Mercy Hospital Lifts Pullout Threat as State Raises Rates

Mercy Hospital, which had threatened to withdraw from the state’s embattled health insurance program for the poor unless it received more money for its services, lifted its threat Wednesday in light of what hospital officials say is an improved offer from the state.

Hospital officials said they changed their minds about terminating their contract to care for some 3,000 inpatients a year under the Medi-Cal program after state health officials offered them a more favorable daily rate of reimbursement.

Officials at some other health-care facilities interpreted the new offer as a victory for San Diego County hospitals, many of which say they are losing millions of dollars a year because Medi-Cal reimbursement rates are unreasonably low.

“I think the bottom line is that more and more hospitals are calling (the state’s) bluff,” said Richard Barnett of Paradise Valley Hospital in National City. “They’re taking a harder stance in negotiations. It used to be that hospitals would roll over and play dead.”

Officials at the California Medical Assistance Commission, which represents the state in negotiating Medi-Cal agreements, declined to discuss its dealings with Mercy, citing the legal requirement that all such discussions and contract terms remain confidential.

“If everybody found out that we gave Mercy a 75% increase, they would come in and ask for a 75% increase,” said senior hospital negotiator Jim Ringrose. Ringrose would confirm only that the hospital and his office had agreed upon an amendment to Mercy’s contract.

The agreement must be approved by the commission, which is to meet on the matter July 7. In the meantime, the hospital has withdrawn its “notice of termination” as of Wednesday, contingent upon the commission’s approval.

20% of Patients

Mercy, the largest civilian hospital in the county and one with a long tradition of caring for the poor, notified the commission in late April that it could no longer afford to accept inpatients under the Medi-Cal program.

The move, which would have taken effect Aug. 26, would have shifted the several thousand inpatients treated at Mercy each year to other hospitals--many of which said they, too, were already overburdened and under-funded by the Medi-Cal program.

Mercy officials said at the time that they expected to lose $4.5 million on Medi-Cal patients this year. Medi-Cal patients account for about 20% of all inpatient days at the 96-year-old facility in Hillcrest.

Since then, two other hospitals have announced that they, too, intend to quit.

Grossmont Hospital, where 15% of all inpatient days fall under Medi-Cal, issued its notice in early June. Alvarado Community Hospital, where Medi-Cal patients account for 7% of inpatient days, did the same in late May.

A recent study by Alvarado concluded that the hospital had accumulated more than $5 million in Medi-Cal charges between June, 1986 and April, 1987. Of that amount, the study found that the hospital would receive only $1 million from the state in reimbursement.

“Which means that we were forced to discount or essentially write off 77.5%,” the hospital’s marketing director, Tom Berger, said Wednesday. “Because under the current contract, we’re only reimbursed 22.5%.”

Laura Avallone, a Mercy spokeswoman, said the hospital received word from the state Tuesday of its offer of a higher rate of reimbursement. Avallone declined to quantify the hike but said it represented an increase over the state’s initial offer.

State’s Position

“It’s not going to fully reimburse our costs,” said Avallone. “But we feel that we want to stay in the program because we feel that this rate is equitable and something that we can stay in the system for.

“I think we realize that the state’s in a position where they can’t fund all the hospitals and cover the costs totally,” Avallone said. “But this comes much closer to what we need to operate.”

State officials have acknowledged that statistics suggest that the reimbursement rates in San Diego County are lower than the statewide average. However, they say those rates reflect, among other things, the fact that the county has a very competitive hospital market.

They say the county is “heavily over-bedded.” For that reason, they say, hospitals in San Diego have been eager to bargain with the state for Medi-Cal patients to fill their beds.

Barnett of Paradise Valley, whose hospital has not threatened to terminate, welcomed the agreement between the state and Mercy.

“The way the Medi-Cal situation is set up is kind of like a closed bidding situation where you are not allowed to talk to another hospital about what their rates are,” said Barnett. “ . . . So its fairly significant that more and more hospitals are starting to ‘call the bluff’ of CMAC.

“CMAC has taken the attitude to the hospitals that say we’ll pull out, they say, ‘Fine, the other hospitals in your area will absorb the load,’ ” said Barnett. “They said that to us and I know they said that to other hospitals.”

However, Barnett and Dr. Richard Butcher, president-elect of the San Diego County Medical Society, noted that Mercy’s size may give it leverage that smaller hospitals don’t enjoy. In addition, it could get by without its Medi-Cal patients, whereas smaller hospitals in largely low-income areas could not.

“As an administrator, you’re gambling 700 jobs of employees by putting it all on the line,” said Barnett, whose hospital has 35% of its patients under Medi-Cal. “Because you can’t operate in the same fashion if you have thrown out 35% of your business.”

Said Butcher, “It’s obvious that if Mercy were to withdraw from the program (the state) would have a difficult situation.”