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Community hospitals struggle to compete with better-paid rivals

“We have found ourselves perpetually underpaid,” said Kim Hollon, the chief executive of Brockton Hospital. He is sitting on the hospital’s recently repaired roof.
“We have found ourselves perpetually underpaid,” said Kim Hollon, the chief executive of Brockton Hospital. He is sitting on the hospital’s recently repaired roof. (David L. Ryan/Globe Staff)

On a rainy day soon after Kim Hollon took over at Brockton Hospital eight years ago, he and his staff counted 35 plastic buckets collecting water leaking through the roof. The buckets were a stark reminder of how urgently hospital officials needed to spend on such basics as building maintenance.

The hospital has since replaced sections of the roof and recently opened a new cancer center, but it still faces $3 million in basic maintenance costs.

Hollon says there is a reason he doesn’t have enough money to make timely investments in the building or in new medical equipment: The rates insurers pay Brockton Hospital for services are far below the average for Massachusetts hospitals.

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The disparity in insurance payments threatens the viability of many smaller hospitals, especially those serving lower-income communities, Hollon and leaders of other community hospitals say. To address the problem, they want lawmakers to approve a “minimum wage” for hospitals, bringing those on the low end of the pay scale within 90 percent of the average reimbursement for medical services.

“We have found ourselves perpetually underpaid,” said Hollon, chief executive of Signature Healthcare, the parent company of Brockton Hospital. “[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.”

Narrowing the gap would cost $180 million a year, with the money divided among more than two dozen hospitals in communities across Massachusetts.

It’s an unusual and controversial request while the state is focused on controlling growth in health care spending.

Legislation that simply sets a base wage for community hospitals could force consumers and employers to pay higher insurance premiums, driving up total health spending. Or the legislation could try to contain spending by redistributing hospital payments, giving expensive hospitals smaller pay raises and community hospitals a big boost. Both options are facing resistance, either from insurers or large hospitals.

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Independent community hospitals have long struggled to compete with their larger rivals, which offer a broader array of services and more prestigious brand names. A few community hospitals, including ones in North Adams and Quincy, have closed in recent years.

When community hospitals negotiate payment rates with insurers, they lack the clout of their larger competitors to demand high rates. Payments for the same medical service can vary by hundreds or thousands of dollars from one hospital to another.

The raise that community hospitals are seeking would account for less than 1 percent of commercial health spending in Massachusetts. Community hospital leaders argue that is reasonable and affordable. They say insurers could find the money by becoming more efficient and by paying smaller increases to large hospitals that already are paid well.

“We’re talking about a rounding error,” said Spiros Hatiras, chief executive of Holyoke Medical Center.

Hatiras says a hospital “minimum wage” is critical for the survival of institutions like his.

“We are being cornered into a business model that is absolutely a death trap,” he said. “My prediction is there’s no way we can survive five years.”

The state Senate included a floor for payments to community hospitals in a health care bill approved in November. The bill also had a provision that would penalize certain large hospitals if spending rises too fast. House leaders are still working on their health care bill, which is expected to be released in the coming weeks.

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More than half of the House of Representatives, including Democrats and Republicans, have signed a letter to House leaders supporting a base payment rate for community hospitals. State Representative Frank A. Moran, who penned the letter, said payment disparities particularly hurt hospitals in low-income communities.

“Low-income communities are being singled out by the health insurers,” said Moran, a Lawrence Democrat.

Officials in Governor Charlie Baker’s administration said they’re generally open to legislation that ensures health care is affordable, but they oppose proposals that would raise payments for community hospitals without setting a limit for hospitals at the top or some other cost-control measure.

Health insurers say that setting a minimum payment rate for hospitals without setting a maximum rate would result in higher costs for patients and employers.

“They need to come up with a proposal that figures out a way to divide up the pie and not just ask for more pie,” said Lora M. Pellegrini, president of the Massachusetts Association of Health Plans. “That’s what’s employers and consumers expect.”

The other option — reducing payment increases to expensive teaching hospitals to give a boost to community hospitals — has also run into opposition.

“We’re sympathetic,” said Peter Markell, chief financial officer at Partners HealthCare. “We don’t mind other hospitals wanting more money. We’re not wild about them wanting to take it from us.”

Partners is the parent company of two of the state’s most expensive hospitals, Massachusetts General and Brigham and Women’s.

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A trade group, the Massachusetts Health & Hospital Association, also opposes the capping of payments to some hospitals in order to boost others. But association president Steve Walsh said, “‘It’s critically important that we stabilize our community providers.”

The wide variation in reimbursements to hospitals in Massachusetts has been documented in several reports. State officials assembled a special commission to examine the issue, which last year recommended tighter regulation of hospital pricing. The commission also supported a raise for struggling community hospitals.

“There are a bunch of community hospitals that offer quality on par with other hospitals in the state. The things they do, they do as well as the teaching hospitals in Boston,” said Richard G. Frank, a health economist at Harvard Medical School who served on the state commission.

“The idea was that if you want to have a robust system . . . where people get care at low-cost places, you need to ensure the survival of those guys.”

Few states have tackled hospital price disparities through sweeping regulation. Last year in his state budget proposal, Baker proposed freezing payments to Massachusetts’ priciest hospitals while allowing the least expensive hospitals to get a pay raise. That proposal fizzled when legislators declined to adopt it.

Community hospitals say they urgently need a change in the law. Otherwise, they argue, they won’t be able to invest in facilities and attract patients so they can stay sustainable in the long run.

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“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,” said Dr. Assaad Sayah, chief medical officer of Cambridge Health Alliance, which runs hospitals in Cambridge, Somerville, and Everett. “We need to get paid a basic minimum so we can appropriately invest in the resources to provide care in the community.”

Nurse Lynne Ricardo worked in a Brockton Hospital ward.
Nurse Lynne Ricardo worked in a Brockton Hospital ward. (David L. Ryan/Globe Staff)

Priyanka Dayal McCluskey can be reached at priyanka.mccluskey@globe.com. Follow her on Twitter @priyanka_dayal.