Spectrum hikes prices by 8 percent

June 11, 2010
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Spectrum Health plans to raise prices for hospital services at Blodgett, Butterworth and the Helen DeVos Children’s hospitals by an average of 8 percent for the 2011 fiscal year that begins July 1, CFO Michael P. Freed said last week.

Freed also cited an average 5 percent increase in Priority Health’s premium prices. Priority Health, majority owned by Spectrum, provides health care coverage to the commercial and Medicaid markets as well as Medicare Advantage plans for those ages 65 and older.

The health system is anticipating a 3.5 percent total margin for the next fiscal year, or $137 million, on revenue of $3.9 billion. That’s compared to an estimated total margin of 6.7 percent, or $223 million, on total revenue of $3.3 billion for the current fiscal year which ends June 30.

Freed cautioned that erosion in net investment gains over the past month or so could eat into the 2010 numbers once a final tally is completed and push the total margin to as low as 5.4 percent. He predicted continued modest non-operating revenue for the 2010-11 fiscal year.

The CFO’s remarks came at Spectrum Health’s public budget meeting, which is conducted annually as part of the lawsuit settlement that paved the way for Butterworth and Blodgett hospitals to merge in 1997.

Spectrum Health
Average Price Hikes

FY 2007-08: 7.25 percent
FY 2008-09: 8 percent
FY 2009-10: 6 percent
FY 2010-11: 8 percent

Alliance for Health President Lody Zwarensteyn said his nonprofit health planning organization has expressed concerns to Spectrum about price increases over the past several years.

“It is disappointing to see price increases that far exceed the general inflation rate, especially when one understands the step of outstripping inflation has come several years in a row,” Zwarensteyn said.

Freed also said the hospital system, the largest employer in Grand Rapids as well as other West Michigan cities, has budgeted for 14,344 full-time equivalent employees in the 2010-11 fiscal year, about a 4.4 percent increase over the 2009-10 total of 13,740 projected FTEs as of June 30. That includes 498 at the newly-acquired Spectrum Health Gerber Memorial Hospital in Fremont as well as 1,870 employees in the Spectrum Health Medical Group and MMPC.

In 2009, employees in Spectrum-owned doctors’ practices amounted to 245 and included mostly primary care and pediatric services. That was prior to the ramp up in staff members and doctors to the roster of the new Spectrum Health Medical Group, including dozens from West Michigan Heart and hundreds from MMPC, which is now a subsidiary.

Membership growth at Priority Health is expected to be divided about evenly between the commercial market and Medicare Advantage, Freed said. Priority Health saw a surge in Medicare Advantage enrollment during the last enrollment period in late 2009, more than doubling to 43,290.

“We think that we’ll probably see some impact of health reform,” he added.” That’s not been factored into that 5 percent. The two areas in particular in health reform that have kind of an immediate impact as it relates to health insurance is the age 26 coverage of dependents and this coverage of some additional preventative benefits.”

Hospital adjusted admissions are expected to grow by 2 percent, he added. Hospitalization utilization has been going down, thanks not only to the economy but to the impact of wellness programs and efforts to reduce readmissions, he said.

Bad debt is expected to grow by $16 million in 2010-11. For the 2008-09 fiscal year, Spectrum Health reported $29.4 million in bad debt.

The upcoming fiscal year will see the last of the expenditures for the $98 million facilities upgrade and expansion at Blodgett Hospital in East Grand Rapids and the $290 million Helen DeVos Children’s Hospital in Grand Rapids, Freed said. About $30 million will be spent in the next fiscal year to finish work at Blodgett by October and $96 million to complete the children’s hospital by Jan. 11.

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