How much of a pay raise does Texas Health Resources need?
The region’s largest health system, controlling nearly a quarter of the hospital market, already has the highest health care charges in North Texas — roughly a third higher than the average for the state and nation.
Now it’s teaming with the region’s most prestigious provider, UT Southwestern Medical Center, and seeking a big increase in reimbursement rates from Blue Cross Blue Shield of Texas: over $900 million over the next 32 months.
The state’s largest insurer balked at the proposed increase and the providers responded by filing to terminate the contract. Unless a new deal is reached by Oct. 4, over 450,000 patients could be facing high out-of-network charges or looking for new doctors.
In an email to brokers, Blue Cross said the Dallas-Fort Worth region has the highest health costs in the state and the Texas Health-UTSW combination is one of the more expensive providers.
Texas Health, whose share of the inpatient market is six times greater than UTSW’s share, was the highest paid integrated health system in Texas, according to the latest Rand Corp. study on hospital pricing.
For inpatient and outpatient care, the Texas Health system was paid an average of 332% of Medicare rates in 2020 for coverage through employers and private insurance, Rand found.
Nearly all hospitals collect a premium over Medicare rates from their commercial business, in part because providers have much more bargaining power with employers and insurers than with the government. The Rand study evaluates medical claims data, not posted prices, and reports costs as a multiple of Medicare rates so employers can compare health systems.
What does the data say about Texas Health?
“It says THR is among the higher-priced hospital systems in the country,” said Christopher Whaley, a health economist at Rand and expert on hospital pricing.
The American Hospital Association has criticized the Rand study for relying on a relatively small number of claims and overreaching: “You simply cannot draw credible conclusions from such a limited and biased set of claims,” the group’s president said in May, after release of the latest Rand report.
Researchers analyzed $78.8 billion in spending from 4,000 hospitals in 49 states from 2018-20, Rand said. Claims came from self-insured employers, 11 state all-payer claims databases, and records from insurance plans that chose to participate, according to the nonprofit public policy research organization.
While Rand continues to add to the number of claims, employers and others already use the findings to inform negotiations with providers.
“I use these tools daily,” said Chris Skisak, executive director of Houston Business Coalition on Health, a group trying to contain prices. “Health care pricing is intentionally complicated, more so than it needs to be.”
His counterpart in Dallas said the Rand reports were a breakthrough, confirming what local employers suspected: They were absorbing much higher costs.
Showing prices as a multiple of Medicare rates was an effective way to compare local prices with those outside the region, said Marianne Fazen, executive director of the Dallas-Fort Worth Business Group on Health.
“When we saw the first Rand report, we were like, ‘Holy man,’” Fazen said. “Nobody knew how inflated the prices were for the commercially insured.”
The cost of care isn’t the only issue; the Rand report also has scores on the quality of care, and quality ratings for the Texas Health system are middling at best.
Rand includes hospital ratings from the Centers for Medicare and Medicaid Services, which range from one star to five stars. The average rating for Texas Health’s seven largest hospitals was three stars. And its flagship Harris Methodist Fort Worth facility had just two stars — and collected 358% over Medicare rates, according to Rand data.
“If you’re paying a lot and getting great outcomes, the price may not be a big deal,” Whaley said. “But if you’re paying three-and-a-half times over Medicare rates for a two-star hospital, that’s certainly not as good a deal.”
UT Southwestern’s Clements University Hospital, consistently ranked the region’s top hospital by U.S. News & World Report, received four stars. Its prices were 279% higher than Medicare. Houston Methodist Hospital, top-ranked in the state by U.S. News, had five stars — and prices 302% over Medicare.
How are Texas Health hospitals able to extract such a premium? Industry consolidation is one factor, and Texas Health was formed 25 years ago by the merger of Dallas-based Presbyterian and Fort Worth-based Harris Methodist system.
“Their brands and names carry weight in this marketplace, and there’s a lot of trust,” said Den Bishop, a longtime health care expert and former president of Holmes Murphy & Associates, an insurance consulting firm.
Large hospital systems have outsized clout in North Texas, he said, because of their market share and employers’ unwillingness to reject high-priced providers. Companies don’t want to limit choices for employees because it might alienate workers in a tight labor market.
Southwestern Health Resources, an alliance created by combining Texas Health and UT Southwestern in 2015, is a recent example of local consolidation. By seeking a $900 million increase in reimbursements, it’s leveraging its size and reputation in the marketplace, Whaley said.
“They can use the quality reputation of the academic system at UT Southwestern to negotiate higher prices for THR,” Whaley said. “At the same time, they can use the market clout of THR to negotiate higher prices for the UT system.”
A spokesman for Southwestern Health said the Rand data was inaccurate and unreliable, pointing to comments from the American Hospital Association.
“We, therefore, do not think it is fair to draw any conclusions based primarily on its report,” chief marketing officer Darin Szilagyi wrote in an email.
He said inflation was a major factor in the negotiations with Blue Cross, citing double-digit increases in the cost of labor, prescriptions and supplies. From 2019 to 2022, labor costs per adjusted hospital discharge grew 25%, according to a September report by McKinsey & Co.
Those higher costs are taking a toll: Texas Health reported an operating loss of $5.2 million for the first six months of 2022 compared with operating income of over $391 million last year.
“We are asking for an increase significantly below the inflationary pressures that we all are experiencing,” Szilagyi wrote.
That will be little comfort to those paying for health care, said Vivian Ho, a health economist at Rice University who also joined a community advisory board for Blue Cross in June.
“If Blue Cross Blue Shield held the line, these hospitals would still be in business because they’d still be making profits,” Ho said. “And we have a lot of employers in Dallas and Houston that are not covering their costs.”
She often does research related to market concentration in health care. Like many researchers, she’s found that more market clout leads to higher prices and not necessarily better outcomes.
She was skeptical when Texas Health joined with UTSW and Texas Health CEO Barclay Berdan said they could “over time make health care more affordable.”
“It’s been seven years now; where are the cost reductions?” Ho said. “Instead, they’re raising prices.”