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BCBS: Public option would doom N.D. hospitals

FARGO, N.D. - A public insurance option with payments to hospitals and doctors similar to Medicare will exacerbate a cost squeeze already straining North Dakota's medical system, a top health insurance executive said Monday.

Paul von Ebers, chief executive of Blue Cross Blue Shield of North Dakota, said Medicare cost reports show most hospitals in the state already struggle with operating losses.

As a result, large hospitals could be faced with cutting services, while some small hospitals would be forced to close, and some physicians, especially specialists, would leave the state, von Ebers told The Forum's editorial board.

A government insurance option would aggravate existing problems, since private insurers would be forced to ask for the same rates in order to survive.

"We think this would spread across the marketplace fairly rapidly," von Ebers said. "We will have a reduction in payments for hospitals and physicians."

Already, the Blues pay North Dakota hospitals 50 percent more than operating costs, but a consultant's review concluded the 50 percent was unable to make up for continued losses due to "inadequate" Medicare and Medicaid payments.

North Dakota hospital margins in 2007 were 1.7 percent, compared to 6.9 percent for a group of seven neighboring states, according to the study by Milliman.

Jerry Jurema, president of the North Dakota Healthcare Association, which represents 36 rural and six urban hospitals, agreed that health reform that fails to pay providers adequately would endanger hospitals that already face eroding bottom lines.

"There's a lot of people that are standing on a banana peel out there," Jurema said.

Rural hospitals, which serve areas with a dwindling population that is increasingly elderly and on Medicare, long have struggled financially, he said.

On average, North Dakota's rural hospitals ended last year with an operating loss of 11 percent, according to a compilation of Medicare

But now, Jurema said, worries are increasingly turning to North Dakota's six urban medical centers in the four largest cities, Fargo, Bismarck, Grand Forks and Minot.

As a group, the urban hospitals finished last year with a 2-percent operating loss, the report of financial indicators shows.

Hospitals confronted with operating costs must spend money that should be set aside for maintenance and to replace equipment, Jurema said.

"So you're spending your future today," he said.

The Blues recently came under criticism from some for a letter mailed to subscribers that expressed opposition to a public option and warned of the likelihood of rising health insurance premiums, especially for young adults.

But von Ebers said problems produced by public option plans before Congress would cause real problems for the health system.

Large employer groups could be expected to seek any savings a public option would grant to individuals and small groups, placing more financial pressure on private insurers and providers.

Also, a Senate bill would impose an excise tax on private health insurance, but the tax is not applied to the public option, unfairly driving up private insurance costs, von Ebers said.

"It's not a level playing field," he said.

Patrick Springer is a reporter at The Forum of Fargo-Moorhead, which is owned by Forum Communications Co.