Hospital Cost Containment in Face of Medicaid Cuts

June 14, 2012

Hospital claims account for the largest category of active employee health plan spending and typically represent 30 to 40 percent of plan sponsor medical costs, reports Edward Kaplan, senior vice president and national health practice leader at The Segal Company.

“Because of downward pressure on hospital revenue, due in part to recent cuts by state Medicaid payers, cost-shifting through price increases by hospitals to private group health plan sponsors is accelerating,” Kaplan says. He also points out that a study by the American Hospital Association found only seven percent of hospitals presently report that some portion of their revenue is capitated or shared risk.

Segal’s 2012 Health Plan Cost Trend Survey indicates that the average annual cost increase per admission for private payers is approximately eight percent, well above overall CPI rates hovering around three percent.

“State Medicaid budgets are in serious trouble. With the projected expansion of people covered by Medicaid under the Affordable Care Act for hospital and other medical services, cost-shifting pressures will only get worse for our clients. Even if ACA is struck down, the cost-shifting problem will remain for private health plan sponsors,” says Kaplan.

“As a result, we need to propose and negotiate network caps on hospital price increases. PPO financial analysis should go beyond current discount comparisons and include some emphasis on keeping price increases to reasonable levels,” he recommends.

Below are some hospital cost containment strategies that Segal has been discussing with clients:

  • Designing network contracts that put network fees at risk for performance.
  • Steering patients through education and incentives to best-value hospitals, which have low infection rates, high quality, low readmission rates.
  • Improving patient discharge programs (e.g., timely outreach to cardiac patients) to reduce readmission rates.
  • Reducing low birth weight deliveries by targeting at-risk expectant mothers with more intensive educational campaigns for improving healthy pregnancies.

 To speak with Edward Kaplan about this or other health care topics, please contact Mary Feldman.

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