I've had this sitting in my inbox a while, but I thought that with the Senate bill out it was time to have a bit of weekend fun with it. The topic is the fear that a public option/government-run health plan/Hitler-ization of America (delete where applicable) will of necessity put all those worthy private health plans out of business. And worse because it will impose government's lower pay rates on providers, it'll also put them out of business, or at least into a position equivalent to that of Ukrainian peasants working on a collectivized farm.

Everywhere you go in the hospital world you hear complaints that Medicare pays less than private payers, and that the private insurance business is the only thing keeping providers alive.

Everywhere but Orark mountains of southwest Missouri and Northeast Arkansas.

Paul Taylor is the CEO of a tiny hospital system there called Ozarks Community Hospital. It's basically a safety net hospital and it only gets about 5% of its business from the leading commercial insurer, Blues of Missouri–part of Wellpoint. And does Wellpoint pay more for its patients than Medicare?

Err…no

Stats

In fact this chart shows that it pays less than half in many cases. I thoroughly recommend you read Pauls blog piece on the topic from which I lifted that chart. It's an entertaining, detailed and sensible read.

But what he's saying is that a public option will be better for hospitals serving lower-income populations than a simple expansion of private insurance.

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13 Responses for “So will the public option hurt hospitals? Not in the Ozarks”

  1. Thank you for this post. Here is the comment I left on his blog: This is very interesting! I am an internist in Portland, Oregon, in private practice. It is no myth in our part of the country that Medicare pays far, far less than private insurance. It’s an easily verifiable fact that a substantially higher percentage of patients paying Medicare rates would put us out of business. Last year, my average collections on non-government plans put together was 86% of charges. Blue Cross Blue Shield fell in at 89.7%. Medicare was 51%, which is well below cost of overhead. I’m told by some hospital people, admittedly from other states, that they face a similar situation. So your comment that it is myth may be accurate where you are, but not here, and not in some other places. I wonder what makes you (or Medicare in the Ozarks, or Wellpoint) different? Good luck with everything.
    Dan Urbach, MD

  2. Margalit Gur-Arie says:

    First of all Dr. Taylor makes me so proud to be a Missourian :-)
    I think though that Dr. Taylor knows that his hospital is the “odd man out”, at least in his area which is dominated by Mercy Health Systems, a very large non-profit organization with hospitals in 5 states. Their flagship hospital in St. Louis is one of the best in town and we have no shortage of excellent hospitals here.
    I am pretty sure that Wellpoint is paying Mercy significantly more than they pay Dr. Taylor’s hospital and definitely more than Medicare.
    Since fee schedules are negotiated between insurer and hospital on a case by case basis, large hospital chains have more leverage. Small independent hospitals, in areas dominated by big ones in particular, don’t have a prayer.
    This is just another aspect of the “free market” in health care.
    A public plan would probably not engage in this sort of practice. Medicare doesn’t.

  3. Paul Taylor says:

    Dan:
    Thank you for your post. I would point out a couple of things.
    First, Blue Cross Blue Shield of Oregon is one of the nonprofit Blues. We are dealing with a different animal than you are in Portland. As I point out in my article, Blue Cross Blue Shield in our market is part of Wellpoint: the largest conglomeration of for-profit Blues in the country.
    Second, you are a private practice physician. In any given market, the commercial payers may find it advantageous to pay physicians relatively better or worse than it pays hospitals relative to Medicare rates. Our hospital is paid much less than Medicare rates. Our employed physicians are paid about the same as Medicare.
    The decision-making process by Wellpoint in setting compensation rates for hospitals and physicians is influenced primarily by its profit motive. In an open market with a level playing field, one player’s profit motive is balance by the other players. The nation’s healthcare market is anything but open and far from a level playing field. In a closed market with a lack of competition, one dominant player’s profit motive will create an irrational, imbalanced system.
    Even though Medicare rates are too low, they are transparent and rational. We get a chance to compete on a level playing field. With commercial payers, the game is rigged.

  4. jd says:

    “Small independent hospitals, in areas dominated by big ones in particular, don’t have a prayer.
    This is just another aspect of the “free market” in health care. A public plan would probably not engage in this sort of practice. Medicare doesn’t.”
    Margalit, true about small independent hospitals, but we have to be careful in predicting what a new public payer would do. If it uses Medicare-like rates, then it would have the same for everyone. However, if a public payer survives, it will probably have to negotiate rates, and in that case it will be forced to do exactly the same thing private payers do unless some law prevents it.
    If the public payer has to negotiate with big systems at the same disadvantage that private payers have, then if it doesn’t take advantage where it can with smaller systems it will have a hard time competing on premium with private payers. If it doesn’t, it will in effect pay higher rates on average, which must be reflected in premium, and that’s a great way to have a non-competitive product.

  5. jd says:

    Paul,
    I have limited experience with non-profit Blues, though I know a bit about non-profits and for-profits in New York state, including Empire BCBS before and after it was purchased by WellPoint. To my knowledge, the non-profits behave pretty much the same as the for-profits when it comes to price negotations with providers. A small independent hospital in a region with one or two dominant systems is going to get lower rates.
    As you know, this is why small independent hospitals have joined larger systems by the hundreds across the country.
    Finally, Medicare rates are not too low. They would fully support the medical system with a quality level equivalent to ours in any other nation in the world. It’s just that we have acquired different expectations in terms of income levels, facilities and equipment than other nations.

  6. JD,
    In New York, perhaps, Medicare rates are not too low. In Oregon, they simply do not support a primary care practice. I assume you and readers know there is a big geographic variation in Medicare reimbursement.

  7. BTW, I see no comments other than mine on the blog referred to by this post. Is nobody reading it?

  8. jd says:

    Dan, you misunderstand my point. Almost everywhere in the nation, Medicare rates are at or below the cost of doing business for hospitals. But the reason that they are below the cost of doing business is that our medical system is a bloated, inefficient mess.
    Western European and Japanese standards of living are very close to the US standard of living (maybe 10% difference, depending on what things one finds most salient and making allowances for different population density), yet the cost of health care, including hospital care, in those countries is about half as much as here.
    Our hospitals pay doctors twice as much (on average) as theirs do. We spend more than twice as much on our facilities (marble lobbies, private rooms, etc., etc.). We spend more than twice as much on “capital” investments like MRIs.
    I know you don’t want a pay cut. No one does. But your pay, just like almost everyone in health care except at the lowest levels, is out of line with international norms. Mine too. And at lower levels, we often have many more people doing support jobs than in other nations, often due to administrative inefficiency or as part of strategies to game the system. I work in a health plan, and it isn’t clear at all that if we cut 50% of our admin cost I would still have a job, and if I did, that it would pay what it does now. I’m not saying it wouldn’t be painful to lower our cost structure. But I’m not going to pretend that this cost structure is necessary or good for America.

  9. Eric Novack says:

    Please correct me if I am reading the chart wrong, but it appears that the only difference, given the data provided, is that the hospital will go bankrupt more slowly if a higher percentage of payments are Medicare than BCBS.
    If I am reading correctly, the conclusion we should draw is what, exactly?
    It looks a lot like either way, the hospital will be merely ‘rearranging the deck chairs on the Titanic’.

  10. Paul Taylor says:

    Eric:
    As I said in the article, the chart refers only to outpatient procedures: surgeries and scopes. If the only services we provided were outpatient procedures for Medicare and BCBS patients, your conclusion would be absolutely correct. The complete picture is more complicated. Our health system has two hospitals and a dozen physician clinics employing about 50 providers. We employ a large number of primary care physicians relative to the size of the hospitals.
    That said, you are not far off the mark. There have been two chapter 11 bankruptcies since we opened in 2000. If you are really interested, read my blog on healthcare and find the link to the “white paper” on reform. It tells more of our story. I believe it is a story that would better frame the debate about healthcare reform if it were better known.

  11. MD as HELL says:

    We have had all the major healthcare technologies for about the last ten years. MRI, PET, you name it.
    So the cost increase per patient now compared to the same patient then is due to what?
    Regulation. Deminished value of the dollar. Cost shifting. Accountability. Shifting standards of care.
    The addition of 50 million new covered users will partly erase cost shifting, but hugely increase the cost of regulatory and accountability measures. New standards of care will continue to push the costs of failing to have tort reform.
    Accountability alone is a huge piece of the overhead. I’d say 25%.
    The dollar is toast.

  12. G Brutus says:

    nope, just a new way for the insurance companies to get even richer……. no ones addressing the problem which stems from the bloody companies who own the senate/congress. 30% of the $ will still be spent on adverting/promotion/overhead, 10% will still be spent trying to GET OUT OF PAYING ligetimate claims, just like it is today…. all i want is to pay 300-400 a month for REAL insurance that covers everything, not much to i think..
    have fun
    Ben

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