"Who Moved My Margin?" by Christina Severin

Since the state’s budget for Commonwealth Care has been getting a lot of attention lately, I thought it would be helpful to hit on a few key points about how all the money gets spent. At Network Health, more than 94 percent of the Commonwealth Care premium is spent on paying for medical costs. For some Commonwealth Care members, like those in Plan Types III and IV, the percent of total member premium spent on medical costs is more than 160 percent.

The good news is that Commonwealth Care members are using services they have long needed and appear to be making up for years without consistent access to health care and preventive services. For example, Commonwealth Care members are utilizing surgery services at almost twice the rate of MassHealth members. Similarly, we see Commonwealth Care members use extensive office visits, outpatient specialty services, and pharmaceuticals.

I had hoped that this phenomenon of pent-up demand would lead to a regression to the mean after members gained some health plan tenure.

Unfortunately, with thousands and thousands of members churning off coverage, a smoothing of the morbidity of the population overall now appears unlikely. (If you don’t know already, Commonwealth Care disenrollments are outpacing enrollments for several months running now. For more information about the churn problem, please see my earlier blog and this article.)

But don’t worry, once these folks have asthma exacerbations and complications from diabetes and other chronic diseases, they’ll show up at community health centers and safety net hospitals and start the re-enrollment process.

So, that’s the good and not-so-good conclusion about what’s happening with the utilization of services in the Commonwealth Care Program: people are getting needed care.

The other component of medical expense is unit cost: how much it costs to access needed care, or, for example, how much a hospital charges us for care given to our members. When we talk to hospitals about their charges, they still claim that Medicaid and Commonwealth Care rates don’t cover their costs, despite coming up on the third year of Medicaid physician and hospital rate increases. According to public reporting to the Department of Health Care Finance and Policy, for 12 months ending September 30, 2007, most (but not all) hospitals look more than healthy when it comes to the bottom line. The reporting offers a look at how some of our top area hospitals are doing: one downtown hospital reported just under a 14% margin, earning just under $355,000,000; another reported a 10% total surplus margin, or $112,500,000. Moving west of Boston the story is much the same with one hospital reporting a total surplus margin of 5.4%, or $60,000,000 and another reported a total surplus margin of 8.5%, about $70,000,000 in total surplus.

We run lean at Network Health, spending just less than 7% of our revenue on administrative expenses, about 4-5 points lower than the industry average. With the next Commonwealth Care year beginning on July 1, our goal is to break even, although I am not optimistic.

So, why is health care reform so expensive? You do the math.

Christina Severin is executive director of Network Health, a health plan with more than 160,000 MassHealth and Commonwealth Care members across Massachusetts.