MD Anderson Suffers Financial Woes – Are Narrow Networks To Blame?


Will turning holiday parties into potluck events save MD Anderson from financial ruin?  I don’t think cost shifting to employees is a viable solution.

By Bill Rusteberg

MD Anderson (MDA) is one of the best cancer care centers in the world. At least that’s the perception honed through exceptional branding.  This world class facility has done a superb job in that regard, with “MD Anderson” synonymous with “Cancer Cure.”

The shock of learning that the pesky little pain in your gut is caused by the dreaded “Big C” is quickly followed by thoughts of beating the odds. And the only place, the best place, and where everyone goes, is MD Anderson in Houston.  And money is no object because everyone has health insurance these days with no lifetime limits and no pre-existing condition exclusions.

Once diagnosed, there are three methods to “cure” the disease; Cut it, burn it, or kill it. The controlling factor in success is timing. Caught early, treatment success has better odds. Caught late, treatment success is not as good. The importance of early treatment is well known. In the case of MDA we see patients with non-threatening skin cancer make the mad dash to Houston, although they could have easily been treated locally. Fear of the deadly “Big C” demands the best care, and where else is there better care than at MDA!

We find that beating the odds is not necessarily tied to where one seeks treatments. Instead, we find the odds are increased with one’s financial condition, the ability to pay for expensive cancer care treatment. Health insurance is the grand equalizer among all economic/social groups.

MD Anderson is expensive. We know because we review claims every day. We also negotiate hospital contracts for self-funded employer sponsored health and welfare plans. MD Anderson is expensive, real expensive.

For example, just last week I reviewed a claim run for a large employer group, comparing PPO allowed reimbursement levels to Medicare allowable reimbursement tables. What jumped out on the spreadsheet was one hospital system whose PPO allowed, in the aggregate (in-patient & out-patient charges combined) averaged 558% of Medicare. Separating in-patient from out-patient charges shows even higher percentages. The hospital? – MD Anderson.

We have attempted to negotiate direct agreements with MDA over the years without much success. The best MDA has offered is a small percentage off billed charges. Billed charges are highly inflated and bear no relationship to costs. Hospital charge master rates are the lynch pin of a well kept, secret, health care conspiracy that allows for enormous profits through well constructed smoke screens – The Truth About Managed Care Contracts.

(See related articles: Hospitals Dismiss Significance Of Chargemaster Prices? Why Hospitals Bill High Data Shows Large Increases In Hospital Charge Master Rates Hospital Must Release Information on Pricing Methodology Billed Charges vs PPO Allowed Charges vs Cost Plus Insurance South Texas Health System Defends 920% Price Markup)

Of course consumers are not aware of any of this. They have health insurance! Their only out-of-pocket expenses are deductibles, co-pays, co-insurance. A trip to MDA quickly transforms their coverage from a cost-share plan to a 100% coverage plan once a patient reaches their ACA mandated maximum out-of-pocket expense which is easy to do through turbo-charged hospital billing.   This kind of consumer tunnel vision is pivotal to MDA’s continued, and successful, demand for top dollar. And complicit insurance companies have assisted by keeping MDA in their PPO networks through collaborative behind the curtain shenanigans, cranking out secretive managed care contracts no one can see but through which we are required to pay for care.

Until now……………………….

For carriers to compete in today’s market, under the onerous mandates of the ACA, little can be done to compete on benefits since those are mandated. Instead, to remain competitive, carriers have turned to focusing on paying less for health care. This is one of the best (and unintended) consequences of the ACA which does not address the cost of care in any of the 3,000+ pages of the Act. Pricing has become a vital part of attracting and retaining customers, and the only way to provide benefits at a lower cost than competitor’s pricing is to pay health care providers less.

Carriers have reviewed their provider contracts, and have established narrow networks by taking the lowest cost providers and putting them into new networks. To sell these new, less comprehensive networks, carriers have assigned catchy, sales labels such as “Premier Network”, or “High Performance Network”, etc.

MDA has been excluded from many managed care networks due to high pricing. Their apparent refusal to offer rates comparable to their competition is evident. “Why discount our rates when we don’t have to? may the thought process. (Why Change When We Are “Printing Money” Syndrome – Xerox, Eastman Kodak And Cost Plus Insurance)

From my vantage point, MDA is suffering a significant loss of patient revenue due to this growing market trend. Instead of addressing health care pricing and reducing expenses to become more efficient, MDA is focusing on reducing and even eliminating overtime, instituting a hiring freeze, curbing catering, and turning holiday parties into potluck events. I don’t think cost shifting to employees is a viable solution.

The article below may reinforce this, or may not. It is up to the reader to decide.


MD Anderson records $102.4M operating loss in first 2 months of FY 2017

Written by Kelly Gooch | December 14, 2016 | Print | Email

The University of Texas MD Anderson Cancer Center in Houston saw a significant loss in operating income in October.

MD Anderson recorded an operating loss of $60.9 million for the month, compared to an operating surplus of $11.5 million in the same period the year prior. For the first two months of fiscal year 2017,which began Sept. 1, MD Anderson’s operating losses total $102.4 million.

MD Anderson’s operating expenses in October were $368.8 million, a 7.7 percent increase from October 2015, according to the hospital’s financial report. Total operating revenues in October were $307.9 million, down from $378.1 million in October 2015.

Additionally, total operating revenues for the first two months of FY 2017 were $630.8 million —$109.7 million below budget. That’s a 9.1 percent decrease from the same period of FY 2016.

In August, MD Anderson officials attributed the institution’s sagging financials to various factors, including a costly Epic EHR implementation as well as a shrinking pool of potential patients due to restricted insurance coverage.

MD Anderson President Ronald DePinho accepted responsibility for the cancer center’s financial losses.

“Who is accountable for the financial performance? I take full responsibility for the challenges,” Mr. DePinho said Nov. 15, addressing a faculty forum convened to discuss the institution’s finances, according to The Cancer Letter.

In light of MD Anderson’s financial picture, executives are urging faculty members to add clinical days and try to convince out-of-town patients to remain at the cancer center for the duration of their treatments, the report states. Other frugality measures, including eliminating overtime, instituting a hiring freeze, curbing catering, and turning holiday parties into potluck events, have also been discussed.

Still, MD Anderson officials remain optimistic, contending that the cancer center’s long-term financial outlook is strong.

“MD Anderson has reserves and non-operating revenues that give us the opportunity to adjust our operating revenue and expense structure without making overly drastic changes,” Dan Fontaine, MD Anderson executive vice president for administration told The Cancer Letter. “We are implementing action plans now to ensure we can address short-term losses and maintain our focus on our mission.”

“MD Anderson is a magnificent institution with outstanding leadership,” says Scott Becker, publisher of Becker’s Healthcare. “In the long run, it will thrive.”

riskmanagers-logo is a specialty company in the benefits market that, while not an insurance company, works directly with health entities, medical providers, and businesses to identify and develop cost effective benefits packages, emphasizing transparency and fairness in direct reimbursement compensation methods.