Late Payments Dam Hospital's Cash Flow

Southampton Hospital's balance sheet this week shows the hospital should have about $10 million more in the bank than it does. Dr. John J. Ferry Jr., the hospital's president, said the red ink mostly represents monies owed to the hospital by managed care companies and other insurers.

To make ends meet, with an annual operating budget of some $65 million, the hospital has had to borrow and to dip into reserves, to the tune of $4 million so far this year. About $2 million of it had been invested in stocks, losing the hospital the advantage of this year's powerful bull market.

Because of the lagging reimbursements, the hospital has slowed its payments to some of its own vendors in recent months - building contractors, architects, and such.

Meanwhile, it has put off until later this fall renovations on its maternity wing that were to have been done in the spring.

Building Delayed

Work on a new hospital sports rehabilitation center on Pantigo Road, East Hampton, which was to have begun in June, got off the ground only last week. Hospital officials attributed that delay to a holdup in paperwork, though, and a subsequent dearth of contractors at the height of the season.

While a few jobs have been lost to attrition, there have been no layoffs, Dr. Ferry said.

Southampton Hospital raised a record $1.6 million at its summer benefit this month, at a time when "expenses go through the roof," Dr. Ferry said, referring to the increased demand on the facility by seasonal visitors.

"Thank God," he said, "for the summer party."

Dunning Letters

Late reimbursements - four months or more after services have been rendered - as well as a growing chaos in the billing process, are not exclusive to Southampton Hospital, or even to hospitals generally. A sampling of South Fork doctors' offices revealed that insurers also have fallen behind in their payments to physicians and other health-care providers.

Meanwhile, subscribers in various health care plans report that they have received "balance bills" - that is, for a portion of providers' fees - that the insurance companies are supposed to pay. Some have even received dunning letters that threaten their credit standing.

Four of almost 30 managed-care companies with which Southampton Hospital has contracts are responsible for the lion's share of the $10 million it is owed.

Four Companies

The companies and their payables are VYTRA (formerly ChoiceCare), a Long Island insurance company, which owes the hospital $2.2 million, of which $1.9 is more than 30 days overdue; Oxford Health Plans, $1.5 million ($1.3 million is more than a month overdue, although Dr. Ferry said Oxford has shown a "dramatic improvement" since March); Blue Cross/Blue Shield of New York, $1.5 million owed with 1.3 million over 30 days late, and Aetna-U.S. Healthcare, $600,000, of which $500,000 is owed for more than 30 days.

Both Blue Cross/Blue Shield and Oxford at various times during 1997, have owed as much $3 million, Dr. Ferry said.

Blue Cross actually withheld claims payments from January through March this year, as leverage, it appeared, while negotiating a new contract, signed in April, with the hospital. Oxford attributed its delays to glitches in its computer system.

To add to the hospital's woes, VYTRA discontinued a five-year relationship with the Southampton Hospital Laboratory about 18 months ago and established an exclusive arrangement with Lab Corp, another laboratory, for its members.

Lab Corp has a blood-drawing station at the East Hampton Medical Group building.

Over the past 18 months, the hospital has continued to provide lab services to VYTRA patients while attempting to negotiate a contract with Lab Corp. This week, however, Dr. Ferry, who keeps a sharp eye on the bottom line, concluded it was probably out the $250,000 Lab Corp owes.

The hospital said it was discontinuing "the year and a half of fruitless negotiations."

The company, Dr. Ferry explained, offered to reimburse the hospital only $4 to draw blood specimens, compensation he called "worse than capitation," the per-capita fee some managed-care companies pay their primary-care physicians.

National Trend

Consequently, as of Friday, Sept. 5, the hospital will no longer provide routine outpatient lab services for VYTRA patients. It will do emergency testing, however, under physicians' orders.

While the Northeast has been slower to sign on to managed care than other parts of the country, developments here reflect a national trend.

In April, a New York Times report noted that "some of the biggest H.M.O.s are among the slowest payers," citing Oxford, United Healthcare Corporation, and Humana as, respectively, 94, 77, and 71 days behind as of Dec. 31, 1996.

Together, at the end of the year, the three reported $3.23 billion in accounts payable to hospitals, doctors, and other medical providers.

Playing The Float

The Times article suggested what some here have suspected about Oxford's tardiness - that "a large share" of managed-care profits come from "what has long been a mainstay of traditional insurers: earning interest on other people's money."

New York State Attorney General Dennis Vacco, in the August issue of Hospital and Healthcare News, a trade publication, noted Oxford's "86 percent increase in first-quarter earnings" and the fact that the company's former chief executive officer (Steven Wiggens, now the board chairman), received more than $21 million in compensation last year.

"This," Mr. Vacco concluded, "does not seem to indicate a company in financial difficulty." Echoing The Times findings, Mr. Vacco said Oxford might have taken advantage of "what is commonly known in the healthcare industry as 'the float,' in which the H.M.O. could garner interest income by withholding legitimate repayments for a period of time."

State Settlement

To put a halt to such a practice, the state began an investigation of Oxford's payment practices in February, which culminated last month in what Mr. Vacco called a "precedent-setting" settlement.

Under the agreement, Oxford has agreed to pay 9 percent annual interest on any undisputed claims unpaid after 30 days, going back to April 1. While the company admitted no wrongdoing, it will pay the $150,000 cost of the investigation.

Echoing the hospital's experience, local doctors said Oxford had been better about its reimbursements in the last month.

Meanwhile there are two "prompt payment" proposals before the State Legislature that would mandate that all managed care companies pay interest on overdue payments.

Free-For-All

For Southampton Hospital, and others in New York State, the payment crisis was exacerbated when the Legislature voted to deregulate reimbursement rates for the state's hospitals, effective Jan. 1, 1997. The legislation threw the industry into a free-market environment where each insurance company now can negotiate different reimbursement rates with each hospital.

The only rates that remain regulated are Medicare, the Federal insurance for the elderly, Medicaid, which covers the poor, Workman's Compensation, and "no-fault" automobile coverage.

"It's a free-for-all," said Dr. Ferry.