Center for Studying Health System Change

Rising Costs Dominate Northern New Jersey Health Care Market

Hospitals Win Higher Payment Rates; Physicians Press for Increases Amid Malpractice Crisis

News Release
March 31, 2003

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ASHINGTON, D.C.— Higher hospital payment rates and more use of health care services are driving rapid cost increases in northern New Jersey, forcing employers to confront steep health insurance premium increases, according to a new Community Report released today.

Hospitals’ success in winning higher payment rates and more favorable contract terms has left health plans with fewer options to control costs. Physicians—under financial pressure from rising malpractice premiums—increasingly are competing with hospitals for profitable specialty services. Despite large health insurance premium increases, employers have not aggressively shifted costs to workers, in part, because of multi-year contracts with unionized workforces and employee preference for less-restrictive coverage.

"Rapid growth in health care costs continues to shape northern New Jersey’s health care market, raising questions about how long employers can afford to keep absorbing most of the increases before they start shifting more costs to workers," said Cara S. Lesser, M.P.P. director of site visits for HSC, a nonpartisan policy research organization funded exclusively by The Robert Wood Johnson Foundation.

Other key findings of the report, Rising Costs Pressure Employers, Consumers in Northern New Jersey Health Care Market, include:

• Northern New Jersey’s hospitals’ financial health improved dramatically over the past two years, but urban safety net hospitals serving the poor remain financially fragile.
• With diminishing influence over provider payment, health plans increasingly are using utilization and care management tools to temper cost increases.
• Unprecedented demand halted enrollment in FamilyCare, New Jersey’s State Children’s Health Insurance Program, and a $5 billion state budget deficit could force coverage rollbacks.

Northern New Jersey is one of 12 communities across the country tracked intensively by HSC researchers through site visits and surveys. The new report is based on an October 2002 site visit and interviews with nearly 80 northern New Jersey health care leaders, representing health plans, employers, hospitals, physicians and policy makers.

The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely insights on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded exclusively by The Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research, Inc.