which then "did 2 1/2 weeks of exhaustive research" to reach its own conclusions, SEIU District 1199 Executive Vice President Scott Courtney told Occupational Hazards.com. The newspaper published its conclusions in an article on July 10 titled "Hospitals Reap Workers' Comp Windfall."

"In the past we've released reports and some organizations raised doubts about the facts in the report because we're a union," Courtney said. "Instead of doing that, we sat down with a very respected outlet from the media the Columbus Dispatch very impartial, neutral, and they came to their own conclusions."

Even so, Courtney called Ohio BWC's current payment arrangement with Ohio hospitals in which the agency reimburses hospitals for 60 percent of the charges for outpatient services and 70 percent of the charges for inpatient services for state-fund injured workers "ludicrous."

"It's like going to buy a car and instead of negotiating based on what the actual cost of manufacturing the car is and figuring in a slight mark-up, taking the sticker price on the window and negotiating something higher and then thinking you've done a good job," Courtney said.

While Ohio BWC's payment structure, which the agency implemented in 1998, seems reasonable at first blush, Courtney and SEIU allege that BWC is not paying a percentage of the actual cost of providing medical treatment to injured workers. Instead, SEIU asserts the agency is paying a percentage of a huge mark-up on the cost of those services as much as 300 percent, depending on the hospital. SEIU calls the mark-up a "sticker price," while hospitals call it a "charge."

"Care for Ohio," a campaign launched by SEIU District 1199 "to hold hospitals accountable to the patients, employees, taxpayers and communities of Ohio," contends that Ohio hospitals' sticker prices average 155 percent more than the cost of providing the hospital care.

"The change [Ohio BWC] made was to go to a system where they reimbursed hospitals based on the sticker prices," Courtney said. "Hospitals arbitrarily set a price that's not at all relevant to the cost of providing care."

Ohio Hospital Association Questions Findings

The Ohio Hospital Association, which represents 170 hospitals and 40 health care systems in Ohio, questions SEIU's findings, according to Media and Public Relations Manager Tiffany Himmelreich.

Himmelreich said the association is analyzing the figures SEIU used to make its conclusions but added "we're playing a bit of catch-up since the study was released directly to the Columbus Dispatch and not publicly released."

Himmelreich estimated that Ohio hospitals' profit margins for medical services provided to state-fund injured workers are in the 15- to 35-percent range.

By contrast, SEIU says its analysis of millions of hospital billing records and Medicare cost reports indicates Ohio hospitals from 1998 through 2004 charged the agency $1.63 billion for services that cost hospitals nearly $1.1 billion to provide a mark-up of $543.6 million over the 7-year span.

SEIU estimates the average profit margin on workers' compensation patients over the past 2 years was 65 percent.

While the Ohio Hospital Association disputes those estimates, Himmelreich acknowledged that even non-profit hospitals "need to have a positive profit margin to operate."

"Some people think 'profit' is a dirty word," she said, adding that during the 7 years covered by SEIU's study, Ohio hospitals provided more than $2.9 billion in uncompensated care.

Ohio BWC: Study's Findings "Inconclusive"

Ohio BWC spokesperson Jeremy Jackson, who, like Himmelreich, complained that SEIU has refused to share its data, said SEIU's findings are "inconclusive."

"Because they're unwilling to share it with us, we can't get a real good sense of where they're coming from or where the numbers are coming from," Jackson said. "Certainly we're aware that more work needs to be done in this area, but until SEIU fully discloses their data, we won't be able to verify that what they're saying is accurate."

Jackson acknowledged, "hospital costs are an issue we have to work harder to control."

"The difficulty the bureau has at the moment is trying to find the right balance to make sure the system as a whole is cost-effective for businesses but still provides local, high-quality hospital treatment to injured workers," Jackson said.

While some have characterized the relationship between the association and Ohio BWC as a one in which the two parties negotiated to arrive at the current pay system, Jackson said "ultimately the final decision is ours."

Himmelreich called the current pay arrangement with Ohio BWC a "strange system hospitals did not create but are working with."

Jackson said Ohio BWC has attempted to rein in hospital costs. In 2003, the agency gathered stakeholders from the business, labor and medical communities, and those stakeholders agreed that lowering Ohio BWC's hospital payments "would be an appropriate step." That led to Ohio BWC's reimbursement structure being lowered from its 2003 rate of 68 percent for outpatient services to its current rate of 60 percent, which went into effect on Jan. 1, 2004.

The agency also lowered its reimbursement rate for inpatient services from 79 percent in 2003 to 75 percent in 2004 to its current rate of 70 percent, which went into effect on Jan. 1.

The Ohio Hospital Association in the Aug. 13, 2004, edition of its electronic News Bulletin says the restructured hospital payment system "was reached after BWC asked stakeholders, including OHA, for help controlling what it called 'unacceptable' increases in medical costs."

The newsletter acknowledges "hospital payments likely increased because of higher billed charges" but adds that association data indicates higher charges also are "due to a rise in the number of BWC admissions and outpatient encounters and a corresponding rise in severity of the illnesses and injuries of workers."

Regardless, the agreement reached in 2004, which maintains the current reimbursement rate for 3 calendar years and includes caps on payment increases in 2006 and 2007, might be scrapped, Jackson said.

"Instead of looking at that option, we've decided to accelerate our efforts to find an appropriate payment structure that strikes a balance between being cost-effective and continuing to render local, high-quality treatment."

Congresswoman Proposes "Cost Plus 10"

In response to the recent reports on Ohio BWC medial reimbursements, Ohio Rep. Barbara Sykes, D-Akron, has proposed a cost structure that she calls "Cost Plus 10." In the proposed structure, Ohio BWC would reimburse Ohio hospitals for the actual cost of medical treatment provided to injured workers plus an additional 10 percent.

"I'm not trying to take advantage of hospitals and I understand they provide an absolutely needed service," Sykes told Occupational Hazards.com. "But it should not be at the expense of injured workers and the businesses paying [workers' compensation premiums]."

Sykes said states such as Kentucky, Pennsylvania and Oregon have similar cost structures in place for reimbursing hospitals.

When asked about Sykes' proposal, Ohio BWC's Jackson said "we've made it very clear that no option is off the table," but Jackson added the agency is concerned that the "potential long-term ramifications" of Cost Plus 10 could include hospitals denying workers medical care because they refuse to participate in the pay system.

Sykes responded: "Workers' compensation is not there to make sure hospitals are making the profits they want to make. They're not supposed to be cash cows for hospitals."

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