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June 4, 2018

A 'minimum wage' paid to hospitals? Massachusetts lawmakers are tackling the controversial proposal.

Daily Briefing

    Facing financial strain, some community hospitals in Massachusetts are calling for state lawmakers to institute a "minimum wage" for insurer reimbursements to narrow the payment gap between community hospitals and their larger counterparts, Priyanka Dayal McCluskey reports for the Boston Globe.

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    'Perpetually underpaid'

    Several reports have documented big discrepancies in how much insurers pay different hospitals in Massachusetts, Dayal McCluskey reports. Community hospitals, which lack the bargaining power that larger hospitals have, often end up receiving significantly lower rates for similar services, according to Dayal McCluskey.

    The issue has attracted state officials' attention, prompting them to establish a commission to look at hospital reimbursement. Last year, the commission recommended tighter controls on hospital pricing. Further, the group supported a pay bump from insurers for community hospitals.

    Community hospital leaders warn that, without higher rates from insurers, they won't be able to invest in their facilities and attract patients so they can stay sustainable. Kim Hollon, president and CEO of Brockton Hospital in Massachusetts, said his hospital is "perpetually underpaid." He added, "(If) other competitors can continue to add new equipments, new buildings, they will continue to grow, you'll continue to stay right where you are."

    Separately, Richard Frank, a health economist at Harvard Medical School who served on the state's commission, said that plenty of community hospitals "offer quality on par with other hospitals in the state." He said that if there is to be a "robust system … where people get care at low-cost places, you need to ensure the survival of those guys."

    A 'minimum wage' for hospitals

    That's why some community hospital leaders are calling for lawmakers to set a price floor to close the gap between what insurers pay them and what insurers pay other hospitals.

    Specifically, the community hospital leaders are seeking a "minimum wage" that would bring hospitals at the lower end of the pay scale within 90% of the average reimbursement for medical services, Dayal McCluskey reports. The proposal would increase costs by $180 million annually, with funding spread among more than two dozen hospitals in communities throughout the state. According to Dayal McCluskey, the proposal would make up less than 1% of commercial health spending in Massachusetts.

    Community hospital leaders argue that the legislation would be reasonable and affordable. Spiros Hatrias, CEO of Holyoke Medical Center, said the amount they're looking for amounts to essentially "a rounding error."

    However, some experts say the increase could lead to higher premiums for consumers and overall higher health spending. With that in mind, community hospital leaders say another option would be to redistribute hospital payments by giving bigger hospitals lower-than-expected increases in reimbursement in order to fund higher increases at community hospitals.

    Hatrias said, "We are being cornered into a business model that is absolutely a death trap." He added, "My prediction is there's no way we can survive five years."

    The Massachusetts Senate last November approved a bill that would set floor payments for community hospitals and penalize certain big hospitals if their spending grows too quickly. House leaders are expected to release their version of the bill in coming weeks, according to Dayal McCluskey.

    Pushback from insurers and larger hospitals

    Not everyone is sold on the community hospital leaders' proposals.

    Insurers argue that instituting a minimum payment without setting a maximum payment would raise costs for consumers and employers. Lora Pellegrini, president of the Massachusetts Association of Health Plans, said that community hospitals "need to come up with a proposal that figures out a way to divide up the pie and not just ask for more pie."

    Large teaching hospitals also oppose efforts to limit their reimbursements to fund the community hospitals' raise, Dayal McCluskey reports. Peter Markell, CFO at Partners HealthCare—the parent company of Massachusetts General Hospital and Brigham and Women's Hospital—said that he's "sympathetic" to the plight of community hospitals and doesn't mind that they want more money, but said that he's "not wild about them wanting to take it from us."

    Gov. Charlie Baker's (R) administration said it does not support legislation that would boost payments for community hospitals without a corresponding cost control measure.

    But Assaad Sayah, CMO of Cambridge Health Alliance, which runs several hospitals in the state, said that legislation is necessary to keep community hospitals sustainable. "If we leave it to just the market—it hasn't worked. It is going to take a little bit more teeth. It's going to take legislation." He added that community hospitals "need to get paid a basic minimum so we can appropriately invest in the resources to provide care in the community" (Dayal McCluskey, Boston Globe, 5/30).

    Next: Discover your community hospital advantage

    Many community hospitals are questioning whether they can survive the transition to value, but they actually have many potential competitive advantages—such as modest cost structure, strategic agility, and proximity to consumers—that can provide superior value to the market.

    Check out the infographic to learn more about those advantages and how to use them to secure your hospital's future sustainability and success.

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