Uncategorized

POLICY/HEALTH PLANS/HOSPITALS: More on the punking of Milt Freudenheim

Freudenheim has been the health care reporter at the NY Times for a long time — a quick Googling suggests 1993 was when he started. So letting this piece of propaganda from the health plans slip by him and writing an article about it called Low Payments by U.S. Raise Medical Bills Billions a Year is basically unforgivable. Especially after the article he wrote last week talking about delays in payments from payers, that completely ignored the huge lawsuits about the issue in the 1990s and again left his readers without most of the story.

The argument in today’s article is basically this. Evil Medicare and Medicaid pay hospitals and doctors so little that they are forced, forced I tell you, to bill private insurers more to make up the difference. We know that’s true because Millman & Robertson says so. (Those of you sniggering at the back of the class who thought that M&R’s job was to help insurers reduce their payments and spending obviously don’t understand….)

Except that halfway down the page the argument changes. Now it says, the huge unreimbursed cost of treating the uninsured is so great an extra burden on hospitals and doctors that they are forced, forced I tell you, to bill private insurers more to make up the difference.

The article then wraps with a grab-bag of quotes from random observers, none of whom suggest any solution to this and two of whom represent organizations (Employers and Health Plans) who have done their damnest over the years to scupper any solutions to the uninsurance problem that is now apparently just killing them. But let’s ignore that for now.

The one person who could have given Milt a good explanation was apparently not answering his phone. Uwe Reinhardt gave as good an explanation of this phenomenon as any at a 1994 HSR conference. The story is that sometimes costs go up faster in the public programs and sometimes they go up faster for private sector payers, but the difference between them is pretty minimal. At that conference Uwe put up a chart that I can’t find, but the data is in the table below (look at the bottom section which shows average annual increase in spending by source over time)

Source of funds

Essentially what this shows you is that in the 1970s public expenditure grew a bit faster than private sector spending (14% vs 12.0%), in the 1980s they grew at about the same rate (private grew slightly faster), in the 1990s public expenditure grew a bit faster than private again (5.9% vs 5.1%) and in 2000–20001 public spending grew even faster than private (9.4% versus 8.2%). Over time of course the overall share of public spending as a proportion of all spending has gone up, but not that much. Uwe’s explanation was that his friends in the insurance business told him that when public costs went up faster than private costs it showed how efficient the private sector was, and when it was the other way around, it showed that Medicare and Medicaid were cost shifting to the private sector!

Well, Freudenheim has bought that hook, line and sinker!

The truth is of course that providers will charge whomever they can whatever they can, and the balance of bargaining power providers hold over payers goes up and down (and in the last few years has been going up) with all payors across the board, while their ability to stick rate increases to different payors (public versus private) varies only slightly. But look again at the overall numbers, There’s never a time when the cost increases for private and public payers are radically different. If you read the NY Times article today you could be forgiven for thinking that Medicare is paying 20% less into the system and that the private side is paying 40% more.

It’s terrible to hear that the poor innocent health insurers have been forced, forced I tell you, to pay these huge extra amounts since the Medicare Balanced Budget Act of 1998 reduced Medicare payments. After all their huge profits of the 1990s have collapsed as they’ve been forced to absorb the extra costs, and the 2000s have been nothing but a sorry tale of woe as insurer after insurer has seen its profits and its stock price hurtle into the abyss, as you can clearly see from this chart

Health plans

But from the Freudenheim article, the answer is obvious. We should just have Medicare and Medicare pay way more each year, and then the providers would charge everyone else much less! I wonder why CMS didn’t think of that? After all, far be it from health insurers to have to actually try to do something about reducing their clients costs when the solution is so obvious that a slap-dash M&R report identifies it for us.

Livongo’s Post Ad Banner 728*90

Categories: Uncategorized

Tagged as: ,

11
Leave a Reply

11 Comment threads
0 Thread replies
0 Followers
 
Most reacted comment
Hottest comment thread
6 Comment authors
Healthcare EconomistMatthew HoltDavid ArmstrongTom LeithFrancois de Brantes Recent comment authors
newest oldest most voted
Healthcare Economist
Guest

I found a table similar to the one above at the CMS website (http://www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf)
The numbers are slighty different. This could be simply because the table in this post is a later/earlier edition, or the figures may be converted into real dollars using a different base year.

Tom Leith
Guest
Tom Leith

> Base services P*Q > where P is the regionally adjusted average market > price for care services, and Q is the quantity of > services listed in a guideline and observed as being > delivered by above average performing providers I am wondering how you address the following: > As a starting point, the current price of office > visits and any other care provided will be determined > using claims data. 1) Which “market price”? What Medicare pays now? What the providers write on their bills? The prices negotiated with PPOs? What do you mean by “market price”?… Read more »

Matt S.
Guest
Matt S.

Francois, Thanks for responding. I’m still not sold, though. Dividing up the risk does not mean 100% of the risk is accounted for. There will still be uncertainty, regardless of accountability. I don’t think we disagree there, though. My bigger concerns focus on who provides the evidence you speak of, and who decides what a good case rate is. In my mind, the market should, based only on the market landscape (ideally filled with information-armed consumers). Simply disclosing historical quality of providers and prices should be enough. As long as there exists a univeral baseline for providers in terms of… Read more »

Francois de Brantes
Guest

Thanks for the comments, Matt. The Prometheus payment will, in fact give pricing and quality information to consumers in a useable way: Case rates create “ex ante” pricing for consumers. The core concept is to establish Case Rates in a robust way that includes the bundle of services that should be given to patients according to what good evidence suggest. That’s very different than classic global fees, DRGs or capitation which are based on historical claims views, not on a science-based analysis. All performance is tied to a comprehensive scorecard and the risk that you talk about is appropriately apportioned:… Read more »

Matt S.
Guest
Matt S.

Okay, I just read the Prometheus White Paper. I only read it once, but it seems to me to greatly be written for providers, not payers or patients…too many carrots and not enough sticks, if you ask me. It also establishes a new barrier to entry…couldn’t all of what that paper set out to do simply be accomplished by giving more (pricing and quality) information directly to the consumer? Prometheus seems all very suspicious to me. I don’t think any one entity should have control over what a the definition of good case rate for anything is… Although I am… Read more »

Matt S.
Guest
Matt S.

Francois,
Your statement about providers not negotiating with Medicare is not 100% correct. There are private insurers that sell Medicare products with CMS permission, and therefore negotiate in place of CMS by proxy. The parameters of such negotiations are constrained, but these rate negotiations do indeed take place.
But yes, a provider’s ability to negotiate with Medicare is not great. This is somewhat left, I imagine, to the lobbyists.
As for Prometheus, reimbursement based on a merit-based-metric is a great thing.

Matthew Holt
Guest
Matthew Holt

Francois may be right on the individual DRG level, but to say that hospitals have no bargaining power over what the government pays is a total joke. What happened after the BBAs in the late 1990s? — every provider organization and their dog descended on Congress to get as much of it changed as possible, and were quickly successful in certain categories (like outpatient rehab) and did pretty well over the longer term too in stabalizing payment rates, and ensured (at least on the physician side) thatnthey were able to make up on volume what they lost on price. What… Read more »

David Armstrong
Guest
David Armstrong

Is everyone in Congress asleep? Medicare is missing a Way to Save the Trust Fund Money The disparity over Medicare required transfer agreements between Ambulatory Surgery Centers, Hospitals and Nursing homes is costing the trust fund millions of dollars it can’t afford. Why doesn’t someone in Washington realize this and fix it? 70% of surgeries performed in the US are outpatient. Only 1 in 5 is performed at Ambulatory Surgery Centers. (ASC) In a recent letter to Center for Medicare and Medicaid Services (CMS) Administrator Mark McClellan, MD, PhD, Iowa Senator Charles E. Grassley, Chairman of the Senate Finance Committee,… Read more »

Tom Leith
Guest
Tom Leith

Matthew writes over in the “stub” article:
> Tom…please stop getting the point correct before
> I’ve had a chance to write it up! See my article
> above…
Well, if you would stop so damn thorough, and thoroughly entertaining it couldn’t happen!
t

Francois de Brantes
Guest

The last part of Holt’s quoted comment above is entirely incorrect. Hospitals do not have ANY bargaining power in negotiating rates with Medicare. When is the last time a hospital sat down with Dr. McClellan to negotiate a DRG rate? Never. Medicare sets its rates and hospitals have to take it. There is no bargaining. And by the way, that’s how single payers control costs in all single-payer countries. There is no question that some hospitals with specific missions (teaching, disproportionate share of Medicaid, high levels of uninsured admissions) compensate for the loss of revenue they get from the public… Read more »

Matt S.
Guest
Matt S.

That is just incredible. I’d like to take this opportunity to point out a little-known fact that Mr. Holt illuminates rather clearly: “The truth is of course that providers will charge whomever they can whatever they can, and the balance of bargaining power providers hold over payers goes up and down (and in the last few years has been going up) with all payors across the board, while their ability to stick rate increases to different payers (public versus private) varies only slightly.” Right now, insurers are struggling to get the upper hand again. This has shown up in the… Read more »