Last week, the CFO of the country’s largest private psychiatric hospital operator stated that the company chooses which patients to treat based on whose insurance plans offer the highest payments. Steve Filton, CFO of Universal Health Services (UHS), made these comments during the King of Prussia, Pennsylvania-based company’s second quarter earnings call.
“We’ve been going to our lowest payers and either demanding increases from them or canceling those contracts that we view to be inadequate and simply admitting patients whose insurance will pay us more, again, in an environment where we can only treat a limited number of patients. We can be more selective about who we treat and the fairness of what we think we’re being paid,” he said during the call.
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Filton’s candid comments have sparked some media attention — but healthcare finance experts say this type of thinking is nothing new to the industry.
Michael Abrams, managing partner of healthcare consulting firm Numerof & Associates, was unsurprised by the remarks. He said that decades of consolidation from health systems like UHS have “created an oligopoly of healthcare corporations that aspire to tell insurers what they will or will not do and how much they will pay.”
With an annual revenue that reached $13.4 billion last year, UHS “clearly believes it has achieved this status,” Abrams added.
During the call, Filton stated that UHS’ revenue for acute care services rose by nearly 10% year-over-year in the second quarter and that revenue from behavioral health services increased by nearly 8%. He also said that UHS’ total revenue rose by nearly 7% to $3.5 billion in the second quarter, up from $3.3 billion during last year’s second quarter.
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Abrams argued that for-profit health systems have cherry-picked patients in order to boost earnings for quite some time.
“Cherry-picking is not new — hospitals have been complaining for years when independent physicians referred their healthier patients to the outpatient facilities in which they had financial interests, and cherry-picking occurs widely, even in areas like Medicare attribution. One of the principal implicit goals of hospital consolidation was to give the surviving entities the market power to push back on payers,” he declared.
In Abram’s view, Filton’s comments suggest that this type of patient selection “is becoming an everyday reality, which is why it needs to be curbed.”
Seth Joseph, managing director of Summit Health Advisors, agreed with Abrams about patient cherry-picking being a relatively common practice.
“While his comment may not have been expressed in the most artful way, the situation Mr. Filton is referencing occurs far more frequently than we might think,” he said.
UHS said that Filton’s remarks have been taken out of context, pointing out that he was responding to a question posed by one of the analysts on the earnings call regarding UHS’ thinking on commercial and Medicaid reimbursement rate increases.
“Steve’s comments about selectivity had to do with insurance plans that we contract with as opposed to specific patients. Steve’s comments were not a statement that UHS would select patients based upon ability to pay nor cherry-pick patients,” the health system told MedCity News in a statement.
UHS also said that like other health systems, it is taking “a more aggressive stance” with payers.
“Toward that end, we are being more ‘selective’ with respect to which insurance plans we will contract with to ensure that we are paid fairly and adequately for the care we provide. For far too long, the insurance companies and payers have a history of underpaying for services provided,” the health system declared.
Joseph, of Summit Health Advisors, pointed out that other health systems have used a similar approach when negotiating with health plans. For example, Bon Secours recently ended its Medicare contract with Anthem.
“The reality is that health systems have been facing headwinds for several years with issues like provider churn, burnout, escalating clinician expenses due to travel nurses, lower patient volumes and more. However, inpatient volume has started to return — UHS revenue growth is up 6% year-over year after 9% growth last year — so it seems UHS views this as an opportunity to leverage timing, its market position and returning patient volume in an attempt to be made whole,” he said.
There will be “a lot of eyes watching” to see which payers UHS pursues for higher reimbursement, and whether that will have any long-term effects, Joseph added.
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