CarePoint’s Kelly answers out-of-network charges

CEO: In urban settings, it's a business necessity, not a business model

Joshua Burd//April 20, 2015

CarePoint’s Kelly answers out-of-network charges

CEO: In urban settings, it's a business necessity, not a business model

Joshua Burd//April 20, 2015

Dennis Kelly likes to say CarePoint Health is steeped in history, but still in its infancy.

(Editor’s note: This report was updated April 20 to clarify a statistic about CarePoint Health’s patient population.)

Dennis Kelly likes to say CarePoint Health is steeped in history, but still in its infancy.

There’s a good reason for that. The for-profit, Hudson County-based health system owns three hospitals between 100 and 150 years old, but it’s been less than two years since it formally launched itself as an umbrella organization, bringing the facilities into a network that also includes insurers and community-based physicians.

And the system is still in the early stages of getting to where it wants to go.

“We wanted to have all of the ambulatory aspects of health care services and position the three hospitals, not as units unto themselves, but a part of an integrated system,” said Kelly, who was named CarePoint’s CEO last fall. “We don’t have a choice because of where we live and where we work, but to focus on community-based health care services.

“So I can’t become an academic institution. What I can become is the best community-based health care provider in the state. And that, candidly, is our goal.”

It’s a goal that comes with plenty of challenges. As the operator of three urban hospitals — CarePoint Christ Hospital in Jersey City, Bayonne Medical Center and Hoboken University Medical Center — 54 percent of its patients in 2014 were uninsured, undocumented, self-paid or covered by charity care or Medicaid; that population is “the lower end of our payer mix,” Kelly said, so the system must make up the difference through other forms of reimbursement.

That ties to another hurdle for CarePoint, one that’s been the source of much controversy in recent years. With the demographics of cities and the lack of large corporate employers, Kelly said insurers don’t face as much pressure to offer fair reimbursement rates in-network, so urban hospitals must go out of network and seek higher charges.

“In the urban setting, that pressure is gone,” Kelly said. “So there’s no AT&T or Merck or anyone else saying, ‘I’ve got this many employees right here in the area, these are our providers — we’d like you to have an agreement with these doctors and with these hospitals, because that’s where my employees go to get their care.’ ”

They’re the same dilemmas that have forced urban hospitals to close in the past, he said, and CarePoint is still navigating that landscape going forward. Kelly discussed those challenges with in a recent editorial meeting with NJBIZ.

NJBIZ: CarePoint entered the market in 2008 and has grown its footprint to include three hospitals and about 115 practitioners in Hudson County. How does that footprint translate to your overall business model?

Dennis Kelly: All of that is just part of the integrated approach and making sure that there’s a continuity of care from the hospital to the ambulatory setting to the physician’s office. A lot of that is driven by, not today’s economics, but what we view as CarePoint Health 2020 and in going into the next decade of economics. And that is the need to develop the delivery model that it’s (about) a population — that we’re keeping people healthy rather than treating them when they’re ill.

Right now in the world of the health care of the United States, we live in a fee-for-service world for probably 95 percent of our revenues. The more things we do, the more money we get paid; whereas, in reality, if you look at chronic disease and you look at some of the other things, we should be getting paid as a revenue for a period of time, based on the population, to keep them healthy, not continue to do more work on them.

If you look at a lot of the strategic decisions and the business expansion we’ve gone through, having the footprint of three hospitals across the county and having geographically positioned practices, it’s all been around continuity of care from that standpoint. So we spend a lot of time and investment right now on trying to figure out which neighborhoods, (which) ZIP codes, need what kind of care and (whether) can we provide it — and what’s going to be the technology platform to allow us to have longitudinal care, both over time and over the geography?

NJBIZ: So you’re taking the approach that many other New Jersey hospital systems are taking, but you’re doing it as a for-profit. Is there really any difference between the two models?

DK: The for-profit name is really a misnomer in health care services, because you’re not going to attract private or public debt if you’re not making a positive contribution marginally. So if you look at the healthiest health systems across our state, they’re all not-for-profit — I would love to have their bottom line. The difference is we pay taxes and they don’t. And they’ve got to demonstrate every year through their 990 that they’re providing a certain level of community benefit to keep that tax-exempt status.

NJBIZ: So, then, is it time every system to become for-profit?
DK: Remember, my whole career on the provider side has been in the for-profit side, so I’ve got a bias toward for-profit. But I believe in it because I believe the discipline of for-profit drives you to operate a more efficient model. But that’s the only reason. Otherwise, it’s the same business: We get our dollars from the same place, our costs are the exactly same. The only difference is their capital is cheaper than ours because they have access to public debt and we don’t.

NJBIZ: But for-profit operators aren’t exactly knocking down our door to operate here. Is New Jersey not worth the hassle?

DK: It’s a challenging environment for a bunch of reasons, but it’s not any more challenging for health care than it is for everyone else. The labor market here is a tough market, regardless of what industry you’re in. That’s just a fact. It’s an expensive market to operate in. But you’ve also got a lot of customers, regardless of the industry, because it’s a densely populated state. So it’s attractive from that standpoint.

As you look at Hudson County and you look at the demographics, I don’t think you’re going to find a lot of national, investor-owned hospitals that would say, ‘Hey, let’s go to that market.’ It’s a challenging market for a lot of reasons.

NJBIZ: You seem to embrace that challenge. Why is that?

DK: Given the circumstances we start with, it’s innovate or perish — because we know what it looks like if we don’t change. … And it’s very freeing if you think about it. If you’re not wed to a certain model, it gives you a little bit of intellectual flexibility, because you say, ‘What should we do?’ So having an ownership group that’s very entrepreneurial is very empowering from that standpoint — because there’s not a lot of constraints.

NJBIZ: For better or worse, for-profit hospital systems seem to be associated with high out-of-network charges with insurance companies. You’ve been adamant that you don’t have a choice in the matter — why is that?

DK: This isn’t a brilliant business strategy — this is a survival strategy. We don’t have a choice, because the rates that we’re offered as an in-network provider are just not adequate. And I know how it ends because they (the hospitals) were bankrupt when they were in-network before. So my goal every single day is to try to convey to the thought leaders and the policymakers throughout our state: We should not be talking about charity care, we should not be talking about out-of-network — we should talk about reforming our reimbursement system so that we’ve got fair reimbursement across the state to everyone that needs the care, because I don’t want to pick and choose who deserves to get quality care and who doesn’t.

NJBIZ: When it comes to in-network contracts, is the reimbursement that the insurance companies offer you in Hudson County different from the rates they would offer a facility like Morristown Medical Center?

DK: Materially.

NJBIZ: How much?

DK: 100 percent.

NJBIZ: So if payers were to offer you what they offer in Morris County …

DK: I’d be very happy.

NJBIZ: You’ve made it clear why that won’t happen. So what’s the solution?

DK: If we’re going to do a comprehensive reform, that means that, regardless of the payment class — we’re going to make sure that all the families in New Jersey and individuals in New Jersey have the same basic access to health care services, and therefore the unit of service that we’re going to pay for is the same across the board, absolutely.

NJBIZ: And you say this is going to have to come from a public policy debate, since many third-party payers are driven by earnings. Talk us through your ideal legislative reform: If you could do three or four things, when they ask you ‘How could we fix this?’ what would you do to solve this problem?

DK: You look at the business models of health care, and for certain types of care, the payment structure should be different. Chronic care should be paid on a payment structure to keep them healthy, not to do more work on them. So that should almost be on a capitated arrangement — per person per month or per person per year.

You’ve got to have economic incentives … where it’s precision medicine — (where) we know what’s wrong, we know what the treatment is. You should be paid a fixed fee for that, but it should be defined, because we know exactly what’s wrong, and we almost can guarantee a cost and we can guarantee an outcome. So that should be pretty well-defined.

And then you’ve got this intuitive medicine piece in the middle, where something’s wrong and we don’t know what it is. When that happens to you or to your loved one, that’s where you want the experts there and you want the experts to be paid enough money to continue to be able to solve these problems. So you’re going to have to come up with some sort of fee-for-service schedule that will continue to attract the types of physicians that we need to have in the state, and to have the appropriate hospital settings in place that can provide that inpatient care.

Some of the market forces are driving appropriate behavior already, so even with comprehensive reform, people like us are looking at this in a low-cost setting care, because good policy happens to be good business. If I can take an expensive encounter at the hospital that I’m not getting paid enough money for anyway, and I can move that encounter to an ambulatory setting or a physician office, where then the money that I am getting paid covers the cost of providing that care — that’s good policy and good business. So we’re doing that already. We’ve started it about two years with our neighborhood health centers and some of our other activities.

So I think it’s more of that, and then it’s just a matter of looking at, which is the challenging part — we do have different demographics within our state, in different markets within our state. And that’s always a challenge — how do you say to somebody, ‘No, we’re not going to provide enough revenues within this area because we don’t have to. We’ll provide basic care, but we’re not going to provide access to the advanced stuff.’ That’s a real challenge.

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The imperfect world of the health care business

CarePoint Health CEO Dennis Kelly didn’t mince words when explaining why it can be difficult for his urban hospitals to negotiate contracts with insurance companies. At one point, he also drew on a historical anecdote involving Winston Churchill.

“When Churchill learned about the American business model … his takeaway was ‘Socialism sounds so good, yet works so bad; capitalism sounds so bad yet works so good.’ ” Kelly said. “So I’m not blaming them. It’s market forces — they don’t have to (offer commensurate rates), so they don’t.

“But my response is, don’t be upset that I react appropriately, because if you’re not going to offer me a fair reimbursement that would allow me to sustain my business practice, then I’m going to use whatever I have at my disposal to try to secure adequate revenues to continue to operate the enterprise.”