How can this be?
The decline in operating revenues -- $301 million to $275 million -- doesn't threaten the Mayo's financial health. But Mayo executives see a disturbing trend at work: Mayo is now considered too expensive by insurers that would rather have patients go to hospitals open to negotiating big discounts.
The Mayo Clinic treats patients the old fashioned way. Much of that cutting edge treatment is expensive. Insurance companies don't want to pay.
The cost pressures built into patient care clearly pose a long-term issue for a top-tier facility that has built its reputation on quality rather than cost containment. That concerns Mayo executives.
"Trying to make tweaks to the current system is really doomed for failure," said Dr. Denis Cortese, Mayo's chief executive and president. "There really is no system of health care in this country now."
Paul Krugman confirms the realities confronting the Mayo Clinic. In a recent New York Times column he aptly calls, Death By Insurance he writes:
The Wall Street Journal, as "rising premiums and medical costs push more of their traditional-employer customers to shun or curtail company health benefits." And some investors are feeling the pain. Aetna's stock price fell sharply last week, on news that its "medical cost ratio" - a term I'll explain in a minute - rose from 77.9 to 79.4.
The medical cost ratio is the percentage of insurance premiums paid out to doctors, hospitals and other health care providers. Investors are upset about Aetna's rising ratio, because it leaves less room for profit. But even after the rise in the cost ratio, Aetna spends less than 80 cents of each dollar in health insurance premiums on actually providing medical care. The other 20 cents go into profits, marketing and administrative expenses.
You can read the entire Krugman piece here:
Let's return to the Mayo Clinic for a moment. Here's what Dr. Denis Cortese, Mayo's chief executive has to say about the role insurance companies play in the lives of sick people.
"Insurance products make money by restricting where patients can go," Cortese said. "They're trying to reduce the amount of money going out the door."
As Paul Krugman writes and as I wrote in a diary which you can read here, it's about medical loss ratios. $$$ paid out, is very bad for the bottom line of these for-profit companies.
That business philosophy is wrongheaded, Cortese argues, because high-quality care can prevent future hospitalizations or relapses. Because consumers frequently switch health plans and the government takes care of seniors, insurers are not motivated to look at the big picture, contends Cortese.
"We won't go with those [upfront] discounts. We're trying to provide long-term value," he said.
Mayo won't play ball. Have insurance companies effectively blacklisted them? I don't know. You decide.
The largest insurers in Minnesota -- Blue Cross and Blue Shield, Medica and HealthPartners -- can negotiate volume discounts with providers in the 35 to 40 percent range, said David Delahanty, the Minneapolis leader for Buck Consultants, a national benefits advisory firm. At Mayo, the discount is more likely to be 5 percent, Delahanty said.
"The question for insurers is, do you put Mayo in your network for the name value or do you exclude Mayo and drive care to where it's most cost-effective?" Delahanty said.
In 2005, surgical procedures at Mayo's three hospital locations -- Rochester, Jacksonville and Scottsdale -- were down 2.6 percent.
In contrast, most hospitals in the Twin Cities performed more surgeries than in the previous year.
You want or need to be treated at the Mayo Clinic? You're going to pay for it. You better be rich because your insurance company is not going to be your partner.
A newer twist to the network system has insurers assigning a rank, or tier, to hospitals based on quality and cost. Patients receive a financial incentive to use those in the lowest tier and pay more for those in a higher tier.
Blue Cross began tiering its hospitals late last year; the Mayo Clinic was placed in its second tier, meaning members could use the Mayo's services but pay more for the privilege. HealthPartners also has Mayo in its second tier, as are all of its hospitals in outstate Minnesota where competition is limited. Medica's principal insurance products do not include Mayo in the provider network at all.
Never forget that in America, health care is a privilege.
This is all about Mr. Bush's free market and his nonsensical belief that consumer driven health care (Health Savings Accounts) are the optimal vehicles for transporting America's healthcare into the future.
In theory, the tier system empowers consumers with information about quality and cost while letting them make the choice about spending their health-care dollars. Critics contend cost overshadows quality in the rankings, though.
"It's important for our members to have maximum choice," said Andrea Walsh, chief marketing officer for Bloomington-based HealthPartners. "Where health care is moving is, how do you define value? As we are all asked to pay a greater percentage of the cost, the consumer has a higher level of interest in quality and cost."
"As individuals pay more out of their own pocket, they look at value a little differently," said Michael Morrow, the senior vice president for business development and network management for Blue Cross.
There is an inherent conflict between for-profit insurance companies and people needing medical care. The situation with the Mayo Clinic clearly illustrates this.
Profound change is essential. We need a single-payer system. Anything less makes makes our future very bleak indeed.
In Cortese's view, the conflict between provider and insurer underscores the overwhelming need for broad reform of the health-care system.