POLICY/HOSPITALS/HEALTH PLANS: Jockeying for position via the pages of the NY Times

Here’s my FierceHealthcare editorial this morning—Jon Cohn tells me that I’ve been a little rough on Milt Fredenheim lately. Any thoughts? (or have you all left for the Hamptons/Your Sonoma winery estate…)

The mechanics of healthcare reimbursement have been getting more inches than you might expect in The New York Times recently. We’ve heard in the last few days about the length of time it takes insurers to pay providers (too long), the rate of electronic claims submission (getting higher) and how much Medicare pays hospitals compared to private insurers (not enough). Is it just coincidence? Or can I detect a little preemptive strike here as the players start to jockey for position in the coming world of transparency and pay-for-performance. Last year health economist Uwe Reinhardt published a much-talked-about Health Affairs article in which he showed that hospital pricing–and presumably hospital cost accounting–was opaque and presumably mostly guesswork. Today CMS began to release information about what it pays for several common procedures.

If providers are moving to a world in which what they charge for procedures is exposed and vetted by payer-related organizations like Leapfrog–let alone Consumer Reports–then they want to make sure that they are getting their stake in the political ground first. Meanwhile, employers and insurers are trying to pass the buck (literally) to consumers and the taxpayer, before those two sleeping giants awake. Of course, this all puts off the inevitable day when we really take a deep look at why we spend so much on healthcare when luminaries like Don Berwick tell us that up to 50 percent of healthcare spending is wasted.

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9 replies »

  1. I think Milt Freudenheim does a wonderful job covering the various issues around managed care, healthcare IT and various issues facing U.S. Healthcare. In fact, I loved his piece last week on the health plan rankings by athenahealth – what a great way to take what is typically a very inside baseball topic and bring it mainstream. As a consultant, I also think it’s great a company like athenahealth rises above its IT peers to even post data like that. Healthcare IT is at a very critical juncture and it needs more outfits to move the needle and talk more about process adoption than just IT. If transparency is the favor of the month in healthcare than it should be complete transparency – both docs and insurers.

  2. My point is simply to say that within the system that now exists, below-cost reimbursement in some areas and for certain hospitals results in even higher prices for commercial payers (and hence the businesses paying those premiums). That is a fact and not meant to be in defense of the current system. You are quick to criticize, Peter. What do you have up your sleeve to fix this mess??

  3. “Last year health economist Uwe Reinhardt published a much-talked-about Health Affairs article in which he showed that hospital pricing–and presumably hospital cost accounting–was opaque and presumably mostly guesswork.”
    A. Nichols,
    “…their health care costs are so high is that their government does not pay the full cost of care for Medicare and Medicaid”
    Talk about an oxymoron. When your cost system is broke then what is proper reimbursement? Only American healthcare could survive and prosper with this type of accounting. I thought Enron was using smoke and mirrors.

  4. Setting aside the issue of uncompensated care for a moment, I suspect there are probably considerable differences in the cost structure among community (as opposed to teaching) hospitals in the same region based on factors ranging from average occupancy to how efficiently operating rooms are scheduled to the average cost of supplies, utilities, and insurance. Presumably, more efficient hospitals (assuming at least comparable quality) could charge less than inefficient facilities and still make money thereby increasing market share and, probably, average occupancy.

  5. I have not even had time to look at the CMS payments website yet, and I have already read comments by PR-types from the commercial insurance industry that they are supportive of CMS’ efforts and are hoping that consumers will use the data as some sort of proxy to determine the best places to go for hospital care. What’s ironic is that those hospitals showing the lowest payments from CMS will tend to have the highest commerical rates if they have any ability to cost-shift to the commercial payors. It is amazing to me that more than forty years after Medicare and Medicaid were invented that most of American business has yet to figure out that the main reason their health care costs are so high is that their government does not pay the full cost of care for Medicare and Medicaid, and that they are paying what’s left over.

  6. The increasing pressure for transparency, especially for hospitals, is a very good thing, in my opinion, and long overdue. I read Uwe Reinhardt’s article on hospital pricing and was struck by two things. First, the two interesting and sensible ideas on how to simplify pricing, one proposed by him in the early 1990’s and one more recently by Porter and Teisberg. The other was Reinhardt’s comment that 36% of hospital revenue now comes from outpatient procedures, which, presumably, lend themselves much more easily to pricing transparency than inpatient procedures do.
    As to why we spend so much more than other countries, I think there is plenty to learn from Western Europe and Canada about how to reduce utilization. As I’ve said before, QALY metrics and more widespread use of living wills could reduce utilization sufficiently to free up significant resources that could help to finance coverage for the uninsured, many of whom are young and comparatively healthy but still in need of coverage. Though the number of hospital beds has declined by about 25%-30% over the last 25 years in the U.S. while the country’s population increased 20% or so, there is still excess capacity in the hospital sector in most markets. Underutilization of expensive, high fixed cost facilities drives up costs. In some cases, perhaps surplus hospitals or parts of hospitals could be replaced with clinics and/or converted to space for outpatient procedures. It is completely unreasonable to expect any payer — public, private, or individual to pay to operate and sustain unneeded excess capacity.

  7. Let’s not ignore differences between providers. Hospitals and physicians — especially those bulk on solo and small group primary care physicians — are worlds apart.
    I found the data on variations in payments to hospitals astounding. Partly because the same variation is not nearly so apparent among physicians. At the end of 2005, when Aetna got lots of press for its move to post provider payments online so as to better drive consumers to make cost-conscious decisions, the laugh was on them. I accessed Aetna’s site myself to check out the fee schedules of six internal medicine physicians in Cincinnati.
    Guess what?
    The allowables for every one was exactly the same.
    To be fair, reimbursement for procedures provided by specialists did vary. For example, of the gastroenterologist descriptions I accessed, there was a 40 percent variation between the highest and lowest fees for “scope of esophagus and stomach for diagnosis.” My question then: What in the world is Aetna going to do when the gastroenterologist making 40 percent less than his colleagues gets wind of the difference? You better believe he’ll be asking for more cash; how will that keep prices low?
    Anyway, to your point, more transparency on all sides will presumably direct attention to waste. Transparency just for hospitals won’t.

  8. I don’t see why it really matters to insurers that they pass the buck before consumers and taxpayers awake. Profit margins for health plans now average around 5%, and they aren’t going to change much in the long term short of single payer. Sure, there can be more pressure on health plans to reduce admin costs, but that is orthogonal to the issue of cost-sharing.
    The main reason that health plans are increasing cost-sharing is that this is what employers want. They have no independent reason to do so. Just the opposite, since it decreases their revenue and thus the base from which they can take their 5% or so margin.
    OK, there is more to it than that: It’s true that Ignani and CEOs of the major national plans are pushing CDHP. They’re doing so from what appears to be a combination of motives: 1) the desire to play with the GOP, 2) an actual belief that cost-sharing will help control premium prices, and 3) the desire to put a good public face on the reality that cost-sharing is on the rise. Bells and whistles are a distraction from the unpleasant truth.
    But notice that again plans have no inherent interest in cost-sharing or CDHP. These are only a response to a harsh marketplace reality for them, and if they could remove this purchasing pressure, most would.