Tennessee Lags in Hospital Care Spending

By Jennifer Johnson Backer

Hospital care spending in Tennessee averaged $2,160 per person in 2009, a figure that is among the 10 lowest in the nation on a state-by-state comparison.

Tennessee ranked No. 10 in the country for the states with the lowest hospital care spending, including services for outpatient care, operating room fees and the services of physician residents, data from the Kaiser Family Foundation showed. Nationally, hospital spending averaged $2,475 per person in 2009. That’s about 14.6 higher than the average per person hospital spending in Tennessee.

Spending figures vary widely across the nation for overall health care, physician and clinical services, prescription drugs and hospital care for reasons that are mostly unrelated to the healthiness of patients in each state. National experts say costs of living, population density, high-profile hospitals and a greater proportion of elderly residents all play a role in overall health care spending.

Utah had the lowest hospital care spending in the nation at an average of $1,860 per person. The state’s young and healthy population, and its lower rates of obesity likely play a key role, The Wall Street Journal reported, citing health care experts. Georgia, Nevada, Arizona, California, Alaska, and Idaho also round out the states with the lowest hospital care spending.

“It’s all relative to where you are located in the country.”

–Don Pounds
CFO and Senior Vice President, Baptist Memorial Health Care Corp.

In Tennessee and other states, Medicare and Medicaid reimbursement rates also drive overall hospital care spending, says Don Pounds, chief financial officer and senior vice president of Baptist Memorial Health Care Corp.

What the Centers for Medicaid and Medicaid Services call the capital-based payment rate and operating-base payment rates have a labor component built into the payment models. In Tennessee, both of those rates have an index that is below one, which means hospitals in the state are paid less than the standard rate across the country for the same services.

The rates also vary from city to city, as well as from state to state. Rural areas also have a separate rate. Pounds says the rate differences are largely driven by wage differences and higher costs of living in some regions.

“It’s all relative to where you are located in the country,” Pounds said.

That can make it difficult to lure talented physicians from across state lines, and to make equipment and infrastructure investments – which are not determined on costs of living, unlike Medicare and Medicaid reimbursements, he said. Hospitals recruiting doctors pay market value rates determined by The Medical Group Management Association, which vary by region and city.

“Typically, to recruit a physician, you have to stay in your market area and market rate for that,” Pounds said.

Medicare and Medicaid reimbursement rates will become more critical to hospitals as the baby boomer generation ages and become Medicare recipients. Hospitals and other care providers long have worried about long-term cuts to Medicare and Medicaid reimbursement rates.

Some health care providers have already said they oppose President Barack Obama’s fiscal year 2014 budget proposal, which would reduce federal health care spending $401 billion over 10 years. The plan would mostly leave Medicaid spending untouched, but would reduce Medicare spending $371 billion over 10 years, taking money from providers ranging from hospitals to nursing homes.

Pound said Baptist Memorial has been preparing for Medicare reimbursement cuts for several years.

“We as a health care industry, and especially at Baptist, considered a few years ago that we need to get our cost structure down to where we can live off Medicare reimbursement rates,” he said. “We continue to strive and look for ways to reduce the costs in our system.”

Medicare and Medicaid give hospitals an estimated length of stay based on diagnostic criteria, and Pounds says Baptist strives to manage in-patient hospital care based on that criteria. Baptist also studies cases where patients stay longer than they need to, or develop complications.

“We want to keep patients safe and give them a high quality of care, but no one wants to stay in a hospital longer than they need to,” he said.

Click on the Kaiser Family Foundation link for more highlights and data on spending in all 50 states: http://www.statehealthfacts.org/profileind.jsp?ind=597&cat=5&rgn=44&cmprgn=1.