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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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15 replies »

  1. 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 another way to view the challenges of health care reform is to look at what every group could do — what are each groups’ responsibilities. Through the Mayo Clinic Health Policy Center, more than 2,000 representatives from patients and patient advocates to health care providers, employers, insurers, medical industry, government and academia have been meeting to see what can be agreed on.
    I encourage you to take a look at the following link; it outlines what each group — broadly providers, payers, patients and the government can do to bring about patient-centered health care reform. The link is: http://www.mayoclinic.org/healthpolicycenter/recommendations.html .

  2. 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, for one.
    The notion that there is some relationship between costs and charges is pure fantasy. Unfortunately, the payors, i.e., United, Aetna, the Blues, etc.., protect themselves by leveraging their member base via aggressive group pricing concessions.
    The one who gets consistently screwed is the uninsured (un-represented) patient. This unfortunate class of “payors”, effectively self-insure (though most do this involuntarily), and face an egregiously inflated charge based debt load. Again, cash discounts generally range from 20% to 30%, yet when you consider that all other power brokers pay in fractional dollars ranging from the low to high teens, perhaps .20 to .30 cents in some cases, the discount is more fictional than real.
    Thus the least able to bear the retail burden, is the one on whom all others “pile on”. Ponder that for a bit from the point of view of equity or fairness. I don’t see it.
    Thanks PK for starting the thread!

  3. 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 less providers who want that business.
    No matter what the fees are set at, I find two things always happen.
    -Everyone will complain about it.
    -A percentage of providers will figure out how to code differently to get more revenue.
    When big chains and small fry MDs get caught with Medicare fraud, it is usually with coding schemes.
    We have so many different prices becuase we don’t have a rationale system.
    Another issue to consider is how much of what is billed is actually collected and what is the final net. Most MD offices with parnters and several employees outsorce their billing . Out of the total billing, I was astounded to read in this blog and in other places that 20 to 30% of the total is the fee for handling the collections and bilings.
    To me, this means that we have a system whic is so screwed up, that right off the top, 20 to 30 % of most of the cost is jsut to collect the bill! This is a hirrendous waste of resources and health dollars. I could offer a provider a very fast turnaround with a lower fee if every one of thier patients was insured with a minimal co payment and no extra out of pocket expenses if this nonsense was eliminated.
    In addition, quite a few insurance companies jerk around the payments to providers and use any means to declare them unpayable. This system is crazy when all of this energy is spent on collections instead of the patient and the providers.
    The fees should be reviewed yearly to be adjusted for abuses as well as to see if they are so low that no one can provide the service without losing money.
    Transparency and reward is need so that we can both foster new methods and treatments that we can afford. There is no reason why new medical breakthroughs have to cost more then the old method except that we encourage it and subsidize it.
    How ridiculous is it to invent new medicines or medical devices if no one can afford to use them? How much can that business model work before it goes under?
    This is why I always have told people that if you want health care, you better be prepared to pi*s off a lot of people and groups, but in the end you will have something instead of the runaway train we have now.

  4. 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 contrary), I do not see a reason for upwards adjustments.
    The most important thing is: these prices need a ceiling. You certainly know that other motivations for writing inflated bills to cash patients is:
    1. being able to write off charity care
    2. being able to get good money even if you “graciously” cut the bill by 30-50% as I know a lot of hospitals are doing. Let’s get everyone covered!

  5. “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?

  6. 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.

  7. 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 I may have a few of these cases mixed together. A lawyer for the poor entered the case and was able to sue the hospital for this tremendous difference as it was so obscene that no jury or judge could see how the hospital was being fair.
    This is not an isolated case and thanks to this blog and others, I have read countless stories about hard working people who have had to declare bankruptcy and never knew what they were hit with in their bills.
    Last month I was in a seminar and mentioned this to an attendee who had similar stories about the billing and debt collection of hospitals she and her family have went to. In one case, since she worked in health care she found tens of thousands of dollars of extra charges which were added on. The response of the hospital was that since her insurance was paying, why is her business!!!
    Later when her husband had surgery done, they rejected any attempt to negotiate the final charges and blew her off for months. She began to pay down part of the final bill she was responsabvle for while waitng for them to itemize and refigure the bill. After a few months she recieved a phone call from a collection agency which bought the total debt and was now tellling her to pay them. The money paid previously was just accepted by the hospital and never dedcuted from the final bill, which she never was able to recieve. When she asked for the total owed, it ended up being greater then what the original total was since late fees and other charges were being tacked om by both the hospital and the collection agency.
    This is not from a person I consider to be a deadbeat or hallucinating. She knew exactly what the CPT codes and diagnosis was for every procedure and where the monkey business was taking place. She was finally able to clear all of this, but how many people who are not health care savy have a clue about any of this?
    The same person also told me about how she knows some German health insurance employees who work in Florida for their companies. Their job is to review the medical care and bills of German visitors who have emergency work done here while working or visiting here. They have an endless supply of how virtually every bill submitted to them is cut in an least half after they question and review the whole case. To them it is a daily joke in what they see what is charged and what is done. Their common view is that what is done here would be a crime in Germany and bankrupt their health insurance.
    The whole health racket is like the mortgage business with inflated numbers being used by everyone to justify a bankrupt business plan where taxpayers and consumers get screwed in the end.
    As Bill the PT provider notes, how does $350 for 45 minutes of PT care get justified? Who knows what the final collected dollar from insurance will be and why are we in this idiocy of make believe figures in the first place?
    I do not need a miracle out of an Obama administration, just a beginning to a real attempt to change this mess.

  8. 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?

  9. 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?

  10. 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.

  11. 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 cost of any procedure really is. The private pay for one radiology service will have several different levels above and below what Medicare will pay. I work in an out patient setting where a cash price of an average non contrast CT is about 300 dollars. Medicare will pay around $220, other insurances will be slightly above or slightly below. Most HMO payments will be in the $150 or so range.
    I found out the hard way via a MVA that the same CT will now be biled at over $2,100 by a local hospital where a family member was taken to. They are not using gold plated CTA scanners and are not paying gold plated wages to the technologists.
    The final bill, if you include the extras billled by the ER MD and the reading radiologist came to over 6 K for a three hour stay in the hall way and two CTs of the neck and brain.
    This is why we can not have any rationale health care in this country until we are prepared for honest bookeeping and all vendors and providers being willing to take real and timely payments for services instead of the hyper inflated lunacy we have now.
    I sumbit that we have too much duplicate insurance as this MVA was covered by the PIP portion of the car insurance I pay for two cars. PIP I found out pays double what Medicare usually pays for the same services. We also have private health insurance from my spouse as well as money being paid into the state workman’s comp system. On top of that, my sodomic health blanket also includes a 400 dollar yearly property tax section I pay to support the county hospital district for uninsured care, as well as the massive legal and plum patronage jobs that go with it.
    The hospitla my family member was sent to after being extracted from the car was NorthWest Regional in Margate which is owned by HCA. Their bill and other fees was around the $6,500 mark. Out of this, the PIP paid somewhere around $4,200. I do not have the exact fees in front of me and these are close guesses.
    Now see what HCA does to my family after we have all of this insurance. They bill a CT of the brain and neck with no contrast for $2,100 or $4,200 of the total .
    This means that the non radiology component on the total ER stay is basically:
    6K less $4,200 = $1,800
    HCA then takes the over 6K bill and in their phony baloney benevolence, claims to “write off” over 900 dollars and leave me with a final bill for $5,100 .
    HCA then takes the $4,200 they received from my PIP and now bill my family 900 dollars for the difference.
    THe calls I made to ask them to adjust this bill back the Planet Earth were met with yawns and an address to write to HCA HQ which after 2 months, still has not responded. Since I am a middle class citizen and not a write off, they know I have to pay this so it does not go to collections.
    If HCA and any other facility billed this with honest figures, the final ER total could have been closer to a figure of $1,800 ER and $ 600 CT for a grand total of only $2,400 ! This means that my car insurance PIP has paid out $4,200 for a legitimate $2,400 of services or an overpayment of $1,800.
    If the injured person just fell on the street and has the EXACT same service and was on Medicare, HCA would have recieved maybe $2,000 for this.
    I went to my local state senator who was astounded at this billing as he and his colleagues honestly thought that a CT is such a high tech scan that it routinely costs thousands of dollars. I explained to him that these are leased machines and a company like HCA would have gotten the best prices for leasing . Their machines would be used around the clock, generating tremendous gross revenue.
    To sum up, we can have decent coverage for every man , woman and child in the USA if we had honest bookeeping and a fee structure which reflected true costs. I suggest that hospitals be given the same treatment and financial oversight for their fiscal stability and honesty as they are for other thngs like infection rates.
    I plan to write an op ed for the local paper and file complaints about price gouging of HCA to see where I can take this. This is a Twilight Zone experience as I work in health care, with CT scanners, have multiple layers of health insurance and then have to work X amount of hours to pay the legal banditry of HCA which can rob my bank account with a few key strokes.

  12. 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.

  13. 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 subject to tighter anti-trust and executive comp regulation. They also KNOW that fewer and fewer of their patients can afford their product.
    The only people who don’t expect to give up anything are the SEIU and their fellow unions, who expect to be turned loose to unionize the industry (undoubtedly to help drive costs out of the system, right?). It’s haircut time, Bob, and everybody knows it. It cannot be Christmas all year round. . .

  14. 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.

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