A rare glimpse into how much insurance companies pay hospitals and doctors shows that North Shore Medical Center has soared past Northeast Health System's facilities on the list of the state's highest-paid hospitals.
North Shore Medical Center — which includes Salem Hospital, North Shore Children's Hospital and Union Hospital in Lynn — is now among the top 20 highest-paid health care systems by the state's largest insurance companies, according to a report issued this month by the state attorney general's office.
Northeast Health System, the parent company of Gloucester's Addison Gilbert Hospital and Beverly Hospital, trails Salem in payments from Harvard Pilgrim Health Care, Blue Cross Blue Shield and Tufts Health Plan.
The rankings represent a reversal of fortune from a few years ago, and indicates that North Shore Medical Center is gaining the upper hand in the highly competitive health care market on the North Shore.
Former Northeast Health System CEO Robert Fanning said North Shore Medical Center has benefited from its relationship with Partners HealthCare, the state's largest health care organization, which includes Massachusetts General Hospital and Brigham and Women's Hospital.
"Basically what it means, No. 1, is that it's not a level playing field for Beverly Hospital and Northeast Health System," Fanning said. "Partners is the behemoth, and now they've staked out their turf. I think the (Northeast Health) system is at risk over time."
Details about how much insurance companies pay various hospitals and doctors' groups is usually private. But insurance companies were required to disclose their data to the attorney general's office as part of a state inquiry into what is causing soaring health care costs.
Payment records show that Northeast Health System was paid slightly more than North Shore Medical Center for the same services by Harvard Pilgrim in 2004 and by Tufts Health in 2005. By 2008, those numbers had turned in favor of North Shore Medical Center.
North Shore Medical Center was ranked 13th on Harvard Pilgrim's list of highest-paid hospitals and 19th on Tufts' in 2008. Northeast Health System was ranked 27th and 26th.
Northeast must grow
An investigation into rising health care costs by Attorney General Martha Coakley's office concluded that large organizations like Partners are able to negotiate higher payments from insurance companies — not because they provide better service but because insurance companies need them in their network to satisfy their members.
"Our review shows that there is a strong correlation between the price insurers pay to providers and providers' market leverage," the report says.
Salem Hospital officials declined to comment on the disparity in payments, instead referring to a statement issued by Partners HealthCare. The statement said in part that the insurance figures do not "fully recognize" the number of underinsured and uninsured patients that North Shore Medical Center serves and the lower reimbursement rates the hospital receives from the state to treat those patients.
"NSMC cares for a substantially larger population of under- and uninsured than its neighboring hospitals and supports a wide range of under-reimbursed community health programs for the neediest residents of Salem and Lynn," the statement said.
Northeast Health System CEO Ken Hanover said the only way for his company to compete is to get bigger. Fanning said Northeast Health is in talks with Lahey Clinic about a possible partnership.
"I think it's clear to everyone that the more your market share is, the more important a provider you are in your service area, and the more leverage you have in negotiating your rates with the payers," Hanover said. "That trend has been borne out in Massachusetts and in other markets, as well."
Hanover said the number of outpatients served by Northeast Health has been "trending up" over the last three years, but inpatient admissions are "flattening."
He said the system is generating about a 1 percent operating margin, less than half of the average for community-based hospitals in the state.
"While we're not in fiscal distress, we're not losing money, we certainly are not operating at a level that is sufficient to perform effectively down the road," he said. "We need to perform better."
Asked about potential partners, Hanover said, "We're certainly looking at other partnerships with other institutions."
"We haven't finalized any of those relationships, but we're certainly evaluating," said Hanover, who took Northeast's reins last year from interim CEO Dr. Henry Ramini and long-embattled former CEO Stephen Laverty. "Obviously the larger you are, the more resources you have available to operate, the more comprehensive services and care you can provide."
Consumers absorb costs
The North Shore has been the scene of a virtual arms race among medical providers in recent years.
Less than two years after Northeast Health System opened a $30 million outpatient Beverly Hospital Center in Danvers, Massachusetts General Hospital countered with an $84 million outpatient center on the other side of the same town.
Children's Hospital Boston is building a Boston Children's North in Peabody, and Lahey Clinic is in the midst of a $50 million expansion of its Peabody hospital.
Fanning, who lives in Boxford, said the cost of those building projects, as well as the cost of the higher insurance payments paid to North Shore Medical Center, will be passed along to employers and consumers via higher insurance premiums.
"I think there are more MRIs on the North Shore than they have in the entire province of Canada," Fanning said. "At the end of the day, the insurance premiums reflect that."
Fanning, who serves on advisory boards of four medical startup companies, called the current state of the health care business "as chaotic as I've seen it."
He said the North Shore can't afford to lose Northeast Health System, which he said provides "essential safety net services that can't disappear."
Fanning said he favors a return to the days when a state commission set hospital payment rates.
"That would've been heresy for me to have said that 10 years ago," he said.
Staff writer Paul Leighton can be reached at email@example.com.
Hospital payment rankings
North Shore Medical Center13th18th19th
Northeast Health System25th23rd26th
** Blue Cross/Blue Shield
Source: Office of Attorney General Martha Coakley