According to an article in the SF Chronicle, the epic battle over hospital charges between CalPERS and Sutter, the state’s largest purchaser of health care and the biggest hospital chain in Northern California, respectively, is a conflict that demonstrates the major power shift that has taken place between those who pay for health care and those who provide it.

While in the past large purchasers held much clout in negotiating rates, even the largest have been unable to control costs. Despite reducing the number of HMOs it offers from 14 in 1997 to three,CalPERS’ HMO premiums have still increased 57 percent during the past three years: “The pension fund’s wrath used to be directed at health insurers. Now it has turned toward doctors and hospitals -and most specifically Sutter Health.” It doesn’t help that Sutter (CalPERS claims) has rates 60-80% higher than comparable hospitals.

But even Sean Harrigan, the president of CalPERS’ 13-member board, CalPERS admits that – in the world after managed care – it has far less “hand” to negotiate successfully:

“We really don’t have the kind of bargaining clout we once enjoyed…There’s been so much consolidation on the provider side, especially among hospitals, that they are in many cases an oligopoly…They believe they don’t have to seriously bargain over price.”

And hospital leaders, in retribution for the tactics that big payers used in the past, aren’t planning to slow the rising cost of care:

“Any schoolyard bully knows if you push somebody hard enough, they’re going to go pump iron and come back and deck ’em.”

So where does this leave employers who provide health coverage for their employees? In my guess, paying double digit annual premium increases indefinitely… until the system breaks and/or until consumers revolt as a result of their employers shifting a greater and greater share of expenses (in exchange for less and less coverage) to them.

Quick PS from Matthew: In 1994 (!) Ellen Morrison at IFTF and I had a big argument about whether payers would win out in this struggle or whether providers would face them down. Ignoring my clearly reasononed logic Ellen wrote a report called The Consolidation of Providers in the Six Americas which essentially forecast that provder consolidation would at least equal the power of managed care and purchasers within 5-7 years. Of course she was right and we’re dealing with the failure of the last decade of purchaser “power”.

The LA Times reports that, in opposition to last year’s meeting, the mood was “calm” at Tenet’s annual shareholder meeting.

There were so few issues to discuss that, in sharp contract to last year’s “raucous showdown” with shareholders, Tenet Chairman Edward Kangas adjourned the meeting in just under an hour after answering only two questions. It seems that Tenet’s leadership is claiming that is has solved all of the company’s myriad problems in the nine months since the last meeting:

“We were struggling in the aftermath of the company’s failed pricing strategy and its many other problems,” said Trevor Fetter, who at the time had been acting chief executive for less than two months. “It’s remarkable isn’t it?…There were a lot of people angry about a lot of things, and we, one by one, checked things off the list.”

So…apart from two perfunctory questions (one about margins in comparison to HCA and another about the stock price), all of Tenet’s problems have been “checked off the list”.

Revenue to replace improper Medicare billing scheme – solved.

Culture of executive entitlement – solved.

Huge losses – solved.

New federal investigations – solved.

Hospital divestiture – solved

Allegations of unnecessary heart procedures – solved

I could go on, but what’s the point. Everything is hunky-dory. (Reading from “talking points”:) Problems all in past; turning corner; future bright. And – evidently – shareholders at the meeting were buying it. Or maybe they were just high at the time.

A new model of specialty hospital is emerging to cherry-pick the most profitable patients from community hospitals. A group of physicians and investors has proposed building a surgical hospital in Loma Linda, California, specializing in cardiovascular and orthopedic procedures, a move critics say is intended to “cherry-pick well-insured patients needing expensive procedures,” the Los Angeles Times reports. But – by including a one bed emergency room – the proposed hospital will not be officially classified as a specialty hospital.

While the California Healthcare Association and community hospitals in the area view the motives behind the new hospital as deleterious to hospitals that must serve a broader segment of patients and procedures and “not serving the community… there to serve a segment of the community that will make their investors wealthy,” the spokesman for the proposed hospital’s investors holds a different view:

“We are not trying to be rebels. We are trying something new. This can be a model for the whole country” (Martin, Los Angeles Times, 4/26).

I assume that the country that this model of hospital will serve is one in which patients only need expensive heart and sports medicine procedures…. and hardly anyone shows up at the ER. Or perhaps the model he is referring to is one that is designed to maximize physician compensation at the detriment of public health and community access to care. You decide.

After the – alleged – Medicare fraud at HealthSouth, Tenet, Medco, et. al… the government has held the CEO of an organization that defrauded Medicare personally responsible:

According to AIS Health, Guy Roland Seaton, the CEO of a California subacute hospital and nursing home was sentenced to 78 months in prison for bilking Medicare by overstating nursing salaries at his facility by almost $3 million.

It seems that the nursing home used fabricated time cards and phony payroll reports to inflate Medicare charges for nursing salaries:

“A St. Luke’s employee created false time cards and payroll reports from 1996 to 1999. For example, Seaton allegedly told an employee to create phony nursing logs and nursing schedules for April 1996 and February 1997. When the Medicare fiscal intermediary, Mutual of Omaha, got a whiff that something was amiss in nursing salary reimbursement, it planned an audit. In anticipation of the 1999 audit, a St. Luke’s employee assembled a binder full of false nursing schedules and then gave it to FI auditors, the indictment says.”

While it is clear that the CEO of St. Luke’s had a direct role in the fraud, it is heartening to see that prosecutors didn’t accept the “I’m the CEO and didn’t know about the actions of a few rogue employees” so commonly used in this day and age.

While the dollar amount in this case pales in comparison to the – alleged – amounts that the other companies have been accused of defrauding the government, one can only hope that prosecutors hold corporate heads responsible for the behavior of their low-level employees (versus the other way around). But I wouldn’t hold my breath.

Over the next two weeks I’ll be visiting my folks in the UK, and sunning myself on the beaches of Turkey, with hopefully the opportunity to get in a little ruin visiting and paragliding at Olu Deniz. I’ll be checking in very occasionally but in my absence you should see a lot from regular contributor Matt Quinn, who has very kindly offered to carry the load. Several other of my regular correspondents who you may know and love (or in some cases know and hate!) have also graciously offered to pen a piece now and again. So I’m very hopeful that this mostly solo effort will be very interesting in my absence. If you are interested in contributing a piece please email Angela Kang, who is shouldering the admin load of THCB.

And of course, while I’m gone please continue to check out the great med and health care bloggers whom I recognize in the listing to the right.

Take care and try to behave while I’m not watching! And if you really are bored, my vacation snaps should be appearing over at my personal blog.

Well it looks like Sheryl Skolnick, an analyst with Fulcrum Global Partners, who decided that Tenet was worth a break-up value of $9.40 a share was about half-right. That number was the bottom a few months back when various suckers (i.e. me) threw in their hands too early. Yesterday Tenet said that it would lose $117M in the first quarter. Wall Street has decided that with around $9 as a base for the stock price, it’s more likely than not that Tenet will get over its legal problems, have only better quarters from now on, and have enough cash to survive this current crisis. The stock is back up close to $12. Obvioulsy you be the judge and caveat emptor.

There’s much more in this article in AMA News, including this quote blaming Wall Street for expecting too much from hospitals, again from Sheryl Skolnick:

“The hospitals simply can’t generate the year-after-year earnings that Wall Street wants,” she said. “I think Wall Street has to realize that these are real estate based, highly regulated businesses.”

The quote reminds me of one of the first (and what I immodestly think is one of the best) articles I wrote at TCHB, called Why Wall Street Hates Health Care Services, But Doesn’t Know It.