Those Alamedans who were hoping to find out when Alameda Hospital would begin accepting their health insurance again left Tuesday’s meeting of the Alameda Health Care District Board acutely – to use a medical term – disappointed.
We’re working on it, Alameda Health System Chief Financial Officer David Cox told the Board and a roomful of patients and doctors.
Which is exactly what he told the Board at its June 6 meeting. And at its April 11 meeting before that. And at its February 8 meeting before that.
Then, the Board turned down a resolution offered by its longest-serving member and endorsed by patients, physicians, and politicians that would set a deadline for action. Instead, the majority preferred simply to ask AHS to keep on keepin’ on.
At issue are contracts between the Hospital and four insurance companies – Aetna, Anthem Blue Cross, Blue Shield, and Cigna – that “lapsed” at the end of last year.
Unless and until new agreements are signed, none of the PPO plans offered by these four insurers will cover services like blood tests, X-rays, and mammograms performed at Alameda Hospital. Nor will they cover out-patient surgery like cataract, gall bladder and hernia operations. And, although the plans still will pay for emergency-room visits, patients who are admitted that way are likely to be pressed to transfer to in-network hospitals as soon as they can.
As a result of AHS’s failure to negotiate new contracts, and the Board’s refusal to hold AHS’s feet to the fire, Alamedans with these four plans still don’t know whether, or when, they again can use the Hospital they’re paying parcel taxes (and sales taxes) to support for basic services.
The Merry-Go-Round would like to be able to tell our readers how many insured Alamedans face this quandary. But neither the written materials nor the presentation by Mr. Cox contained this information.
After the meeting, we asked Mr. Cox for it. He replied that “we will review your request.” Two days later, he informed us he was “swamped” and would not be able to conduct his “review” until next week.
On the heels of Mr. Cox’s email came a message from Jerri Applegate Randrup, AHS’s “director of corporate communications and marketing,” instructing us to “send further media inquiries to me.” She offered an “opportunity to connect on other areas of interest as we wait for David’s review next week.”
We have no doubt that Mr. Cox is a very busy man, but the Merry-Go-Round doesn’t defer to flacks. So we’ll try to give you our best guess about the extent of the impact of the current impasse on local residents. Based on statewide statistics, we can assume that around 40 per cent of what we’ll call employed Alamedans – i.e., those not covered by Medicare or Medi-Cal – are Kaiser members. That leaves about 60 percent insured through PPO plans. Together, Anthem Blue Cross, Blue Shield, Aetna and Cigna account for about three-quarters of the PPO market. So the failure to negotiate new contracts with those four insurers affects about 45 percent of employed Alamedans.
We don’t have the data necessary to transfer the percentages to numbers of people. But we can report that 300 Alameda residents signed a petition that began circulating two weeks ago asking that AHS “take whatever action is necessary to promptly re-establish contracts with all the major health insurance plans, so that all residents of Alameda who have those plans may resume using the services of Alameda Hospital.” If so many people sign a petition in so short a time, it’s probably fair to assume that the number of affected Alamedans is in the thousands.
So how did the Hospital find itself in this mess?
For six months, AHS has offered a consistent excuse: It’s all the fault of the insurance companies.
According to the presentations made by Mr. Cox to the District Board (and we’ve watched the videos of all of them), AHS adopted this year what Mr. Cox called a “contracting strategy” of “insist[ing] that our facilities get paid appropriately for the commercial patients that we see, or, simply become non-participating.” (“Appropriately” is never defined. The best we can tell, it means an amount that at least equals the Hospital’s cost of providing services, since Mr. Cox relayed AHS’s view that the payments being made to the Hospital by the PPO insurers when AHS took over in 2014 didn’t even cover its costs.)
To put the strategy bluntly, AHS decided to play hardball: Pay us more money, it told the insurers, or Alameda Hospital will leave your network.
Of the top six companies in the PPO market, only two of the smaller players – Health Net and United, with 5 percent and 6 percent market shares, respectively – buckled under and agreed to increase their payments to the Hospital. (AHS hasn’t revealed by how much.) The market leaders – Anthem Blue Cross and Blue Shield – didn’t get onboard. (AHS hasn’t disclosed the bid-and-ask.) Nor did No. 5 Aetna or No. 6 Cigna.
According to Mr. Cox, the reason for this state of affairs wasn’t that AHS was demanding unreasonable rates. Blue Shield decided to drop Alameda Hospital from its network, he said, because it wanted to refer all of its members to Stanford-affiliated hospitals. And the other three insurance companies were just “too busy” even to talk to AHS.
You read that right. Aetna, Anthem Blue Cross, and Cigna, Mr. Cox told the District Board, “simply don’t have the manpower to respond.” In addition to lacking personnel, they also “have bigger issues to deal with,” like pending mergers. The written report presented Tuesday nicely combined the two themes: “Negotiations continue with Anthem, CIGNA, and Aetna,” it said, “and they have been distracted by merger related turnover.”
With all due respect to Mr. Cox (which we hope Ms. Randrup will convey to him if she reads this column), we find this explanation a little hard to swallow.
Lack of manpower? According to Wikipedia, Anthem Blue Cross employs 37,000 people, Cigna 35,800, and Aetna 48,600. We’re not talking about Ma Anthem and Pa Aetna here.
“Distracted” by mergers? Both Aetna’s acquisition of Humana and Anthem Blue Cross’s acquisition of Cigna were announced a year ago (in July 2015). And we very seriously doubt that any of the employees who put together these transactions has any responsibility whatsoever for negotiating contracts with parties like Alameda Hospital.
One other point made by Mr. Cox rings more true. As he noted, Alameda Hospital is only a small part of the PPO insurers’ overall business. For that reason, “we don’t have a lot of leverage,” he told the District Board. “They don’t care enough to sit down at the table and spend the time to resolve these issues.”
This argument, of course, doesn’t explain why two PPO insurers actually were willing to sign new contracts. But it does raise an interesting point – though not the one Mr. Cox wanted to make – about economic incentives. If the PPO insurers have no reason to take Alameda Hospital seriously, can the same be said – in reverse – about AHS?
The financial statements presented to the Board don’t show how much revenue AHS derives at Alameda Hospital from the PPO plans provided by the four insurers whose contracts haven’t been renewed, or from all PPO plans in total. (This also is data we sought from Mr. Cox after the meeting, and presumably our request for it is still under review by him and Ms. Randrup).
But when we watched the video of the April 11 meeting, we saw Mr. Cox put up a slide – unfortunately, not included in the written materials posted online – called “Alameda Hospital – Payer [sic] Mix.” As described by Mr. Cox, this slide showed that “insurance” accounted for 14.4 percent of “gross charges” in the third quarter of this fiscal year. He then emphasized that, “This is not a lot. If you look at the payor mix of the Hospital . . . , commercial actually is relatively small.”
Without any additional information from AHS, we can only guess at how this percentage translates into dollars. But what the hell. Searching through the Board packages online, we were able to find a financial statement showing that, during the first half of this fiscal year, Alameda Hospital earned $44.9 million in “net patient service revenue.” Let’s assume, based on Mr. Cox’s slide, that 14.4 percent of this revenue is attributable to “insurance.” That gives us $6.5 million in “insurance” revenue. Now multiply this number by the 45 per cent market share we assumed earlier for the PPO insurers whose contracts have not been renewed. That gives us $2.9 million.
If our assumptions are right, this means that only about 6.5 per cent of Alameda Hospital’s patient revenue came from the four “non-contracting” PPO insurers. And consider this: For the first half of this fiscal year, AHS as a whole reported net patient service revenue of $288.7 million. The amount paid by the four PPO insurers to Alameda Hospital thus represented only about one percent of total corporate patient revenue. A “relatively small” contribution indeed.
If we had the chance, we might want to ask Mr. Cox: Is the revenue AHS gets from the four PPO plans at Alameda Hospital so small that AHS, like the insurers themselves, doesn’t consider it necessary to “spend the time to resolve these issues”?
For the last six months, as Mr. Cox and AHS have concentrated on the effect of their “contracting strategy” on the corporate bottom line, one District Board member, Robert Deutsch, M.D., has focused on the consequences suffered by Hospital patients insured under one of the four “non-contracting” PPO plans.
“The impact of this is major,” Dr. Deutsch, who has served on the Board since 2008, told his colleagues on June 6. “As a primary care physician, I see it every day. Every day I have patients whom I send off-island for all kinds of things . . . , including cataracts, elective surgeries, and biopsies, not to mention their cancer care. . . . So if you add up all those categories, this affects a lot of the citizenry regardless of whether the piece of the pie of PPOs is less.”
He had a business point to make as well. By failing to negotiate new contracts, “we’re not only causing hardship to patients who traditionally use this hospital all their lives but, in addition, those patients who leave the island will have very different patterns and they will no longer come here even when the contracts are reinstated,” he told the Board. “We’re losing those patients who have been so loyal and it’s arguable how long they will say, hey, I want to support this hospital that I can’t even use.”
Although the District Board’s stated mission is to “oversee the maintenance and operation” of the Hospital, its powers became advisory only after the AHS takeover. Nevertheless, after six months had passed without the contracts being renewed, Dr. Deutsch concluded the time had come for the Board to give AHS some advice. At the
June 6 meeting, he offered a resolution by which the Board urged AHS to “re-establish” contracts with the four non-contracting PPO insurers on the “latest offered terms, at least temporarily.”
(Ordinarily, as a matter of negotiating tactics, we’d worry about getting lowballed if we committed to taking the other side’s latest offer. But in this case, if our assumptions are correct, the four PPO plans generate only one per cent of total corporate patient revenue and six per cent of the Hospital’s patient revenue, so the effect on the bottom line would be minimal. In addition, as Dr. Deutsch pointed out, the financial detriment to AHS has to be weighed against what he called the “collateral damage” to Alameda Hospital patients.)
The proposal apparently took the rest of the Board by surprise. But even after their legal counsel assured the Board members that they had authority to pass the resolution then and there, they wanted more time to think about it. Ultimately, they accepted Board member Tracy Jensen’s suggestion to hold a special meeting at a later date.
Over the next couple of weeks, Dr. Deutsch added “community organizer” to his already distinguished resume. Not only did 300 patients sign the petition demanding immediate action, but 35 Alameda Hospital staff physicians signed a separate petition urging AHS to “accept the latest/best offers from all the major health insurance plans, so that our patients who have those plans may resume using the services of Alameda Hospital.”
Before the meeting, Dr. Deutsch tweaked his original resolution by eliminating the recommendation to accept the latest/best offer. Instead, he proposed that AHS be directed “to promptly re-establish those contracts [with the four PPO sponsors] within one month.”
Tuesday night, the second-floor conference room at the Hospital was filled to standing-room only. Not only did patients and staff physicians support Dr. Deutsch’s resolution, but three politicians – Mayor Trish Spencer and Council members Marilyn Ezzy Ashcraft and Jim Oddie – got into the act. Ms. Ashcraft, in particular, was nonplussed by the presentations made by Mr. Cox and AHS Chief Executive Officer Delvecchio Finley. “How long can you be ‘very close’ and yet not come to some sort of resolution?” she asked.
She never got a straight answer. And, except for Dr. Deutsch, none of the Board members pressed the AHS executives for one, either.
Indeed, the solicitude for AHS expressed by the Board members – who are, after all, elected by Alameda voters – at times reached the saccharine level. “I’m impressed by the effort that has been made by AHS to be listening to all of these comments,” Board president Kathryn Saenz Duke stated. Let’s not “frame” this issue as “attacking AHS,” Board member Jensen remonstrated. But leading the pack was Board member Jim Meyers. “I trust you,” he told Messrs. Finley and Cox. “Let’s see how it goes.”
Moreover, except for Dr. Deutsch, the Board members not only accepted AHS’s explanation for the failure to renew the contracts, they also endorsed AHS’s position that it was up to the public to force a resolution. “It would be helpful,” Mr. Cox said, “if the community would reach out to the plans and tell them how important this particular hospital is to their members.” Board member Meyers readily concurred: “I ask that everyone in this room make noise with their insurance company.” And Ms. Duke told the audience that, on their way out, they could pick up form letters – apparently drafted by AHS – to send to the insurance companies.
Nevertheless, Dr. Deutsch insisted that a vote be taken on his proposed resolution. It was – and he was the only one to vote yes. Ms. Duke then declared the resolution defeated and started to move on to the next item on the agenda. Astonished that the Board was doing nothing at all to address the issue that had sparked such a public outcry, an audience member – all right, it was former Golf Commission chair Jane Sullwold – got up and challenged the Board members to come up with an alternative to Dr. Deutsch’s proposal.
A half hour of word-smithing worthy of a Council meeting ensued, and the Board ended up passing a watered-down resolution whose language was acceptable to the majority. (Dr. Deutsch abstained.) Board clerk Kristen Thorson told us that a resolution doesn’t become official until Ms. Duke signs it, and no signed resolution had been posted by Friday, so we can’t quote the final text. But, according to our notes and the videotape, the agreed-upon language merely recites the Board’s “request” to AHS’s CEO to “re‑establish” the lapsed contracts.
Which is, of course, what AHS says it has been “working on” doing all along.
So is there anything Alamedans affected by the failure to renew the contracts with the four PPO insurers can do other than wring their hands? Unfortunately, the public really doesn’t have much leverage (to use Mr. Cox’s word). Theoretically, we suppose, the employed Alamedans insured by one of the four non-contracting companies can threaten to switch carriers. But for many people, it’s their employer, not the employee herself, who decides which plans are offered. Nor do disgruntled patients have any way to move AHS beyond verbal reassurances. The “nuclear option” is not available: a vote by the people is not required to keep the annual $298 parcel tax alive, and the District Board just re-authorized it for another year.
Maybe it’s time for the Board to find a negotiator who has mastered the “art of the deal.” The ideal candidate would be someone with a track record of getting the best terms for those he represents and then selling those terms to the public as a “win-win.” Alameda firefighters’ union president Jeff DelBono, whose efforts have produced a series of lucrative contracts for public safety union members with the City, fits the bill – whom did you think we were talking about? – but we understand he’s “too busy” with, and/or “distracted” by, other matters.
We are, of course, being facetious. But having watched the performance of the AHS executives and the District Board members Tuesday night, laughter may be the best – and perhaps the only – medicine.
Disclosure: Robert and Jane Sullwold both are patients of Dr. Deutsch, and Sullwold & Hughes provides health benefits through an Anthem Blue Cross PPO.
June 28, 2016 proposed resolution: 2016-06-28 Deutsch resolution
June 28, 2016 written materials: 2016-06-28 Presentation and Handouts