Wall Street Gaming Health Insurance Industry: New Jersey Hospital Has Highest Billing Rates in the Nation

[awouk]

'Bayonne's purchasers included Vivek Garipalli, who worked
at the private equity giant Blackstone Group before co-
founding the International Sleep Network, a company based
in New Jersey that treats patients with sleep apnea and
other disorders. Joining Mr. Garipalli was Jeffrey
Mandler, the head of a health care imaging firm. To make
money from Bayonne Medical, the new buyers made some big
changes in the hospital's business strategy.'


May 16, 2013

New Jersey Hospital Has Highest Billing Rates in the Nation

By JULIE CRESWELL, BARRY MEIER and JO CRAVEN McGINTY

BAYONNE, N.J. - The most expensive hospital in America is not
set amid the swaying palm trees of Beverly Hills or the luxury
townhouses of New York's Upper East Side.

It is in a faded blue-collar town 11 miles from Midtown
Manhattan.

Based on the bills it submits to Medicare, the Bayonne Medical
Center charged the highest amounts in the country for nearly one-
quarter of the most common hospital treatments, according to a
New York Times analysis of 2011 data, the most recent available.
No other hospital was at the top of the price list more often.

Bayonne Medical typically charged $99,689 for treating each case
of chronic lung disease, 5.5 times as much as other hospitals and
17.5 times as much as Medicare paid in reimbursement. The
hospital also charged on average of $120,040 to treat transient
ischemia, a type of small stroke that has no lasting effect. That
was 5.6 times the national average and 23.6 times what Medicare
paid.

For those prices, the quality of care at Bayonne Medical is no
better - or worse - than that at most other New Jersey
hospitals. In a 2011 state hospital quality report, Bayonne
Medical scored only in the top 50 percent.

But profits at the hospital, which was bankrupt in 2007, have
soared in recent years, in part because it has found a way to
turn some of those high billings into payments.

The increasingly contentious issue of hospital charges drew
renewed attention last week when the federal government released
Medicare data showing that facilities nationwide submitted widely
divergent bills for the same treatments.

And while the unassuming, six-story brick hospital here holds a
notable place in those rankings, others stand out as well. The
midsize Crozer-Chester Medical Center in Upland, Pa., was the top
biller in the country for urinary tract infections. One

prestigious Manhattan hospital, NYU Langone Medical Center,
charged twice as much as the equally high-end NewYork-
Presbyterian to implant a cardiac pacemaker. But Medicare
considers the two New York hospitals so similar it pays them both
about $20,000 for the procedure.

The hospital industry is quick to say that the charges are
irrelevant because virtually no one - private insurers, Medicare
or even the uninsured - pays anywhere near those amounts.
Medicare sets standard rates for treatments and insurers
negotiate with hospitals. But experts add that the charges
reflect decades of maneuvering by hospitals to gain an edge over
insurers and provide themselves with tax advantages.

Until a recent ruling by the Internal Revenue Service, for
instance, a hospital could use the higher prices when calculating
the amount of charity care it was providing, said Gerard
Anderson, director of the Center for Hospital Finance and
Management at Johns Hopkins. 'There is a method to the madness,
though it is still madness,' Mr. Anderson said.

A close look at the finances of Bayonne Medical Center sheds
light on how hospital pricing at the extremes may financially
benefit an institution. The practices at Bayonne Medical also
highlight a new financial strategy used by a small number of
hospitals to increase their profits by 'going out of network' -
severing ties, and hence contractual agreements that limit
reimbursement rates, with large private insurers.

Neither officials nor owners of Bayonne Medical responded to
multiple calls and e-mail requests for interviews. Because the
company is privately held, it does not have to release financial
data.

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.

The hospital's turnabout started in 2008 when it was acquired out
of bankruptcy by a consortium of buyers in a deal valued at about
$41 million.

Bayonne's purchasers included Vivek Garipalli, who worked at the
private equity giant Blackstone Group before co-founding the
International Sleep Network, a company based in New Jersey that
treats patients with sleep apnea and other disorders. Joining Mr.
Garipalli was Jeffrey Mandler, the head of a health care imaging
firm. To make money from Bayonne Medical, the new buyers made
some big changes in the hospital's business strategy.

First, they converted Bayonne Medical from a nonprofit to a for-
profit hospital at a time when such hospitals were a rarity in
New Jersey. Next, they moved to sever existing contracts with
large private insurers, essentially making Bayonne Medical an
out-of-network hospital for most insurance plans.

Under New Jersey law, patients treated in a hospital emergency
room outside their provider's network have to pay out of pocket
only what they would have paid if the hospital was in the
network. But an out-of-network hospital can bill the patient's
insurer at essentially whatever rate it cares to set. While the
insurers can negotiate with the hospital, they generally end up
paying more than they would have under a contractual agreement.

In recent years, Bayonne Medical put up digital billboards
highlighting the short waits in its emergency rooms in an effort
to attract more patients. Insurers complained that the hospital
was seeking to take advantage of the higher rates it could
charge.

While the law was aimed at giving patients more hospitals to
choose from, it 'has had the unintended consequence of rewarding
folks for these inflated charges,' said Wardell Sanders,
president of the New Jersey Association of Health Plans. 'When
people say these charges are just the sticker price and it's
meaningless, it's not meaningless.'

Community leaders in Bayonne, fearing the hospital could close,
said the buyers were always candid about the methods they
intended to use to make the hospital a profitable enterprise.

'That raised a lot of concern, but what other choice did we
have?' said Jeanne Otersen, who was a member of the Coalition to
Save Bayonne Medical Center and is policy director for the Health
Professionals and Allied Employees, a union that represents
nurses at the facility.

Not surprisingly, the insurers fought back against the out-of-
network model. In 2009, Horizon Blue Cross Blue Shield of New
Jersey filed an injunction in New Jersey Superior Court saying
Bayonne Medical's owners had 'flatly rejected' and refused to
negotiate an in-network hospital contract with Horizon. When the
existing agreement expired in early 2009, Horizon said Bayonne
sharply increased its prices. Bayonne's in-network charges to
Horizon averaged $13,000 a day in 2008. A year later, when it was
out of network, the charges soared to $29,000, the insurer said
in a spring 2009 news release.

Bayonne Medical denied allegations in Horizon's lawsuit that it
was artificially inflating prices, and filed its own lawsuit
against Horizon, claiming the insurer had intimidated patients
and tried to get them to leave the facility before completing
their treatments.

The two eventually settled in 2011, and Horizon became an in-
network insurance provider. A spokesman for Horizon declined to
comment on Bayonne Medical's charges, citing terms of the
settlement agreement.

Still, many other large insurance companies, including Cigna,
United Healthcare and Aetna, remain out of network at Bayonne and
are paying the higher bills.

' Their model is to charge exorbitant rates, particularly for
emergency room services, and if the insurance companies don't pay
them, they threaten to go after the member for the balance of
billing,' said Carl King, head of national networks for Aetna,
whose in-network contract was also ended by Bayonne in 2008.

Like Horizon, Aetna said its bills from Bayonne Medical soared,
and it also filed a lawsuit in 2011. The suit was dismissed.

Aetna's internal data showed that Bayonne Medical's emergency
room charges jumped again in 2012 and are running 6 to 12 times
as high as those of surrounding hospitals. Last fall, Mr.
Garipalli bought the designer Tory Burch's oceanside home in
Southampton for $11 million, according to public records.

After purchasing Bayonne Medical, the investor group went on a
buying spree, acquiring Hoboken University Medical Center in 2011
and the bankrupt Christ Hospital in Jersey City last year.

'This hospital is clearly pursuing an out-of-network strategy
with a profit motive in mind and taking advantage of members who
seek emergency services at their facility,' Mr. King said.

Copyright 2012 The New York Times Company

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