St. Mary’s Move to Terminate Insurance Contracts Prompts Outcry

Andrew Kitchenman | February 25, 2014 | Health Care
Three days after state advances sale bid, health plans blame ‘out-of-network’ model while hospital points to low payments by insurers

St. Mary's Hospital in Passaic.
St. Mary’s Hospital in Passaic has terminated its contracts with two contractors, raising new concerns about the proposed sale of the facility to the for-profit operator of a national chain of hospitals.

The move comes on the heels of a vote by a key state advisory board to approve the non-profit hospital’s takeover by Prime Healthcare Services.

New Jersey Association of Health Plans President Wardell Sanders warned that the hospital’s termination of contracts with Cigna and UnitedHealthcare could signal a new strategy – known as an “out-of-network” business model — for the soon to be for-profit hospital

The business model refers to an approach in which a hospital charges insurers that are not in their network much higher out-of- network fees, rather than negotiated contractual amounts with insurers.

“The health plan community is concerned about the recent proliferation of out-of-network business models by certain hospitals in New Jersey,” Sanders said in a statement. “And it seems that despite promises to the contrary, that is exactly what the plan is for St. Mary’s Hospital.”

St. Mary’s CEO Ed Condit said Sanders’ statement misstates the intent of the hospital, which he said intends to renegotiate, “in good faith, fair and reasonable contracts for commercial health plan enrollees.”

The rates offered by commercial health plans “are so unreasonably low that no hospital can provide quality healthcare and survive,” Condit said in a statement, adding that some commercial health plans pay at approximately 70 percent of Medicare’s rates.

“For a hospital to survive on Medicare rates is itself a difficult task and reimbursement below Medicare rates for commercial members is unfathomable,” Condit added.

The New Jersey State Health Planning Board, which plays a key role in approving the transfer of hospital licenses, approved the ownership transfer of St. Mary’s on Friday. It currently is operated as a nonprofit by the Sisters of Charity of Saint Elizabeth.

The New Jersey Association of Health Plans, a health insurance trade association, has urged the state to require Prime, as a condition of the ownership transfers, to assume and continue for 12 months each of the hospital’s current managed-care and commercial insurance contracts in effect on February 1.
For-profit hospital operators, which are on the rise in New Jersey, have been criticized for squeezing insurers by ending contracts.

For example, Bayonne Hospital, owned by CarePoint Health, and Meadowlands Hospital Medical Center in Secaucus, owned by MHA LLC, both dropped private insurance contracts after being transferred to for-profit owners and have been singled out by national studies for having some of the highest hospital charges in the country.

“We would hope that with New Jersey’s recent and negative experiences with hospital ownership changes that stricter conditions would be placed on the new owners of St. Mary’s to ensure fair pricing of their services,” Sanders said.

Sanders said the health plans “have no confidence” that the conditions of sale included in the recommendations approved by the planning board will prevent a repeat of high prices at St. Mary’s.

He said allowing hospitals to raise their rates by terminating its insurance contracts “will break the bank for anyone who pays for health care in our state: consumers, small business, unions and taxpayers.

“We feel like we’ve seen this movie before in New Jersey, and while the actors all say that efficiencies in the hospital will be driven by new models of care, everyone in the theater knows that the biggest changes will be to what patients, insurers and premium payers have to pay for services.”

Condit countered that St. Mary’s “has reason to believe” that all of the major health insurance plans are paying the hospital’s competitors substantially more money.

St. Mary’s has been unsuccessful in its efforts to renegotiate “fair terms” over the past year, Condit said.

“Instead of pushing the burden of keeping the hospitals open to the providers, health plans have to step up to the plate to take their fair share of responsibility in keeping the healthcare safety net open for all communities,” he said. “It is not surprising that the NJAHP, an association of private insurance companies, would call for a freeze on St. Mary’s insurance rates that are unfairly below rates offered to other hospitals in the area. “

St. Mary’s officials called on the state to help it and similar hospitals “in leveling the playing field” with insurers, according to Condit’s statement. He said the hospital intends to renegotiate “its subpar and unfair commercial contracts as expeditiously as possible, so the health plan enrollees do not have to seek out-of-network services.”

State Health Commissioner Mary E. O’Dowd and Acting Attorney General John Jay Hoffman still must decide whether to approve the St. Mary’s transfer, with the final approval to be determined by a Superior Court judge.