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Slicing the health reform pie

I doubt anyone would disagree with the statement that America’s health care costs are too high, continue to grow at an unsustainable rate, and reform is critical to control costs, get everyone covered, and improve quality.

In the wake of the election, I see one positive and magnanimous press release after another coming from the health care special interests. The press is full of daily stories touting the coming health care reform efforts as different this time. The stakeholders understand things are different, know we have to do something, and are ready to cooperate, goes the reasoning. Really?

This week, a group of insurers and hospitals released a report by Milliman, Inc. saying that government Medicare and Medicaid underpayments to providers are leading to the shifting of $88.8 billion a year onto private payers in what amounts to a “hidden tax.”

According to the study, hospitals earned 23.1 percent of revenue for privately insured patients, compared with a negative 10.8 percent for Medicare and Medicaid patients in 2006.

The unmistakable conclusion—the government has to pay more—level the playing field—for Medicare and Medicaid in order to eliminate this “hidden tax” on private payers.

The study calculates that Congress could correct the problem by increasing funding to Medicare and Medicaid by $90 billion annually. However, the hospital and health insurance industry seems to understand getting payment equalization is unlikely. "Our first major objective is to make sure there aren’t major cuts in these programs," AHA President Richard Umbdenstock said.

The Milliman study is probably right. Cost shifting by doctors and hospitals to private payers to offset government underpayments has been an age-long problem.

But add this one to a long list of health care providers that argue they deserve more money—or at least can’t be the ones to sacrifice in order to bring America’s health care costs under control.

The Medicare physicians are due for a 21% physician fee cut on January 1, 2010 because their costs have been increasing by at least 5% more a year than the Sustainable Growth Rate Formula, designed to keep Medicare physician costs under control, says they should. A permanent fix would cost about $200 billion over ten years. Primary care physicians have been adamant in their arguments that primary care, in particular, is underpaid by both public and private payers while the specialties argue they are also under unsustainable financial stress.

Everyone is calling for “pay-for-performance”—whatever that is. Whatever that is it won’t do any good unless we end up paying out less cash to health care providers in the aggregate than we do today.

Last year, the durable medical equipment providers were targeted for a competitive bidding program to control their costs but were successful in getting it put off.

The Medicare Advantage HMOs have fought hard to keep their private Medicare payments estimated to average 13% more than traditional Medicare gets for the same risk—undoubtedly now getting ready to use this data to call for their payments not to be cut in 2009 because they have higher physician and hospital costs than Medicare does. So much for the market controlling Medicare costs.

There is no provider of health care or health care services that I know of that doesn’t strongly believe they are underpaid for the work they do.

The past few weeks have been filled with one press release after another from the health care stakeholders telling us they are ready for health reform and want to work with the new Congress and President to get it done.

But they all want more.

How do we accomplish health care reform by giving everyone more?

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Jane JacobsGregg MastershealthmanrbarLynn Recent comment authors
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Jane Jacobs
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I think Deron’s and PKinSFLA comments are exactly right — everyone is going to have to give up something, starting with the assumption that the problems belong to or are the responsibility of everyone else. Everyone — health care providers, employers, payers, medical industry, government — is going to need to change how they view health care and be willing to give up something to get everyone in a better place. We talk about all the different stakeholder groups but, in reality, every group is made up of individuals who may someday become patients. Maybe it’s the holiday season, but… Read more »

Gregg Masters
Guest

PK makes excellent points…bravo! Perhaps the largest looming mythology is that hospitals have a handle on their cost accounting systems, and can rationally allocate a charge master to a bottom line operating margin, aka revenue yield management based on their payor mix portfolio – if you will. Attempts at proactive case-mix management, and a different approach to capitated, bundled, discounted FFS, per diem (whether global or tiered) or per case payment, rarely succeed since the physician is the gatekeeper and rarely marches to the tune of hospital general management – although there are exceptions, i.e., medical directors in proprietary settings,… Read more »

healthman
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PKinSFLA
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PKinSFLA

My understanding is that the CMS sets the rates for Medicare and Medicaid based on what is an acceptable charge for a procedure ot be done and the location of where this takes place. You can look up any CPT code and find what the CMC rate is on their web site. http://www.cms.hhs.gov/ Go to the “top” 10 links’ and select number 8. Private insurers usually have a fee structure based on paying a percentage of that figure. Higher for better insurances with more providers accepting and wanting that insurance, less for HMO and el cheapo insurance where there are… Read more »

rbar
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rbar

I just pulled the 1.5 of my rear end as you might have guessed, but I did wonder whether one should instead just mandate the medicare or cheapest commercial (HMO) rate – an entirely hypothetical consideration since I am not a member of the Obama administration (yet). But one could make the point that the individual cash paying patient should not be getting the mass rebates of these third party payors … on the other hand, cash is good, and as long as the administrative costs for self pay patients are not much higher (I wouldn’t see why, rather the… Read more »

Peter
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Peter

“Where is all the rest of that money going?”
At my wife’s hospital at least part of it is going to (at last count) 17 vice-presidents.
rbar, how do you justify 1.5 times? Would you justify paying a body shop 1.5 times if you paid cash as opposed to paying through your insurance?

rbar
Guest
rbar

For a start:
Change the medicare fee schedule to give providers and hospitals fair reimbursement based on hours and degree of education needed to provide the service, as well as realistic technology costs (look at Europe and Canada for comparison). Extend medicare. Do not allow hospitals to bill above 1.5 the medicare rate for self pay patients.

PKinSFLA
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PKinSFLA

Peter, A few years ago I read about several legal suits filed against local hospitals for incredible price gauging done against uninsured people. In one case, the victim was a middle aged and recently unemployed male who went to the ER for falling down some stairs. His bill for services was nearly 9 thousand greater then if he had insurance. He wanted to arrange payments with the hospital, but they insisted on the full amount they created, instead of what is “customary”. They then proceeded to send collection agencies for the whole amount. This has happened so many tims that… Read more »

Lynn
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Lynn

All sacred cows must be gored. These are just the preliminary rounds where all stakeholders are being nice while staking their claim. The balancing act Sec. Daschle will have to do is equitably distributing the news that more is not the option. It’s how much less can we all learn to live with.
From personal experience my vote for reform winners goes to primary care physicians and nurses with out them no one wins and we all lose.
We pay for what we value, so what is it we, society, truly values from our healthcare?

Bill in Oregon
Guest

Sorry I have no time right now to read the comments already here, but I want to say, as a provider (physical therapy) that to see me for 45 minutes cost $350.00 at the hospital where I work. I get less than $50 of that. Where is all the rest of that money going?

Peter
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Peter

PKinSFLA, not sure if small claims would be an avenue or your state AG’s office? But believe me (I know first hand) when it comes to giving patients and medical bill payers access to rational dispute settlement, the law makes it a very tough climb.

PKinSFLA
Guest
PKinSFLA

My problem with all of this is that I view the bookeeping of both hospitals and the insurance companies to be done Enron style with no real numbers to refelct real costs or profits. Insurance companies can create multiple layers of companies in different states to shift revenue and then declare the state they want an increase in to show a running deficit. We see this all ogf the time in aito and home insurance. Hospitals have their one hanky panky bookeeping which shifts costs to the point that I do not think we have any idea what the true… Read more »

Peter
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Peter

tcoyote, you should separate the SEIU members before including them of being the cost drivers. Do you think cleaning staff to be part of the problem? At least in this state hosptial workers have never been unionized, and so cannot be blamed as the mechanism for increasing costs. However, the doc guilds, hospital associations, insurance, our own state hospital, and all their lobbyists have been organized.

tcoyote
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tcoyote

Bob, they can ask all they want. But every stakeholder also knows they are going to have to give something up. Their lobbyists just cannot tell their members until the last minute. Health plans KNOW they are going to lose their Part C subsidies. Surgeons and radiologists KNOW there is going to be a further cut in the Part B technical component for their freestanding centers. Drug companies KNOW the FDA is going to tighten drug approvals, and that they will probably lose Direct to Consumer advertising. Hospitals KNOW they are going to lose some of their perks, and be… Read more »

Deron S.
Guest

Effective reform will require every stakeholder to give up something, not get more. That includes patients. In their case, it will involve giving up fast food, sedentary lifestyles, etc.