Madera Community Hospital, with its signage removed, sits idle on a rainy February day. Two months have passed since the hospital closed its doors following a failed merger deal with the Trinity Health Corporation. Credit: Omar Rashad / Fresnoland

This story was originally published by Fresnoland, a nonprofit news organization.

When Madera Community Hospital shuttered in December, it was sudden and complicated.

Its closure came a week after Trinity Health, the parent company of more than 80 hospitals nationwide, walked out on a deal to acquire the Madera hospital by merging it with St. Agnes Medical Center in Fresno.

At the end of December, Madera hospital’s board members began sounding the alarm on how low Medi-Cal reimbursement rates were a major factor in the hospital’s collapse. But a newly obtained email exchange shows that low reimbursements with private insurance health plans — which reimburse health providers more than Medi-Cal — played a notable role in the hospital’s financial instability.

Through a California Public Records Act request, Fresnoland obtained a June 2022 email — from Trinity Health to California Attorney General Rob Bonta — that gives a glimpse into several concerns the health giant had in acquiring Madera Community Hospital. In it, the corporation’s representatives claimed the Madera hospital did a poor job in attracting privately insured patients, which in turn led to private insurance health plans refusing to negotiate higher reimbursement rates with the hospital.

This development sheds light on just how little is known about America’s healthcare system. The question of how health providers determine the cost of providing care, and in turn, how health insurance companies determine reasonable reimbursement rates is largely nebulous. Since both entities negotiate contracts behind closed doors, this key element of American health care generally has little transparency with the public.

While Trinity Health’s representatives did mention low Medi-Cal reimbursement rates in their email to Bonta, they put a greater spotlight on how reimbursements rates from private insurance health plans were so low that there was a desperate need for a coordinated effort to increase them.

“More than 70% of commercially insured inpatients migrate out of Madera County for hospital care, and more than 80% from the city of Madera,” Trinity Health representatives wrote. “For these reasons, managed care plans do not face significant risks if MCH is not in their networks. They can therefore refuse to pay MCH rates which would allow its viability.”

In this specific context, managed care plans refer to insurance companies that have contracted private health plans with Madera Community Hospital. For hospitals to stay alive, they need insurance reimbursement rates that let them break even with expenses.

But Madera Community Hospital didn’t secure favorable reimbursement rates for private health plans — the hospital was actually losing money providing care to private patients. According to an independent analysis commissioned by Bonta’s office, the Madera hospital was collecting only 51% of the cost of providing care to privately insured patients, whereas comparable hospitals were reimbursed 141% of that cost.

 

 

It’s unclear why reimbursement rates with private health plans were so low at Madera’s hospital. Chief Executive Officer Karen Paolinelli did not respond to several requests for interview for more than six weeks. On Feb. 13, she picked up a phone call from Fresnoland but said she would call back at a better time within the next two days. Paolinelli did not call Fresnoland back. 

On Feb. 17, her assistant told Fresnoland that Paolinelli is completely booked with appointments through the end of February and would not be able to make time for an interview. 

Without Paolienlli’s input, several questions remain unanswered. That includes whether hospital executives still take home a paycheck two months after the hospital’s closure, and since laying off more than 750 employees, as reported by The Business Journal.

It’s also unclear whether the Madera hospital will file its 2022 annual financial report to the state, which is required by California law. After requesting two extensions, the Madera hospital had until Jan. 29 to file the annual report. However the hospital still hasn’t submitted it to the state and has been fined $100 a day since then — which has now accumulated to more than $2,800.

 

Private contracts and negotiations mean little transparency

Typically, insurance companies and health providers meet behind closed doors to negotiate specific rates for reimbursements. But those negotiations are built on health providers and insurance companies butting heads on how much it costs to provide care and what portion insurance health plans should cover out of that total cost of care.

But it’s more complicated than that, as several factors could impact the cost of providing care and insurance reimbursement rates, including a facility’s location, resources, local competition, the size of a health provider and labor costs, said Shannon McConville, a research fellow with the Public Policy Institute of California.

What emerges from contracts negotiated between insurance companies and health providers behind closed doors is not exactly the cost of care, but rather what hospitals want to charge for providing care and what insurance companies are willing to reimburse.

“I do think there are inherent difficulties in the process because we don’t have well-established baselines of what it actually costs to deliver health care,” McConville said. She added that while there have been pushes to increase transparency in hospital billing on the state and federal levels for decades, there’s no guarantee that data hospitals end up having to release to the public are actually helpful for patients.

Furthermore, health providers’ relationships with insurance companies revolve around knowing private insurance health plans will have higher reimbursement rates than public insurance plans, including Medicare and Medi-Cal, which is California’s Medicaid program.

“From the perspective of hospitals, the rates paid by government programs, especially Medicaid, are well-below what it actually costs to provide care,” McConville said. “As a result, hospitals negotiate higher rates from commercial plans to make up the difference.”

But Madera Community Hospital wasn’t able to do that, as Trinity Health representatives found out last year and shared with Attorney General Bonta. Going forward, if Madera Community Hospital is able to attract a new buyer, as its board members wrote in a Fresno Bee editorial, the new owner would have to face all the issues Trinity Health discovered last year, including going back to the very same private health insurance plans to renegotiate reimbursement rates once again.

 

Reopening the hospital means addressing the other issues too

Trinity Health representatives had more to say besides reimbursement rates in their email. They also noted how the Madera hospital needed $15 million just to stay afloat during the six-month negotiation period between Trinity Health and Attorney General Bonta’s office. Essentially, the hospital could have shuttered last summer without the direct line of credit from Trinity Health.

The health corporation’s representatives also noted Madera Community Hospital’s abysmal retention of physicians and nurses, old infrastructure — from medical equipment to the hospital’s facility — and how the hospital does not have key programs that could make it a more attractive option for patients, especially those with private insurance, seeking complex care.

Mohammad Ashraf, a cardiologist who has worked in Madera and Fresno for more than four decades, said he witnessed hospital administrators cut programs and departments over the last few years, including its cancer infusion center, wound clinic, home health, physical therapy and more.

“That tells you the services and the providers are not available here,” Ashraf said in a February interview. “If a patient needs a gastro surgeon for example, and you’re not able to attract a gastro surgeon here, that patient is going to go to Fresno — to the hospitals there.”

Trinity Health representatives also asked Bonta, in the June 2022 email, to be lenient with placing a price cap on how much the Madera hospital could bill private insurance health plans that are out of network. They said an originally proposed price cap at 150% of Medicare reimbursements was too low, and that no price cap should be lower than 275% of Medicare reimbursements.

Bonta came to a compromise, and in the final conditions he issued on Dec. 15 — he set the price cap at 250% of Medicare reimbursements, which demonstrates that his office did accommodate some of the requests from the health corporation’s representatives.

But Trinity Health still walked away after Bonta issued his final conditions. With no money to keep operating and saddled with a $15 million debt, the only hospital in Madera County closed its doors before the new year.